Vodafone sees no easing of pressure in Europe

Vodafone said it was not likely to see a let-up in any easing of pressure on its business in Europe. The second-largest mobile operator in the world posted first-quarter results adversely impacted by regulation and recession across Europe.

The UK group, battling regulator-ordered price cuts, economic pressures and competition across its European markets, said yesterday that it expected figures over the next three months to broadly follow the same trends after it reported another sharp drop in its key revenue measurement.

With competition up in its once-reliable markets of Germany and the UK, and with Italy and Spain reporting double-digit revenue drops, the telco reported a 3.5-per cent decline in its key organic service revenue figure in the three months through June.

The fall in the measure-based on revenue coming from ongoing services and which excluded the costs of one-off costs such as handset sales showed some improvement on the record 4.2 per cent fall in the fourth quarter.

However, it was still another sharp decline for a group that had been posting growth since only 12 months ago.

It added the performance was in line with its expectations, allowing reiteration its outlook for the year that pushed its shares up half a per cent.

Southern Europe turned to be the worst performing part of Vodafone's business again, with underlying service revenue for the quarter falling 17.6 per cent year-on-year in Italy and 10.6 per cent in Spain.

According to commentators the company may be faced with future writedowns in its southern European businesses, after having wiped €7.7 billion off the value of businesses in Italy, Spain and Greece from its books last year.

According to Andy Halford, chief financial officer, the negative trend was likely to continue into its second quarter. He added, the current market conditions overall across the group would be similar in the coming quarter.

In response to weakness in its core wireless business, Vodafone launched an aggressive move into fixed line networks, with its most recent €7.7-billion acquisition agreement of Kabel Deutschland set to conclude in the fourth quarter (See: Liberty Global not to raise bid for Kabel Deutschland, clears Vodafone's path).

The company is looking to offer bundled deals to its customers, shifting to tariffs based around mobile internet data volumes rather than traditional voice or text.

According to chief executive Vittorio Colao strong sales growth in emerging markets – such as Turkey, up 15.5 per cent, and India, up 13.8 per cent – was offsetting the European weakness.