Report: Vodafone Group propping up UK business as fierce competition, high network costs, take toll

Vodafone UK is relying on handouts from its parent group to cover infrastructure investments, because the highly competitive nature of the market means it doesn't make enough to cover its own costs.

The operator revealed the disparity between income and outgoings in documents filed with the UK Competition and Markets Authority, Mobile Today reported. Citing a source close to the operator, the news agency said the company's finances are being affected by pricing pressures caused by fierce competition in the market, along with the high cost of spectrum.

Vodafone faces higher costs in the UK than its other European markets in terms of the rollout and maintenance of infrastructure, the source explained. For example, the cost of gaining planning permission for new towers and cell sites is higher in the UK than in other European countries. Backhaul costs are another "significant" outlay, the source said, adding that most operators are also still paying interest on the sums spent on 3G spectrum while attempting to deploy LTE (4G) networks.

Analysts told Mobile Today that the UK is one of the most competitive markets in Europe, with low margins causing many operators to consider their future in the country. Telefonica is a prime example: the Spanish incumbent is in the process of negotiating the sale of its O2 UK mobile operation to Hong Kong-headquartered CK Hutchison.

Another factor impacting Vodafone UK and other operators in the market is the problem of handset subsidies. UK consumers have come to expect heavy discounts on the cost of their new handsets. However, that results in an increasing cost for operators, particularly as the price of devices has risen in line with the shift to higher-value smartphones.

Operators in other European markets adopted more revenue-friendly approaches, such as funding loans for subscribers seeking to acquire the latest mobile device or smartphone.

Vodafone, for its part, may beg to differ with the assessment of its UK operation.

Its recent fiscal first-quarter results statement, which covers the period to end-June, revealed the UK was Vodafone's only major European business to register a year-on-year rise in revenues on an organic basis, albeit that the figure was a marginal 0.2 per cent rise.

The only other organic revenue increase was recorded as 'other Europe', while named businesses in Germany, Italy and Spain all saw organic revenues decrease year-on-year during the quarter.

For more:
- see this Mobile Today report
- view Vodafone's fiscal Q1 earnings statement [PDF]

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