Vodafone not cashing in on data growth: analyst

Vodafone Group succeeded in driving up data traffic in its financial year to the end of March, but analysts say the operator is failing to cash in on this growth despite reaching almost 5 million subscribers on its LTE networks.

Vodafone CEO Vittorio Colao

Vodafone CEO, Vittorio Colao

In a statement issued after Vodafone reported annual results on Tuesday, Ovum principal analyst Dario Talmesio said the company must now act to stem declines in its revenues and margins.

"[T]he uptake of data fails to deliver in financial terms," Talmesio noted.

Europe is another area Vodafone needs to address, Talmesio said, noting that the operator still relies on the region for two thirds of its income.

"There is a certain paradox here," he said. "Vodafone is putting most of its commercial and investment efforts in something that is not turning revenues and that is mainly because of regulation and competitive pressure--Europe is clearly the issue that needs to be addressed."

Vodafone revealed earnings before interest, depreciation, and amortisation (EBITDA) fell 7.4 per cent to £12.8 billion (€15.7 billion/$21.6 billion) in the year to March 31, on a 3.5 per cent decline in group revenue. Europe suffered the highest revenue decline, with sales down 9.1 per cent year-on-year compared to a 6.1 per cent rise in Africa, Middle East and Asia Pacific (AMAP).

Talmesio noted that Vodafone's business grew in Africa and India, but reiterated that the company must act to turn around its performance in Europe. Indeed, Vodafone said it made impairments totalling £6.6 billion in Germany, Spain, Portugal, Czech Republic and Romania.

Ovum forecasts show "none of Vodafone's major markets will be growing revenues in the coming years, meaning that they need to squeeze more off what they have," added Talmesio.

Vodafone Group CEO, Vittorio Colao, said the company is seeing encouraging signs after taking steps "to improve our commercial performance" in Europe "particularly in Germany and Italy."

The CEO said he is "confident about the future of the business given the growth prospects in data, emerging markets, enterprise, and unified communications."

Despite Colao's optimism, the operator cut its earnings forecast for the year to end March 2015, predicting EBITDA in the range of £11.4 billion to £11.9 billion due mostly to investments as part of its Project Spring infrastructure programme, and foreign exchange movements.

The forecast saw Vodafone's share price drop 5.5 per cent in trading on Tuesday, Bloomberg reported, despite analysts remaining relatively bullish on the company's future due to its ongoing network investments.

For more:
- see Vodafone's earnings statement
- see Talmesio's statement
- see this Bloomberg article

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