Vodafone’s southern European operations are weighing the firm down, more than offsetting a 30.5% rise in Verizon Wireless’ contribution to group profits in the year to end-March.
A £1.8 billion (€2.1 billion) impairment charge in Italy took combined write downs for the country and Spain to £7.7 billion, and resulted in a £6.3 billion year-on-year fall in net profit to £673 million. EBITDA fell 8.3% to £13.2 billion, and revenue 4.2% to £44.4 billion due to declines in voice and messaging income.
Steven Hartley, telco strategy analyst at research firm Ovum, says Vodafone must stabilize its performance in core European markets, and not rely on Verizon Wireless as a cash cow. “Leaving aside the ‘what everyone wants to hear’ story on Verizon Wireless, Vodafone’s results are a continuation of the story of the challenges facing Europe’s telcos,” Hartley notes.
Vodafone chief executive, Vittorio Colao, told journalists he would not rush into a sale of Verizon Wireless, noting the income from the US operator is being pumped into shoring up the operator’s European business, Reuters reports.
The weakness in southern Europe also took its toll on Italian incumbent Telecom Italia, which saw net income fall €241 million year-on-year to €364 million in 1Q13. EBITDA fell 10.1% year-on-year to €2.6 billion, and revenues were down 8.1% to €6.7 billion.
Telecom Italia also revealed its board has given the green light to negotiations with Hutchison Whampoa over a potential network separation deal involving 3 Italia, a little over a month after setting up an internal review of the move.
For the year ahead, the operator predicts its revenues will remain largely flat on 2012, and that any fall in EBITDA will be restricted to low single digits.
However, Carlos Winzer, a senior vice president in ratings firm Moody’s Corporate Finance Group, isn’t convinced. He forecasts the telco will “miss some of its operating performance targets,” and warns such misses may impact his firm’s current Baa3 credit rating for the operator.
Ovum analyst Hartley says all European telcos must innovate to survive, particularly in the areas of their business models and pricing strategies, and warns against relying solely on emerging markets to prop up domestic operations.