Vodafone: Slow European growth; mobile internet becomes target

While Vodafone surprised analysts with better than expected first-half results--with revenues up 3.9 per cent--the encouraging picture was sullied by a 1.3 per cent overall revenue decline from its European operations.

However, the focus was on the company's performance in driving mobile data revenues to £2.2 billion in this six month period, mainly gained from subscribers in Europe and the take-up of the data services in developing markets, such as Africa and the Middle East.

Data now accounts for around £5 billion of revenue annually, up an astonishing 90 per cent over two years. Broadband data, both fixed line and mobile services, now contribute nearly 20 per cent of Vodafone's annual revenues of £44 billion, helped by the company recording a 16 per cent increase in smartphone sales in last three months.

But the company cannot hide the dismal performance of some European operations with sales falling 18 per cent and 8 per cent respectively in Greece and Spain. Vodafone's CEO, Vittorio Colao, said that northern and southern Europe were "decoupling", with countries such as Portugal, Spain, Italy and Greece reporting a weaker performance than their northern neighbours.

Nevertheless, Colao confirmed that he wanted to provoke greater usage of mobile data and confirmed that the company would implement tiered-data pricing plans to encourage take-up of mobile internet services and help prevent network congestion.

The CEO said that the last two years had seen a marked increase in mobile data usage across its consumer and business subscriber base, claiming that people had woken up to the benefits of "fast, reliable mobile data networks" using smartphones and tablets.

To take advantage of this trend, Colao stated that the company's new strategy was now designed to make Vodafone the leading mobile data operator for enterprises of all sizes in Europe, India and Africa. He also committed the company to increasing its investment in its high-speed networks in Europe, and further develop those in India and Africa.

Away from these new directions, Vodafone confirmed that its after-tax profit in the first half rocketed 56 per cent to £7.5 billion, giving Vodafone one of its best ever financial performances. However, this was hugely assisted by the £2.4 billion from selling its 2.3 per cent holding in China Mobile, and its decision not to set aside a provision for a disputed £1.6 billion tax bill in India.

Vodafone's next quarterly result will also be boosted by the company collecting £3.1 billion from the sale of its shareholding in Softbank coming earlier than expected. Vodafone had owned a stake in Softbank linked to the sale of Vodafone Japan to the Japanese group in 2006.

Colao made it clear that Vodafone's minority holdings in nearly half a dozen international companies were no longer central to the group's long-term plans. While its holding in Verizon Wireless continues to trigger speculation, the CEO provided nothing new other than confirming that he expected Verizon to start paying dividends again in 2012. Analysts believe this long anticipated dividend could provide Vodafone with around £3.5 billion.

Regardless of the mainly good news presented by Vodafone, stock pickers advised investors to take their recent strong gains in the company's share price and sell.

For more:
- see this The Guardian article

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