Vodafone Group seemed to be on the defensive during its fiscal Q2 2023 earnings call today. The group has telecommunications networks in Europe, Asia and Africa.
Vodafone Group CEO Nicholas Read said the company had experienced a slowdown in Europe. And he said it was taking actions such as changing its pricing plans to reflect inflation and planning to reduce its costs by €1 billion over the next 3.5 years.
Read said, “Clearly, energy cost and higher rate of inflation has put the sector under pressure in Europe, and there's only so much that we can do on cost. In the end, pricing is a critical component of the formula for every operator. And I think you're going to see that consistently across the board.”
Vodafone is increasing its prices based on a Consumer Price Index (CPI) model. Read said, “We believe that is more transparent for the customer, and also it's simpler for us to manage in our back-end systems, which, of course, every operator should be trying to achieve versus, say, repricing model, which adds a lot of complexity continuously in the back end.”
Despite the CPI approach, the company still evaluates every market for tolerance to price increases. Factors include the quality of its service, competitors’ pricing and its fixed business versus mobile business.
Cost cutting and deleveraging
In terms of cost reductions, Read said that would “be achieved through streamlining simplification of the group moving forward.”
To that end, last week, Vodafone sold a portion of its ownership of Vantage Towers to investment companies KKR and Global Infrastructure Partners (GIP) and formed a joint venture. The operator will receive at least $3.21 billion from the deal, based on equity from GIP and KKR.
Vodafone said that by creating the new joint venture, Vantage will be able to grow its co-location business and also pursue new business opportunities from small cells, distributed antenna systems (DAS) and edge computing.
The company’s CFO Margherita Della Valle said on today's earnings call that a near-term priority is deleveraging. “And I think this is proving the right approach in the current macroeconomic conditions,” said Della Valle. In terms of the Vantage deal, she said the proceeds would initially be allocated toward strengthening the company’s balance sheet.
The company’s stock was down about 6% after the earnings report — its lowest since 1997.
The analysts at New Street Research, led by James Ratzer, wrote, “We are encouraged to see the stronger action being taken on pricing, as we believe from a sector-wider perspective this is what will be needed in order to improve investor sentiment, but this could take at least six months to become more visible for Vodafone’s European businesses.”