Vodafone Group is working on three challenging areas for its business — Italy, Spain and the U.K. During Monday’s earnings call for the three months ending on December 31, 2023 (Q3 FY23-24), Vodafone CEO Margherita Della Valle said Vodafone’s intention “remains to give clarity in May,” in answer to a question about the business impact of a deal possibly taking place in Italy. She said the operator is still engaged in “constructive discussions in Italy,” and expects to provide an update on progress in May this year.
“We will have the €4 billion proceeds from Spain coming in, and therefore we don’t think we should delay any further. So we will update you in May,” she said.
The group confirmed last year that it is continuing to “explore options for in-market consolidation in Italy with several parties.” However, it is by no means certain that any transaction will ultimately be agreed.
Vodafone has already agreed to sell its Spanish operations to Zegona in a deal that is expected to raise at least €4.1 billion ($4.4 billion) in cash. This transaction is apparently on track to close in the first half of the 2024 calendar year.
Meanwhile, the plan to merge Vodafone UK with Three UK remains under the scrutiny of the Competition and Markets Authority (CMA). In January 2024, both parties notified the CMA of their intention to merge, triggering phase one of the authority’s investigation.
According to CCS Insight analyst Kester Mann, “an initial decision is expected by March 22, 2024, but is almost certain to lead to a more in-depth phase two probe.”
Iliad shunned again
In Italy, while Vodafone remains locked in closed-door negotiations over a potential deal for its operations, the U.K. group already appears to have excluded Iliad from any ongoing discussions.
France-based Iliad, which operates its own fixed and mobile business in Italy, announced last week that renewed efforts to persuade Vodafone to merge their respective Italian operations had not been successful. This follows Vodafone’s swift rejection of Iliad’s offer last year to buy Vodafone Italy for €11.25 billion ($12 billion).
Paolo Pescatore, analyst and founder of PP Forecast, noted that Vodafone “now has to revert to other scenarios given the end of talks with Iliad.”
However, the group still “seems keen to exit the cut-throat Italian market,” Pescatore observed.
Indeed, service revenue in the Italian market fell by 1.3% in the operator’s fiscal third quarter. According to CCS Insight’s Mann, its continued poor results in one of Europe’s most competitive markets highlights why Vodafone is talking to other parties about a potential merger.
“The company again blamed performance on strong competition in the entry segment: prepaid customers fell sharply, by 228,000, following price rises, although sub-brand ho offered some respite, adding 36,000 new customers,” Mann observed.
Improving trends in Germany…
In another key market in Europe, Vodafone Germany has required a “re-engineering” of its commercial model, in part because of the introduction of new laws that end the practice of bulk TV contracting in multi-dwelling unit apartment buildings from July.
Both Della Valle and Luka Mucic, Vodafone’s group chief financial officer, said they are confident that commercial trends are now improving in this important market for the group.
Mucic also observed that the new 5G national roaming deal with greenfield operator 1&1 AG will have a positive effect on the German business after summer 2024. 1&1 has said it will be technically possible for Vodafone to provide 5G roaming from July 1, 2024, but no later than October 1, 2024.
Germany is Vodafone’s largest European market in terms of mobile customers, with 30.4 million by the end of December 2023. The U.K. is next with 18.57 million, followed by Italy with 17.2 million and Spain with 14 million.
…and Vodafone Business
In terms of customer segments, Della Valle said scaling up Vodafone Business was “one of the key strategic opportunities that I identified from the beginning” and said she was “very positive” about this segment.
“It’s happening, the demand is very strong. It’s really on us to equip ourselves to better serve it, which is why you have seen, for example, that my first big business partnership has been with Microsoft precisely because it fits very well with this objective,” she said.
Here, the CEO is referring to the recent signing by Vodafone and Microsoft of a 10-year strategic partnership that will focus on business development in areas including generative artificial intelligence (GenAI), IoT services and mobile payments.
Prior to that, Vodafone also announced its intention to create a strategic partnership with Accenture “to commercialize Vodafone’s shared operations.”
“I’m really keen to leverage partnerships to ensure that we build on our strength, also bringing in external capabilities to just accelerate our growth,” Della Valle added.
In Q3 FY23-24, Vodafone Business was able to accelerate service revenue growth to 5% from 4.3% in the prior quarter, which it said was “driven by strong performance in digital services.”
In terms of its overall group performance in the October-December 2023 period, Vodafone reported total group revenue of £11.37 billion ($14.27 billion), an increase of 4.2% in organic terms. Service revenue rose 4.7% in organic terms to £9.38 billion ($11.77 billion).
According to Pescatore, “It is encouraging to see a focus on driving revenues, not only on cutting costs and driving greater efficiencies. Behind the scenes, Etisalat has been steadily increasing its stake, which shows a strong endorsement in Della Valle and confidence in the future strategy. Change needed to happen and she is moving quickly.”
However, he warned that it will also take time and “require significant resources in articulating the new Vodafone to all users.”
On May 14, 2024, the operator will report its full-year results for the financial year to the end of March.