Vodafone Revenue Hurt by Slow European Growth

Slow growth in mature markets such as Italy and the United Kingdom caused Vodafone Group to report only a slight increase in revenue for the six-month period that ended Sept. 30.

Revenue for the period was 15.6 billion pounds (US$29.8 billion), with organic growth of 4.1 percent, the U.K.-based mobile phone operator announced Tuesday. Organic growth excludes customers that were added recently through acquisitions.

The company announced an advertising partnership with Yahoo designed to boost its growth. As part of the deal, customers in the United Kingdom who agree to view ads on their mobile phones will get discounts on Vodafone services.

Vodafone’s loss for the six months was 4.5 billion pounds, due largely to a hefty charge of 8.1 billion pounds for asset write-downs in Germany and Italy. Without the charge, pretax losses were 3.3 billion pounds, the company said.

The mobile phone market in Europe remains highly competitive and produced no organic growth from a year ago. Revenue from Germany, Italy and the United Kingdom actually declined when termination rate cuts are taken into account, Vodafone said.

The problems were offset somewhat by significant growth in emerging markets. Service revenue grew organically 40.2 percent in Egypt, 20.8 percent in South Africa and 31.3 percent in Romania. Revenue in the United States, where Vodafone owns a stake in Verizon Wireless, also grew well, by 18.2 percent, Vodafone said.

Analysts attending the earnings announcement meeting again questioned how long Vodafone planned to hang onto its share of Verizon Wireless. Considering a 70 percent penetration rate in the United States and with some of Verizon’s biggest competitors struggling with technology issues, Arun Sarin, Vodafone’s chief executive officer, believes the investment promises to continue to pay off at least for the near future. “We are mindful of the fact that this is not something we will carry on in perpetuity, but we’re not seeing the proverbial reduction in growth coming around the corner,” he said at a news conference.

Vodafone is starting to see some payoff from broadband wireless. Third-generation services generated 10 percent of revenue and about 20 percent of gross sales during the first half of the year. Data revenue grew nearly 30 percent during the period.

The operator said it is on track to meet its financial targets for the fiscal year.

Operators and handset makers across the mobile phone industry are facing slower growth from mature markets, where the vast majority of people already own a mobile phone. Operators like Vodafone are increasingly focusing on emerging economies, where they are reporting significant gains.

The operator is employing a number of initiatives to reverse its fortunes. Under the deal with Yahoo, the companies develop and test new mobile advertising offerings. Yahoo will become Vodafone’s exclusive display advertising partner in the United Kingdom, and the pair expect to start rolling out the service in the first half of 2007.

Over the past six months, Vodafone learned about mobile advertising through customer trials. Customers said they want to receive advertising only if they opt in, and they want to share in some of the benefit that Vodafone gets from delivering the ads, such as receiving reduced rates on services, said Sarin. Customers also said they want interesting advertisements that are relevant to them.

In other moves to boost growth, in mature markets Vodafone hopes to steal minutes from landline services with offerings like At Home, which offers discounted mobile rates within a customer’s home. Vodafone has also begun selling bundles that include mobile and broadband services, launching such offerings in Germany, the United Kingdom and Italy.

-Nancy Gohring, IDG News Service (Dublin Bureau)