IHS Global Insight Perspective | |
Significance | If stripped of the currency fluctuations and the consolidation of acquisitions, Vodafone's six-month revenue of £21.8 billion (US$36.4 billion) marks an annual decrease of 3%. |
Implications | In particular, Vodafone's big exposure to the highly competitive markets in Europe is dragging down the performance. In response, the company will both accelerate and extend its cost-cutting drive, which may imply new infrastructure-sharing arrangements and joint ventures in some markets. |
Outlook | In the increasingly commoditised voice segment there is hardly any going back to the old state of things even on the back of any cyclical recovery, making a case for proactive cost reductions, as well as an even stronger push into the mobile data segment, which in the previous quarter still accounted for less than 10% of Vodafone's service revenue. |
Vodafone has released its results for the six-month period of April–September, posting revenue of £21.8 billion, up 9.3% year-on-year (y/y) on a reported basis and down 3% on an organic basis. The company's EBITDA amounted to 7.5 billion, up 2.9% y/y.
Of the group's service revenue of £20.473 billion, the business unit Europe accounted for £14.160 billion (up 3.7% reported, down 4.5% organic), Africa and Central Europe for £3.469 billion (up 34.6% reported, down 3.2% organic), and Asia Pacific and the Middle East for £2.923 billion (up 17.8% reported, up 12.3% organic).
Operationally, Vodafone's and its associate companies' mobile subscribers as of end-September numbered 323.265 million, an increase of 2.5% from the end of June. The share of prepaid subscribers out of the total was 83.5%.
Outlook and Implications
- Commoditised Voice Segment Unlikely to Benefit From Cyclical Recovery: When stripped of the impact of currency fluctuations and the consolidation of acquisitions (most notably that of South Africa's Vodacom), Vodafone's results are more or less in line with the group's previous quarterly release (see United Kingdom: 24 July 2009: Vodafone Q2 Revenues Up 9% on Emerging Markets), as well as the overall contraction among the major European telcos this year. The economic malaise has admittedly played a role in dragging down Vodafone's performance, yet at the same time IHS Global Insight would point out that as such it has just accelerated the evolution of the competitive landscape of the operator's largest markets. Most significantly, particularly in the saturated markets in Europe, the increasingly commoditised voice segment is unlikely to benefit much from any cyclical recovery, shifting the focus permanently on data services, which in terms of revenue have thus far failed to offset the decline in traditional services, despite the strong usage uptake. In the case of Vodafone, mobile data revenue amounted in the last quarter to £992 million, which on one hand was, on organic terms, 20.1% more than a year earlier, but on the other hand still just 9.6% of the total service revenue, against 7.7% reported for the corresponding quarter of 2008.
- Greater Focus on Data While Speeding Up Cost-Cutting: The following 12 months are likely to see Vodafone gearing up even more in the mobile data sector and we, for instance, expect the company to be one of the major pioneers in deploying mobile broadband infrastructure in the lower frequencies, effectively meaning the 800- and 900-MHz bands, which both—until now reserved for analogue TV and GSM telephony respectively—are about to be freed up for data across the European Union (EU). Vodafone's largest market, Germany, will be in a special spotlight on this front, given the major auction through which the local regulator will allocate a number of frequency packages, including the 800 MHz, during the first half of next year. At the same time, Vodafone has said that it will bring forward its £1 billion cost-cutting programme, which it now wants delivered in full by the end of March 2010, a year ahead of the original schedule. The cost-reduction drive will also be extended, with a savings target of a further £1 billion by 2012. Besides probable job cuts, this may well imply that the group would be ready for infrastructure-sharing arrangements similar to what it has started with Telefónica this year, including the markets outside Europe. Likewise, in the more saturated end of its markets, Vodafone might be up for joint ventures (JV) such as the one it and Hutchison has set up for their Australian operations. Furthermore, we expect the firm to capitalise further on the convergence of fixed and mobile services, by introducing more and more flexible service bundles in markets where it is present as an integrated carrier—such as Germany, Spain, and Italy—as well as possibly kicking off fixed portfolios in markets where it operates as a mobile-only carrier.