IHS Global Insight Perspective | |
Significance | Despite some significant revenue drops, Vodafone's second-quarter report is no cause for alarm, and is mainly in line with what was expected from the operator. |
Implications | As the recession causes severe cuts in customer spend, the revenue drop across Vodafone's European markets is largely being seen as better than, or at least no worse, than anyone could have expected. |
Outlook | Vodafone is continually diversifying it offerings, and further expansion into emerging markets in Asia will leave the operator in a strong position once the recession ends. |
Vodafone has reported group revenues of £10.74 billion (US$17.74 billion), up 9.3% year-on-year (y/y), chiefly due to strong growth in its emerging markets, particularly in India and Africa, offsetting the effects of a general decline in Europe. The revenue growth was slightly below analyst's expectations, with a Reuters poll predicting a rise of just over 10%.
Vodafone announced its organic service revenue (which includes India for the first time, and Vodacom, but excludes Australia) was down 2.1% in the quarter. Organic revenue fell 4.7% in the United Kingdom and 8.1 in Spain as expected, but also dropped 4.8% in Germany. However, Vodafone's Italian unit was able to announce organic revenues up 3.1% in the quarter. Elsewhere, Vodafone's revenues from its African interest Vodacom were up 5.2%, while revenues from India shot up 23%.
Vodafone, the world's largest mobile operator by turnover, added eight million customers in the quarter, taking its customer base to 315 million. The U.K.-based company was also able to reiterate its full-year guidance, saying it expected profits to remain flat for the remainder of 2009.
Outlook and Implications
- Vodafone Manages a Reassuring Quarter: Despite the significant revenue drops across Europe, Vodafone's second-quarter report is no cause for alarm, and is mainly in line with what was expected from the operator. Indeed, the boost from positive currency effects, and a higher stake in South Africa's Vodacom have seen Vodafone shares rise on the stock markets. The company has accelerated a £1-billion plan to cut jobs and reduce spending on network equipment, advertising, and logistics, aiming to achieve at least 65% of these savings before the end of March 2010.
- European Doldrums Continue: The revenue drop across Vodafone's European markets is largely being seen as better than, or at least no worse than anyone could have expected. As the recession causes customers to spend less on services, and operators are hit by cuts in mobile termination rates and reduced roaming tariffs, much of Western Europe has descended into a vicious price war in which few operators are seeing any gains. In the East, Vodafone saw double-digit declines in Turkey and Romania, where the global economic slump has hit fragile economies hard. However, the operator is still seeking operational savings, and as revenue growth slows due to a recession-fuelled price war in the United Kingdom, Vodafone has recently signed an infrastructure sharing deal with key rival O2 (see United Kingdom: 25 June 2009: Vodafone and O2 Report Successful Start to Infrastructure-Sharing Agreement). Vodafone continues to invest in new technologies, to keep it ahead of its rivals (see Greece: 14 July 2009: Vodafone Greece to Offer 21-Mbps Mobile Broadband with HSPA+ Upgrade), and is keeping its options open, by not turning its back on its corporate customers (see Spain: 16 July 2009: Vodafone Spain Targets Corporate Customers with New Mobile App Portal).
- Continued Investment Creates Strength: Vodafone's data revenue grew 19% in the quarter to £888 million, as the company continues to encourage mobile broadband use through competitive offerings. The operator has also recently renewed its M2M offering (see World: 22 July 2009: Vodafone Launches Unified Global M2M Service Platform), and begun to look at developing a mobile apps store, as it seeks to continually diversify. Further expansion into emerging markets in Asia (see Azerbaijan: 23 July 2009: Vodafone and Azerbaijan's Azerfon Agree Strategic Partnership), not least significant investment with its partner Essar in India (see India: 15 July 2009: Ericsson Completes Vodafone Essar Mobile Network Upgrade Ahead of Schedule), will leave the operator in a strong position once the recession ends.