Vodafone Q1 Revenue Up 6.4%, Shareholder Revolt Looms

The mobile giant has posted 6.4% organic growth in its first-quarter revenue for its 2006-07 financial year, amid growing concerns about shareholder demands for a change in management. In a statement, the company said that growth was at 1.3% in its European operations, and 13.9% at Eastern Europe, Middle East, Africa, Asia-Pacific and Affiliates (EMAPA). The company insisted that its performance was in line with expectations, reiterating its guidance for the financial year ending 31 March 2007. At the end of the quarter, the company reportedly added 4.54 million new subscribers, in addition to the 11.7 million subscribers it gained from its acquisition of mobile operator Telsim in Turkey, to take its total proportionate customer base to 186.81 million.

Meanwhile, a threat of shareholder revolt at the company's annual general meeting (AGM) tomorrow persists. A number of major shareholders have publicly called for a change in the current management of the company. Moley Fund Management, which holds a 2% stake in the company, said on Friday (21 July) that it will vote against the re-election of chief executive Arun Sarin.

Outlook and Implications

• Subscriber Fall in the United Kingdom: Although Vodafone's total subscriber base generally increased, the drop in its subscriber base in its home market, the United Kingdom, appears as uncomfortable reading. The company lost 119,000 customers in the country, taking its total subscriber base there at the end of the quarter to 16.19 million customers. Customer churn worsened to 32.8% in the quarter, compared to 31.2% in the quarter ending 31 March 2006. The number of active customers also dropped to 85.7%, compared to 88.4% at the end of the previous quarter. However, the company managed to reverse its declining average revenue per user (ARPU) trend, finishing the quarter with ARPU of £23.70, compared with £22.70 at the end of the last quarter. Vodafone's operations in the Netherlands also lost customers, with 28,000 less customers at the end of the quarter. Australia and Hungary lost 37,000 and 39,000 customers respectively during the quarter.

• New Strategies, Technologies: Vodafone will be hoping to reverse falling subscriber numbers in its key markets with its revamped offers. In the United Kingdom, the company already offers its ”Stop the Clock” package, allowing users to call for 60 minutes in evenings and weekends for the price of 3 minutes. The company has also launched free evening and weekend calls for pre-paid customers who spend up to £5 (US$9.26) weekly. At the European level, Vodafone is at the vanguard of opposition to the EU's clampdown on roaming fee charges. Instead, the company wants the EU to let market forces dictate roaming charges. Vodafone prefers its users, who roam frequently, to sign up to its Vodafone Passport package. At the end of the quarter, it said that over 7 million people have heeded its call. The company is also pushing ahead with its strategy for high-speed mobile data. To date, the company has extended its 3G Broadband through HSDPA offering to eight countries. 3G usage continued to grow, with the number of users up by 1.3 million in the quarter, and a total of 9.1 million 3G devices by 30 June 2006 (see Europe: 1 May 2006: Mobile Operators Up in Arms Over EU's Roaming Charge Cuts).

• Uneasy Times Ahead: Despite general shareholder disenchantment with the current management, a change in management may not necessarily transform the company's fortunes. Vodafone is not alone in the doldrums; the subdued nature of telecoms business poses a significant problem for many players. Other continental giants are struggling with the same market conditions, although Vodafone's lack of a sizeable fixed unit adds another dimension to the problem. The company has sought to ameliorate this by proposing to launch joint service bundles in Germany with its Arcor fixed-line unit. Similarly, despite selling off its Japanese unit — a key component of its global strategy — the company has reiterated its determination to exploit opportunities whenever they arise, and has recently indicated that it would seek to boost its stake in Indian operator Bharti (see Germany: 7 June 2006:Vodafone Germany Plans ADSL Move in Q3).