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Vodafone Group Chief Colao Turns Again to Cost Cuts as Sales Growth Slows

Vodafone Group Plc (VOD) Chief Executive Office Vittorio Colao will start a new push to cut costs as the world’s largest mobile-phone operator aims to cushion the impact of Europe’s economic slowdown because of the debt crisis.

As Vodafone nears the end of its 2 billion-pound ($3.1 billion) cost-cutting program in March 2012 with reduced spending on network equipment, advertising and logistics, Colao said more savings, including joint purchasing with U.S. partner Verizon Communications Inc. (VZ), may be needed.

“I will start a big look on costs next year because I don’t know what the economy will be,” he said yesterday in Barcelona at a conference organized by Morgan Stanley.

The operator’s service revenue growth excluding currency swings and acquisitions slowed to 1.3 percent in the second quarter, the low end of its own forecast, weighed down by southern European markets amid the sovereign debt crisis. Newbury, England-based Vodafone last week told investors that it will cut the cost of handsets and step up programs to share network sites across its markets.

Colao, a former McKinsey & Co. partner who became Vodafone CEO in 2008, said the tightening partnership with Verizon Communications will also help to slash expenses.

“The co-operation with Verizon is starting to deliver advantages to the bottom line,” he said. The companies are currently informing vendors of their plans, he said.

The stock was unchanged at 173.50 pence as of 9:55 a.m. in London trading. Before today, the shares had gained 4.6 percent this year.

Strategic Relationship

Verizon Chief Financial Officer Fran Shammo said at the same conference that the two companies were moving from a financial relationship to a strategic relationship.

Vodafone this month raised its interim dividend by 7 percent to 3.05 pence a share and said it would pay a 4-pence special dividend as the company is set to receive a 2.8 billion- pound payout from Verizon Wireless, the U.S. venture in which it owns a 45 percent stake.

Verizon had withheld the dividend from the Verizon Wireless partnership to focus on paying down debt.

Colao said the partnership with Verizon might become even closer.

“How deep will this become will determine what eventually will be the final state, we might decide that this is the perfect state,” the Vodafone CEO said. “If the world changes completely we sit down and discuss another outcome.”

Verizon hasn’t agreed to an annual payout from the venture, which had net debt of $3.1 billion at the end of September, Shammo said.

Greek Cuts

“I don’t want debt on Verizon Wireless’ books,” he said. “It’s too premature to set anything.”

Colao said yesterday that the two companies didn’t have any discussion on an annual dividend, adding that Verizon’s shareholders probably “also want a dividend’ from the venture.

To lower cost, Vodafone is also in talks about a potential combination of its Greek unit with Wind Hellas Telecommunications SA to take on market leader Cosmote Mobile Telecommunications SA controlled by Deutsche Telekom AG.

Colao in 2009 merged Vodafone’s Australian unit with Hutchison Telecommunications Ltd.’s operations as it sought to reduce expenses in a country with little growth prospects.

To contact the reporter on this story: Jonathan Browning in London at jbrowning9@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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