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Vodafone Service Growth Beats Estimates on Data Sales Surge

Vodafone Service Growth Beats Estimates on Data Sales
A pedestrian walks past an advert for Vodafone Group Plc, in Mumbai, India. Photographer: Prashanth Vishwanathan/Bloomberg

Vodafone Group Plc, the world’s largest mobile-phone company, reported better-than-expected service revenue growth for the fiscal first quarter as demand for phones that can surf the Web bolstered data sales.

Service revenue excluding currency swings and acquisitions in the three months through June rose 1.5 percent, the company said today. Analysts estimated growth of 1.4 percent. Data revenue grew by 25 percent as more consumers used so-called smartphones. Service sales include voice, data, messaging and broadband services. It excludes handsets and accessories.

“It’s a robust set of numbers, if anything slightly ahead of what people were looking for,” said Morten Singleton, an analyst at Investec Securities in London.

Vodafone, based in Newbury, England, has sought to drive data sales from smartphones including Apple Inc.’s iPhone and handsets running Google Inc.’s Android software to counter declining European service revenue. Total sales rose 3.5 percent to 11.7 billion pounds ($19.1 billion) in the fiscal first quarter, the company said today.

The stock rose as much as 2 percent to 164.50 pence in London trading and was up 1.5 percent as of 8:07 a.m. Before today, the shares declined 2.7 percent this year, while the FTSE 100 benchmark index was unchanged.

“We have made a good start to the year, reporting robust results despite challenging macroeconomic conditions across southern European economies and the impact of cuts to mobile termination rates,” Chief Executive Officer Vittorio Colao said today in the statement.

Spanish Woes

Organic service revenue growth still slowed from a 2.5 percent increase in the prior quarter because of a decline in southern European markets and a cut in U.K. mobile-phone fees. In Spain, where the company recently replaced its top manager, Vodafone is struggling to boost sales amid the highest unemployment rate in Europe.

In Spain, service revenue declined by 9.9 percent. Colao said today the company decided to cut prices in the country to be more competitive, adding that Vodafone isn’t considering reducing its workforce.

The decline in Spain compares with growth of 32 percent in Turkey, 17 percent in India, 1.7 percent in the U.K. and 0.2 percent in Germany, the company’s biggest market.

Under Colao, annual sales from mobile data have climbed to more than 5 billion pounds since he took control of the company in 2008.

Smartphone Sales Boom

The British operator has said it plans to increase the percentage of sales from smartphones in Europe to about 70 percent in the fiscal year ending March 2013 from 30 percent last year. The company is switching to tiered pricing plans based on the amount of data used and quality of service.

Vodafone said in May it will write down the value of its businesses in Spain, Greece, Portugal, Italy and Ireland by 6.1 billion pounds, following higher discount rates. Italy and Spain are the second- and third-biggest markets for the company after Germany.

The company reiterated its full-year forecast. Vodafone is also seeking a dividend from its 45 percent stake in Verizon Wireless, the largest U.S. wireless provider. Chief Financial Officer Andy Halford said in June the company could potentially get an annual payment of as much as $5.5 billion.

Minority Asset Sales

Colao this month completed his plan to unwind some of his predecessors’ takeovers with the sale of Vodafone’s 24 percent holding in Poland’s Polkomtel SA for about 920 million euros ($1.3 billion). Arun Sarin pushed Vodafone into markets such as Ghana and Turkey. Christopher Gent led Vodafone through a six-year $300 billion acquisition spree.

Colao, who became deputy CEO in October 2006 and was promoted to the top job in July 2008, has generated 12 percent in annualized returns for Vodafone shareholders under his watch, according to Bloomberg data. That compares with a 7 percent increase under Sarin and a 26 percent slump under Gent.

Under Colao, Vodafone has sold a minority stake in China Mobile Ltd. and reduced its interests in Japan’s Softbank Corp. It completed the sale of its 44 percent holding in French wireless operator SFR for 7.95 billion euros in June.

While selling minority assets, Colao is consolidating the company’s operations in existing markets. The company said March 31 it will acquire an additional stake in its Indian venture after partner Essar Group exercised an option to sell down its holding.

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