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Vodafone Service Revenue Drops on Southern Europe Slump

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Vodafone Service Revenue Misses Estimates on Southern Europe
Vodacom-branded satellite dishes stand outside the headquarters of Vodacom Group Ltd., Vodafone's biggest African business, in Johannesburg, South Africa. Vodacom Group Ltd., Vodafone’s African business, boosted total sales 1.7 percent last quarter. Photographer: Nadine Hutton/Bloomberg

Feb. 7 (Bloomberg) -- Vodafone Group Plc, the second-largest mobile-phone company, reported declining revenue for a second consecutive quarter as customers in Europe reduced spending amid slowing economies.

Service sales fell 2.6 percent in the third quarter ended Dec. 31, excluding the impact of acquisitions and currency fluctuations, the Newbury, England-based company said today in a statement. Analysts had predicted a 2.4 percent decline in service revenue, which includes voice, data and messaging, according to data compiled by Bloomberg.

Vodafone is eliminating jobs in Europe, including as many as 1,000 in Spain, to lower costs as consumers and companies cut spending in response to soaring unemployment and contracting economies. Service revenue plunged 14 percent in Italy, 11 percent in Spain and 5.2 percent in the U.K., while rising in markets such as India and Turkey.

“These results are modest to weak,” said Andrea Devita, an analyst at Banca Akros SpA in Milan who recommends holding Vodafone shares. “But this earnings season has been horrible, so investors have had time to adjust their expectations.”

Forecast Reiterated

The company repeated its forecast that adjusted operating profit for the year through March will be in the upper half of a range of 11.1 billion pounds ($17.4 billion) to 11.9 billion pounds. Analysts estimated 11.6 billion pounds. Vodafone’s cash flow will be adequate to cover its future dividend payments, Chief Financial Officer Andy Halford said on a conference call.

Vodafone, whose revenue trails China Mobile Ltd., rose 2.1 percent to 173.95 pence as of 9:42 a.m. in London. That pared the stock’s decline in the past 12 months to 0.6 percent.

The stock is gaining because “a lot of people were expecting a massive miss” against estimates, while the figures released today are only slightly lower than analysts’ predictions, said Robin Bienenstock, an analyst at Sanford C. Bernstein Ltd.

“If you look at Vodafone’s European results, they’ve taken a pretty significant step down,” even in light of recessions in the region, Bienenstock said. “They’ve been increasingly squeezed by really aggressive discounters at the bottom and some more compelling bundled packages from companies at the top.”

Discounted Packages

The company’s Vodafone Red products, which offer discounted packages of mobile Internet and unlimited calling service in parts of Europe, are contributing to declining revenue, Chief Executive Officer Vittorio Colao said on the call. Even so, the plans are proving popular and increasing customer loyalty, he said.

To persuade people to spend more in saturated markets, Vodafone and competitors are investing in so-called fourth-generation networks, which provide faster data speeds for customers browsing the Web and watching video.

Colao is also increasingly relying on operations outside of Vodafone’s markets in Europe. Service revenue at Verizon Wireless, the company’s U.S. joint venture with Verizon Communications Inc., rose 8.7 percent last quarter. Sales jumped 9 percent in India and 18 percent in Turkey, Vodafone said.

In the previous quarter, Vodafone took a 5.9 billion-pound writedown on its businesses in Spain and Italy as the economies sputter and competition intensifies because almost all Europeans already have mobile phones.

“We continue to face difficult market conditions in Europe and we expect those to continue in the coming year,” Colao said today. “My answer on where is the money for investment going clearly indicates we do believe in high speed.”

To contact the reporter on this story: Amy Thomson in London at athomson6@bloomberg.net

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

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