Photographer: Simon Dawson/Bloomberg

Vodafone Service Revenue Shows Europe Rebound, Asian Growth

  • U.K. 'needs two strong, independent networks,' CEO Colao Says
  • Vodafone reaffirms its earnings forecast for the full year

Vodafone Group Plc, the second-largest mobile-phone company by customers, reported service revenue that showed a rebound in Europe and said growth in Africa and Asia was supported by strong demand for mobile voice and data services.

Service revenue, the money the Newbury, England-based company gets from customers’ plans and traffic on its network, rose 1.4 percent on an organic basis in the third quarter ended December, Vodafone said in a statement Thursday. That’s the sixth consecutive quarter of improvement, and matched the average prediction of growth based on analyst estimates compiled by Bloomberg.

In the U.K., service revenue declined 0.7 percent, compared with a fall of 0.5 percent in the preceding quarter, reflecting a 1 percent reduction in mobile revenue. Rival CK Hutchison Holdings Ltd. has pledged to freeze U.K. mobile-phone prices for five years if regulators allow the company’s Three to merge with Telefonica SA’s O2, creating Britain’s biggest mobile carrier.

Vodafone Chief Executive Officer Vittorio Colao is "pro consolidation as long as this doesn’t restrict competition," he said on a phone call with reporters. "We have a network-sharing agreement with O2 that has to be strengthened not weakened or possibly canceled by this consolidation," he said. The country "needs two strong, independent networks."

Vodafone shares declined 0.5 percent at 10:39 a.m. in London. The stock is down 4.2 percent this year, giving the operator a market value of 56 billion pounds ($84 billion).

Vodafone is benefiting from a rebound in European consumer spending, where intense competition and sluggish economies have weighed on prices, and continued mobile growth in Africa and Asia. Colao has spent billions in past years beefing up the carrier’s networks to improve quality and enable new products such as TV and high-speed Internet.

"European trends point to an inflection to growth in 2017 with signs of benefits from the recent network investment," Goldman Sachs Group Inc. analyst Andrew Lee said in a note to clients. Better consumer mobile and fixed-line growth offset price pressure in the business market, he said. Outside of Europe, growth in African operation Vodacom Group Ltd. and Turkey offset worsening trends in India, "which could persist for several quarters." Goldman rates the shares neutral.

Colao said the plan to list Vodafone’s Indian unit remains, adding that it’s "a complicated thing" to hold an initial public offering in India. "The intention to IPO is there, the exact timing is difficult to predict at this stage."

Indian service revenue increased 2.3 percent in the quarter, slowed by competitive pressure and regulatory changes. The unit added 5.4 million customers in the period.

Sales in the quarter fell 5.5 percent to 10.3 billion pounds ($15 billion). Service revenue outside of Europe rose an organic 6.5 percent in the quarter while in Europe the measure fell 0.6 percent.

The company still expects full-year earnings before interest, taxes, depreciation and amortization of 11.7 billion pounds to 12 billion pounds. Organic measures strip out the effects of currency movements and acquisitions and divestments.

Booming Demand

Vodafone’s network modernization and fiber extension is an attempt to tap into the booming demand for data needed to watch sports and video on smartphones and tablets. While more users are moving to faster fourth-generation networks, only about a quarter of its European customers use 4G, an opportunity for Vodafone.

Vodafone is in talks with Liberty Global Plc over the creation of a joint venture in the Netherlands that would incorporate both companies’ local businesses. The discussions don’t extend beyond the Netherlands, Vodafone said in a statement Tuesday in response to a Bloomberg News report that the companies had resumed talks.

A deal with John Malone’s pay-TV giant Liberty Global could be a way for Vodafone to bolster its plan to expand its fixed network, while taking control of Liberty would speed up its convergence strategy and improve growth prospects, Jefferies Group LLC analysts, including Jerry Dellis, said in a note to clients.

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