Vodafone Lifts Cost-Cutting Goal to $3.3B

Vodafone (VOD) is preparing to double its cost-cutting drive to £2bn as it battles against the economic slump and fierce competition and looks to hit the acquisition trail in 2012.

Vittorio Colao, the mobile phone giant's chief executive, said that the original £1bn economy drive, announced in November last year, had been completed a year early "and we have extended this to a further £1bn of cost savings by 2012". The group admitted that job cuts are "inevitable"—it has already axed 500 in the UK this year—but would not be drawn on numbers.

Mr. Colao stressed that the cuts will focus on technology and will look to save through network, sourcing and infrastructure initiatives as well as further reductions in overheads. The group said £500m of the savings would be set aside, and could be used as a potential acquisition war chest "depending on the economic situation".

Mr. Colao unveiled his plans at the group's first-half results yesterday. The original savings, and emerging market operations, helped boost profits by 2.4 per cent to £5.9bn.

The group also confirmed that its guidance for the full year would see operating profit at the "upper end" of the range of £11bn to £11.8bn.

Mr. Colao admitted in May that Vodafone has struggled in the UK, its home market, and yesterday it emerged that revenues fell 5.7 per cent in the first half.

It faces a further setback in the UK after Orange (FTE) and T-Mobile (DT) agreed to merge in September, with the combined group leapfrogging Vodafone and O2 (TEF) to become the market's leading player.

Mr. Calao shrugged off the impending slip from second place to third: "Would I prefer to be the second biggest player? Yes, and we will try to do that, but we are not in a bad position". On the company's UK strategy to build market share, he said, "We have done all the right things" but conceded that "we need to do more".

He believes that offering the iPhone (AAPL) from early next year will help, but gave no indication as to whether the group plans to start a price war with rivals O2 and Orange, which started selling the device yesterday. In the meantime, Vodafone has been looking to its emerging markets to offset revenue declines in Europe. Revenues in Africa and Central Europe rose 34.6 per cent after its full takeover of Vodacom in South Africa. Despite growing competition in India, it posted 20.5 per cent revenue growth there in the first half. While data revenues rose in Europe, these were offset by continuing price pressures and the effects of the downturn.

Data revenue was up 20 per cent overall, to almost £4bn. Mr. Colao said: "I'm a big believer in data, it is a big trend. This is a basic change of human behaviour." About 30 per cent of Europeans use a data connection once a month. "I don't see why that can't be 70 per cent in five years," Mr. Colao said.

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