Vodafone Service Revenue Beats Estimates on Indian Growth

Vodafone Group Plc, the second-largest mobile-phone carrier, reported a smaller drop in service revenue than analysts estimated on growth of customers outside of Europe.

Service revenue, excluding currency swings and acquisitions, fell 4.8 percent to 9.8 billion pounds ($16 billion) in its third quarter ended in December, the Newbury, England-based company said in a statement today. Analysts had predicted a 4.9 percent drop, according to the average of estimates compiled by Bloomberg.

Chief Executive Officer Vittorio Colao is counting on growth in Asia and Africa to offset price wars in Europe. Data use in India, the company’s biggest market by customers, more than doubled as more people used their phones to access the Web. Indian revenue grew 13 percent to 937 million pounds.

“India is becoming one of our top four companies; it will be very quickly one of our top two,” Colao said in a call with reporters today. “We of course would be very keen to enhance the value of the Indian market.”

Service revenue measures sales from roaming, wireless contracts, charges Vodafone levies for use of its network to complete calls and other “ongoing services.” Total revenue fell 4.3 percent, excluding the effect of deals and currency value changes, to 11 billion pounds in the quarter.

Shares Rise

Vodafone, which is the most popular wireless carrier after China Mobile Ltd., rose 1.6 percent in London trading to 219.4 pence at 9:25 a.m. The shares had risen 26 percent in the 12 months before today.

European service revenue declined 9.6 percent because of price competition, the company said. Germany, Vodafone’s biggest market by revenue, reported a 7.9 percent drop, as competitors cut prices for consumers and business customers. Service revenue in the U.K. declined 5.1 percent.

Still, the company said its move to more valuable, high-speed 4G plans is “gaining momentum” and customer additions are improving. The company began rolling out 4G in the U.K. last year and now has about 2 million customers for 4G service, as part of its Red plans, in Europe, Colao said.

“The CEO’s narrative adopts a somewhat more upbeat tone than recent statements,” said Citigroup Inc. analyst Simon Weeden in a note to investors. “Operationally, the worst may be over.”

Italy and Spain, two of the company’s worst performing units, reported quarterly revenue declines of 17 percent and 14 percent respectively.

Price Wars

Vodafone may be contributing to price wars in some of its markets through its Vodafone Red plans -- which offer customers unlimited calls and texts when they sign up for data service -- though the company doesn’t believe its plans are the main driver of the declines, Colao said on a call with reporters today. The Vodafone Red plans have 9.8 million customers now and are expected to have as many as 12 million by March.

Colao said that customer use of video and interest in getting content, such as sports and TV shows, via Vodafone’s mobile and fixed services will ultimately drive an improvement in Europe. The company is looking at “every possible commercial agreement” to add new services and content in its markets as Vodafone pursues “convergence” of fixed and mobile services, he said.

Project Spring, the company’s network-improvement program funded by the Verizon Wireless sale, will deploy 7 billion pounds into projects such as 4G rollouts and broadband service by March 2016. In total, Vodafone will spend 19 billion pounds on its network in the next two years.

The $130 billion sale of Vodafone’s 45 percent stake in Verizon Wireless to partner Verizon Communications Inc. is due to close at the end of this month.

AT&T Bid

The company is in talks with pay-TV provider British Sky Broadcasting Group Plc about cross-selling services, people familiar with the plans said last month. Vodafone may also be interested in bidding for Spanish fixed-line company Grupo Corporativo ONO SA, people with knowledge of the matter said.

Vodafone could also become a target for Dallas-based AT&T Inc. AT&T, the biggest U.S. phone company, is interested in acquiring Vodafone to gain access to Europe’s burgeoning 4G market, people familiar with the situation said last month.

On Jan. 27, AT&T said it had no intention of bidding for Vodafone in the next six months, to satisfy British stock-market regulations designed to limit merger speculation. The company chose to make the disclosure to avoid negotiating under a tight deadline, the people said. AT&T will probably need to wait out the deadline before making an offer, though it can be waived with the consent of Vodafone’s board.

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