Vodafone revenues up despite decline in UK sales

Competition is fierce in the UK, where BT completed its acquisition of EE in January and European Union authorities blocked the proposed merger of Three and 02 in May

Vodafone has had a difficult time in the UK but has added customers in emerging markets such as India, Turkey and Egypt (Getty)

Vodafone Group reported first-quarter service revenue that beat analysts’ estimates amid gradual improvements in its European mobile-phone businesses and growth in developing markets. The UK business shrank 3.2 per cent to £1.5bn in the three months to July.

Organic service revenue – the money Vodafone earns from its customers’ monthly phone bills and usage on its network, but not including handset sales – rose 2.2 per cent to £10.2bn in the first quarter, the Newbury-based company said on Friday.

Analysts had predicted growth of 1.8 per cent, according to data compiled by Bloomberg. The figure excludes the impact of acquisitions and currency fluctuations.

Chief executive officer Vittorio Colao is succeeding in reviving growth in European markets such as Germany and Italy, while relying on developing markets such as India, Turkey and Egypt for customer gains.

Competition is fierce in the UK, where BT completed its acquisition of EE in January and European Union authorities blocked the proposed merger of Three and O2 in May.

“This is a reassuring set of results,” said Polo Tang, an analyst at UBS. “It amounts to the strongest acceleration in growth for five quarters.”

Service revenue rose 0.3 per cent in Europe, with Germany, Spain and Italy growing and the UK shrinking 3.2 per cent.

The company is facing EU regulations aimed at cutting roaming rates at its biggest markets. The European Commission’s roaming directive came into force 30 April and ordered carriers to reduce rates by 75 per cent. The fees are to be cut entirely by June 2017, according to the EU’s plan.

Britain’s plan to leave the EU is adding to Vodafone’s challenges, and Colao said on a conference call the carrier is seeking “pragmatic solutions” to deal with the matter.

Vodafone said after the EU referendum that it couldn’t guarantee that its headquarters would remain in the country if Brexit negotiations resulted in unfavourable business conditions.

Outside of Europe, growth has been faster. Service revenue increased 19.5 per cent in Turkey, 9.4 per cent in Egypt and 6.4 per cent in India. The improvement in India was partially attributed to the unwinding of a service tax on mobile termination rates, analysts surveyed by Bloomberg said.

The company said it continues to prepare for a potential initial public offering of the Indian unit. Vodafone has no further plans to spin off businesses in developing markets, Colao said.

© Bloomberg