Update: Vodafone first-half revenue grows 9 percent

Vodafone's lack of a competitive 3G offering hurt its results in Japan

Vodafone Group reported an increase in revenue for the six month period ending Sept. 30, although problems in Japan continued to inhibit the company's growth, the company announced Tuesday.

Total revenue for the group was £18.3 billion, up from £16.7 billion in the same period last year. Revenue from mobile telecommunications accounted for £17.7 billion, up from £16.3 billion during the same period last year.

Profit for the period was £2.82 billion, down from £3.68 billion a year earlier, the company said.

Vodafone added 10 million subscribers over the six months, compared with 7.4 million new customers added last year. The operator now has a total of 171 million customers on its networks.

Vodafone registered 2.7 million 3G (third generation) devices during the period, including 188,000 data cards. The operator counts 4.9 million 3G devices in total, with the vast majority of those, 4.5 million, being consumer devices.

Revenue from 3G services is beginning to make an impact on the operator. During the month of September, 3G generated 7 percent of Vodafone's group services revenue, up from 3 percent at the same time last year.

Growing 3G revenue is key for Vodafone and all mobile operators as they work to pay off 3G investments and offset the pressure of competition. "One thing that is clear is that revenue per minute and per meg is coming down and we have to reduce costs faster than the rate at which prices are coming down," said Arun Sarin, Vodafone's chief executive, during an earnings conference call on Tuesday morning. 3G networks themselves can help decrease costs because they are more efficient than previous networks.

Vodafone Japan continues to be a drag on the group. Service revenue for Vodafone Japan decreased by 5 percent, although overall revenue there decreased by just 0.4 percent due to an increase in equipment revenue.

Vodafone continued to lose high-value customers in Japan because it lacks a competitive 3G offering in the market, it said. Competition there is only likely to increase after the government recently awarded two new spectrum licenses for mobile services expected to reach the market late next year. Also, the introduction of number portability should contribute to a further reduction of margins next year. Still, Sarin said business will look up in Japan in 2007 as Vodafone continues to build out its 3G network.

While the business in Japan negatively affects the overall group, Vodafone Japan accounts for less than 10 percent of the economic value of Vodafone Group, Sarin said. Plus, the potential in the medium term makes this recent short-term "pain" worth it, he said.

The revenue expectation for Vodafone over the next two years is relatively flat. In 2006, Vodafone expects mobile revenue growth from 6 percent to 9 percent but overall growing penetration means that the increase in revenue in 2007 is likely to fall short of the increases in 2006.

Vodafone will continue to invest in building out 3G networks, expecting to extend 3G to 65 percent of its existing coverage area by the end of March 2007. Next summer, the operator will begin rolling out the higher speed HSDPA networks.

Sarin also said that Vodafone continues to look for acquisitions, particularly in high growth markets in Europe, Asia and Africa. This year, Vodafone bought shares of operators in Czech Republic, Romania, India and South Africa.


Copyright © 2005 IDG Communications, Inc.

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