India, Turkey dial up growth for Vodafone

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Solid strategy for data services, efficient investment push up revenues.

Mr Vittorio Colao, CEO, Vodafone Group.
Mr Vittorio Colao, CEO, Vodafone Group.

Vidya Ram

London, July 23

Smart phones in Europe, and growth in India and Turkey helped British telecom giant Vodafone post its first growth in service revenues in six quarters.

“The first quarter shows a stronger Vodafone returning to growth…with a solid strategy for data and disciplined and efficient investment in network and technology,” said the Chief Executive, Mr Vittorio Collao, on a conference call as the firm reported service revenue growth – for broadband, messaging, voice and data – of 1.1 per cent, for the three months ended June 30, 2010, defying expectations of continued (but recovering) negative growth.

Data services

In Europe, it was demand for data services through the smart phones such as the iPhone that drove up revenues, while messaging and voice services continued to decline.

That was the case in both its home territory, where it began to sell the iPhone at the start of the year (having lost out to network operator O2 when the phone was first launched), and its largest European market – Germany.

However, it was India and Turkey that most impressed analysts.

“It's very encouraging,” said MF Global analyst, Mr John Kardis, of the situation in India, where service revenues came in at 13.7 per cent, well ahead of the 9 per cent consensus expectation.

Big players regain share

The company attributed the recovery partly to the big players regaining share from new entrants, who had lured customers through cheaper deals.

“Customers are learning the hard way that you get what you pay for,” said Mr Kardis.

Meanwhile, the company has reached an agreement with the UK Government to settle a tax dispute.

Vodafone will pay £1.25 billion, (less than half the £3.1 billion it had set aside for the matter) and will not face any further tax liabilities under the current legislation.

Renegotiates price with Essar

The company also said it had renegotiated the price for buying out Essar's 33 per cent in the joint venture to take into account the costs of the 3G licences it won earlier this year.

The company's overall performance is a vindication of Mr Collao's strategy since taking over two years ago, following criticism of the over-expansionary focus of his predecessor, Mr Arun Sarin. Without disclosing details, Mr Collao confirmed the firm would be releasing details of a fresh strategic review in the autumn.

However, the results may not be enough to pacify some of its critics, including Canadian pension fund, Ontario Teachers' Pension Plan, which ahead of the meeting called for the resignation of the Chairman, Sir John Bond, and the Deputy Chairman, Mr John Buchanan, warning that they would vote against their re-election at the AGM scheduled for Tuesday.

Criticising the company's “significant structural and strategic weaknesses,” “poor capital allocation” and “disastrous M&A,” the fund says changes at the board are necessary to catalyse change.

Vodafone's Indian joint venture has faced criticism, particularly following a £2.3 billion impairment charge incurred earlier this year, but it is the US business – the joint venture with Verizon Communications – that remains the main target.

Mr Collao declined to comment on the future of Verizon but made it clear that the US market was not its top priority.

“We really see three platforms: Europe, Vodacom and India,” he said on Friday.

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(This article was published in the Business Line print edition dated July 24, 2010)
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