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Vodafone revenues dented by European economic woes

Mobile phone giant misses forecasts amid slump in spending power in Spain and Italy and price cuts imposed by regulators

Vodafone’s UK customers are cutting back on their phone bills, forcing the mobile giant to miss third-quarter revenue forecasts as it battles economic headwinds across Europe.

“The UK has seen slightly weaker consumer confidence, translating into lower out-of-bundle usage and lower roaming revenues as UK consumers cut back on overseas travel,” said the chief executive, Vittorio Colao.

Price cuts imposed by regulators and deteriorating spending power in Spain and Italy pushed Vodafone’s European service revenues, which does not include the sale of handsets, down by £237m, or 1.7%, to £7.42bn in the third quarter to 31 December, further than the forecast 1.5% drop.

Income from Italy fell 4.9% compared with the same period last year, and the Spanish market was down 8.8%. The UK rose 1.1% as growth slowed from the second quarter, when revenues increased 2.5%.

Vodafone largely held on to its UK market share, adding 181,000 contract customers and losing 182,000 pay-as-you-go subscribers to finish the quarter 1,000 lighter with 19.33 million customers. Contract holders account for 47% of the UK base.

Overall group revenues edged up 1.6% to £11.6bn, thanks to a strong performance from India, which grew 20%, and Vodacom in southern Africa, up 8%.

Colao said: “Despite the further deterioration of the southern European economic environment during the quarter, our broad geographic mix is delivering a resilient overall performance.”

Shares edged down 0.32% by midday on Thursday to 173p as Colao reiterated November’s guidance for the full year, saying operating profits would be in the £11.4bn to £11.8bn range.

The telecoms analyst Jerry Dellis, at Jefferies bank, warned revenue predictions would probably be lowered. “We expect forecasts to be trimmed, taking Europe further away from return to growth,” he said.

Increasing smartphone penetration pushed data revenues up nearly 22%, and data represents 15% of group service revenue, compared with 12% in the same period last year. However, the rate at which users are increasing their use of mobile phone networks to access the internet is slowing. UK data growth was running at 2% in the first quarter but has dipped to 13%.

Jefferies suggested “WiFi offload”, where smartphones browse over WiFi rather than mobile phone networks, could reduce data revenues in the long term. However, Vodafone’s data revenues have risen to £6.3bn over the past 12 months, compared with £5bn for the previous financial year.

Colao said Vodafone was advancing towards the widely expected initial public offering (stock market flotation) of its Indian business, but a regulatory of India’s mobile phone industry meant it was unlikely this year. “IPO is probably a 2013 event,” he added.

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