Vodafone writes off US$9.9B, signs up more users

Vodafone Group PLC, the world's largest mobile phone operator, on Tuesday announced its preliminary results for the first six months of its fiscal year, racking up sizable losses, though its large write-offs were in part a result of the company's acquisitions and growth in its worldwide customer base.

The U.K.-based mobile operator posted an interim pretax loss of 8.45 billion pounds (US$12.47 billion as of Sept. 30, the last day of the period being reported), over twice as much as the same period last year when the company reported losses of 3.9 billion, the company said in a statement.

Earnings before interest, taxes, depreciation and amortization (EBITDA) for Vodafone's worldwide mobile operations were up 46 percent to 4.8 billion pounds, up from 3.3 billion pounds in the same period last year, Vodafone said. Part of that growth was attributable to a jump in its overall subscriber base, up 15 percent to 95.6 million users worldwide. Vodafone currently operates in 29 countries worldwide, but that expansion came at a price.

The company took a one-time charge for goodwill amortization of 6.7 billion pounds, Vodafone said. That write-off included 4.5 billion pounds, primarily for the Mexican mobile operator Grupo Iusacell SA de C.V., which Vodafone bought in January, and Arcor AG, the German fixed-line business which it gained as part of its acquisition of Mannesmann AG early last year, the company said. Also included in the write-off was 300 million pounds relating to its investment in China Mobile Ltd., Vodafone said.

Sales in its data services, an important indicator as Vodafone brings its GPRS (General Packet Radio Service) offerings to the market and begins to move toward 3G (third-generation) mobile technology, were up for the 12 months ending Sept. 30, representing 9.1 percent of total service revenue compared to 8.1 percent for the year ended March 31, the company said.

GPRS service is now available in all of its major markets, Vodafone said. In the month of September, revenue for nonvoice services accounted for 9.9 percent of total service revenues, Vodafone said.

"Vodafone has made quite a few investments, particularly in Japan, which is a key mobile market. It is understandable that it therefore has sizable write-downs, but the important thing is to get the network out there," said International Data Corp. (IDC) analyst Paolo Pescatore.

"But what do such large losses mean to users? At this point, not a whole lot. The effect is more on the financial community than on the user. Vodafone has a lot of new services in the pipeline and they will continue to push those services --like GPRS -- through. I don't think they will slow down on the services it offers, but the losses may have an effect on research and development in the long term," Pescatore said.

According to Pescatore, data communication services are potentially the most lucrative market for Vodafone and the company has been wise to move its company focus to higher-value customers while attempting to control costs.

"Vodafone is one of the strongest operators out there and it is now making moves to compete quite aggressively with the likes of NTT DoCoMo (Inc.) and (wireless Internet service) I-mode in its own Japanese market. In terms of what data services will really bring, it's difficult to say just now because handset makers like Nokia (Corp.) haven't hit the market with GPRS handsets until just very recently," Pescatore said.

"Once the handsets are available to users, then it is up to operators to market GPRS. If I had to give guidelines, I'd say we'll start seeing what data services mean to the likes of Vodafone by about June 2002," Pescatore said.

Vodafone said it saw no need to write down the value of its 3G mobile phone licenses, which Pescatore took to be a heartening sign.

"It is difficult to say 3G is a write-off until the services themselves are actually launched," Pescatore said.

Last week, Japan's NTT DoCoMo took a large write-off on the 15 percent stake in Dutch mobile telecommunication carrier KPN Mobile NV it acquired last year. The company blames the loss through KPN on "the hyped 3G license auctions in Europe." British Telecommunications PLC also took a write-off of 3.2 billion pounds ($4.5 billion as of March 31, the last day of its fourth quarter) in May to reflect the fall in value of German mobile operator Viag Interkom AG.

"I don't think it's completely fair to compare all of the large write-offs by companies by blaming them on 3G and the 3G licenses. The action processes were open and the companies knew what they were getting into. In terms of moving to 3G, the operators have no choice; they have to offer new technologies to customers. KPN is different (from the losses Vodafone took for its subsidiaries) in that KPN's share price has plummeted for a variety of reasons. There is only so much money you can borrow on the market," Pescatore said.

In late morning trading, shares in Vodafone (VOD.LON) trading on the London Stock Exchange were up by 2.3 percent, a gain of 0.04 pounds to trade at 17.825 pounds per share. The company's shares have lost 26.81 percent of their value since Jan. 1.

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