Vodafone adds users on slight revenue decline

U.K. mobile phone giant Vodafone Group on Tuesday reported a loss and a 1 percent decline in global revenue for the first half of its 2005 financial year, but touted its ability to add new users across its global customer base.

Group revenue for the company fell slightly to £16.8 billion (AUD$40.2 billion as of Sept. 30, the last day of the period reported), compared to £16.9 billion a year earlier. Vodafone said the decline could be attributed to unfavorable exchange rates and the effects of acquisitions and disposals, mainly the sale of its Japanese fixed-line arm, Japan Telecom.

Vodafone made a net loss of £3.2 billion, or £0.0477 per share, in the first six months of its financial year, dragged down by its goodwill amortization charge of £7.3 billion, the company said. This compares to a net loss of £4.3 billion, or £0.0624 per share, in the same period last year, the company said. Nevertheless, the company doubled its dividend to £0.0191 pence, based, it said, on strong underlying half-year results.

The mobile operator continued to add new users across its global customer base. Over the year, proportionate customer numbers increased by 17 percent from 125.3 million to 146.7 million, the company said. Vodafone counts subscribers in proportion to its holding in companies it does not wholly own. Organic growth, rather than growth through acquisitions, added 7.4 million customers in the period, up from a gain in the same period last year of 5.7 million, Vodafone said.

Vodafone said it expects to deliver 10 percent growth in its customer base for the year ending March 31, 2005, resulting in high single-digit revenue growth. For the year to the end of March 2006, the company said it expects high single-digit growth in customers and revenues.

The company said it also expects to double last year's final dividend of £0.0108.

"Our confidence in the growth prospects of Vodafone is reflected in the increase in shareholder returns,'' said Arun Sarin, Vodafone's chief executive officer (CEO) in a press conference that was also broadcast over the Web.

Nonvoice revenue for the first six months of its fiscal year was £2.4 billion, up from £2.2 billion in the same period last year, the company said. Most of that revenue was derived from its text messaging services, it said.

Sarin pointed to last week's launch of its 3G (third-generation) mobile communication products and services as an area that would provide solid growth for Vodafone. "Following the successful launch of 3G services, we are excited about our growth opportunities and ability to leverage global scale and scope advantages," he said.

The use of such 3G services as video calls, music downloads and games will "absolutely'' increase revenue, Sarin said. Last week, Sarin said that the company estimates its 3G service will be used by 10 percent of its customer base within the next 15 months.

Vodafone said it had strong customer growth in the U.K., Spain, Germany and the U.S. On the down side, in Japan, the company continued to suffer from a highly competitive 3G market, and experienced a 5 percent decline in service revenue when compared to the previous year, it said.

Average revenue per user (ARPU) rose in the U.K. by 6 percent and by 11 percent in Spain, though ARPU declined in Germany by 3 percent and by 1 percent in Italy.

Vodafone pegged the declines in ARPU on the fact that newer customers are spending less than existing ones, but the company said it was focusing on gaining high-value customers in both Italy and Germany.

In the U.S., where Vodafone owns a 45 percent share of Verizon Wireless, ARPU rose 5 percent, from US$50.60 to $53.20, as a result of higher phone usage and the rise in use of nonvoice services such as picture messaging.

After Vodafone lost to Cingular Wireless in its bid to buy AT&T Wireless Services Inc. last February, it indicated it would focus its attentions on Verizon Wireless with an eye towards increasing its share of the company. Unfortunately for Vodafone, its partner, Verizon Communications Inc., has expressed the same desire.

The situation is similar with French mobile operator, Societe Francaise du Radiotelephone (SFR). Over the last year, Vodafone repeatedly stated it is keen to increase its 32 percent share in SFR (20 percent of which it owns directly, with the rest coming from its 15 percent stake in France's biggest private telecom operator, Groupe Cegetel SA), but Vivendi Universal repeatedly says it does not want to sell its stake in the company.

If Vodafone's CEO has a plan for breaking the impasse with either Verizon Wireless or SFR, he wasn't sharing the details. "That's an interesting conundrum that we find ourselves in," Sarin said.

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