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Vodafone's third-quarter results are 'just ok'
Emeka Obiodu
Vodafone's third-quarter results are 'just ok'
Vodafone's 3Q08 results have turned out to be a bit of an anticlimax, offering no surprises and little drama. While Europe continued to struggle with declining revenues, Vodafone's emerging market operations are no longer turning out sumptuous growth, creating potential concerns for the future.
The good and the bad
At a time of heightened economic worry, Vodafone's results are not bad. No surprises, no sticking points and little drama. The operator has managed to steady its business, and has avoided the sort of doom that was reported by the mobile handset makers. Thanks to the sharp decline of the British pound, Vodafone was able to report a 14.3% rise in headline revenues for the quarter ending 31 December 2008. Although the group's organic revenues were down 1%, there were several signs of recovery across its major European markets. In Italy, Germany and the UK, Vodafone improved its quarterly year-on-year growth compared to the previous quarter. Across its other markets, the group enjoyed steady growth in mobile data revenues and is well positioned to improve its revenue intake as it builds out its high-speed networks.But it wasn't all good news for Vodafone. The group's performance in Spain deteriorated sharply, with revenues falling by 5.8% in the quarter compared to 2.2% in the previous quarter. Vodafone's Turkish operations also performed woefully, with its quarterly revenues declining significantly. Vodafone said it now has a new management team in place to turn around the business. Emerging markets are maturing more quickly than expected Although there were no headline-grabbing figures from Vodafone's emerging market performance, the group's third-quarter results point to a decisive slowdown in growth rates for its emerging markets, bringing them closer to its European performance a couple of years ago. Growth in its Asia Pacific & Middle East region (including India) has now fallen to single digits for the first time. For its Africa & Central Europe operations, growth has fallen to below 5%. Indeed, maturity is creeping into the emerging markets quicker than anticipated, posing huge challenges for Vodafone and other operators that have pursued an emerging market expansionist strategy. Indeed, whereas Vodafone has long relied on expansion to prop up its revenue growth credentials, gradually slowing revenue growth trends in its emerging market operations mean that group-wide growth will become much tougher in the future. In November 2008, Vodafone replaced its 'expansionist' strategy with an 'efficiency' strategy as it sought to grind out results from its European markets. However, given the prevailing conditions, it may, unfortunately, have to prepare to grind out results from its emerging market operations much sooner. Admittedly, there is still huge growth potential left in Vodafone's emerging market footprint, and the company has a substantial head start in providing mobile broadband services in markets without significant fixed telecoms infrastructure. It is already enjoying solid growth at its Vodacom unit thanks to a steady boost in mobile data usage in Africa.Partnerships offer synergies As Vodafone signs partnership deals with MTS in Russia and du in UAE, these short-cut approaches could offer synergies for Vodafone across its entire footprint. Vodafone wants these partnerships in order to enjoy greater scale and scope when negotiating equipment deals - it is hoping to enjoy acquisition-like benefits without spending the money on acquisitions. The group is also interested in greater cooperation with its two other affiliates - Verizon Wireless and China Mobile. In the group's more mature markets in Europe, the partnerships will enable greater speed in technology trials and could facilitate greater consensus for telecoms standards such as for mobile TV. Crucially too for Vodafone, these partnerships can give incremental synergies across its emerging market footprint as it facilitates lower equipment and handset costs.
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