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Vodafone is on the up in the UK, reporting growth in customer numbers and satisfaction, as well as a noteworthy revenue hike. But it is still working towards that controversial merger with Three that it insists it needs in order to survive in the market.
February 5, 2024
"Vodafone must change and we are," said group CEO Margherita Della Valle at the start of the telco's third-quarter results call with analysts on Monday morning.
Those changes include the "where," she noted, referring to Vodafone's planned M&A deals in the UK and Spain, and discussions to that end in Italy.
The UK market performed well in the third quarter, with service revenue growth of 5.2% easily surpassing other European markets. Germany, its biggest market, brought in almost flat service revenue growth, hit by fixed broadband customer losses on the back of price increases and lower regulated rates for terminating mobile calls; it also has the impact of changes to German TV laws around MDUs to come in future quarters. In Italy and Spain Vodafone recorded service revenue declines of 1.3% and 1.1% respectively, in both cases on ongoing price competition, particularly at the value end of the markets.
But in the UK the operator is buoyant, that service revenue hike to €1.4 billion coming after similar, alebit slightly higher, growth figures in the previous two quarters. It reported strong growth in both the Consumer and Business segments.
On the consumer side it bigged up 18,000 contract customer additions in mobile, as well as an improvement in customer retention, and the addition of 39,000 fixed broadband customers to take its total to 1.3 million. It also reminded us that it has the biggest full fibre footprint in the country as a result of its deals with Openreach and CityFibre. Growth in IoT and project revenue underpinned 5.8% service revenue increase at Vodafone Business.
Furthermore, customers are happy.
Vodafone is number one in NPS in the UK, "for probably the first time ever," Della Valle told analysts.
We'll gloss over the fact that that's actually paints a pretty damning picture of customer satisfaction performance over the past few decades from the company that was essentially the UK's incumbent in mobile and focus instead on the fact that things are now looking up.
In a way, this results announcement was a no-win situation for Vodafone in the UK. It and would-be partner Three are desperately trying to persuade regulators that they need to merge to secure their future in the market; both have indicated that their very survival could be at stake if they are forced to continue as standalone businesses. Turning in a solid set of UK results undermines that argument to an extent; it's over-simplistic, but it's harder to complain about the cost of operating a network when you're consistently bringing in more money from customers. Apparently happy customers.
Anyway, Della Valle made it clear from the outset that she would not be drawn on the finer details of those ongoing deals; she indicated that things are moving forward in the UK and Spain, where Vodafone agreed to sell its operating unit to UK-based investment firm Zegona Communications for as much as €5 billion in October.
The Spain deal is slated to close in the first half of this calendar year. "We are still going through some approvals. Nothing onerous... but it can take some time," was all Della Valle was prepared to disclose.
She was even more tight-lipped on the evolving situation in Italy.
Last week France's Iliad revealed that Vodafone had turned down its offer to create a 50:50 joint venture in Italy, despite it having sweetened the terms of the bid. Meanwhile Vodafone confirmed that a deal with Iliad is indeed off the table, but it is still holding talks with other parties.
"We are continuing to progress on this," with Vodafone looking for "the most value-creative and deliverable outcome for our shareholders," Della Valle said. "We are engaging in constructive discussions in Italy."
Swisscom's Fastweb is the most likely potential partner for Vodafone in Italy – if nothing else, it brings a much less tricky regulatory process – but the telco could well also have other options. We'll have to wait and see. And then probably wait some more, just like we are doing in the UK and in Spain.
Mary has been following developments in the telecoms industry for more than 20 years. She is currently a freelance journalist, having stepped down as editor of Total Telecom in late 2017; her career history also includes three years at CIT Publications (now part of Telegeography) and a stint at Reuters. Mary's key area of focus is on the business of telecoms, looking at operator strategy and financial performance, as well as regulatory developments, spectrum allocation and the like. She holds a Bachelor's degree in modern languages and an MA in Italian language and literature.
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