Vodafone to invest £7 billion as trading slumps

Tuesday 12 November 2013 18.51
Vodafone Ireland says smartphones and data usage continues to drive growth
Vodafone Ireland says smartphones and data usage continues to drive growth

Vodafone plans to spend £7 billion sterling on its networks following the sale of its US business, ramping up investment after it posted a record fall in quarterly organic service revenue.

The world's second-largest mobile operator agreed a deal in September to sell its US arm to Verizon Communications for $130 billion.

It said today it would spend £7 billion by March 2016 to improve its networks in a bid to set it apart from rivals.

The group announced the details of its "Project Spring" spending programme as it reported first-half results showing the pressures across the group.

Organic service revenue - its key ongoing revenue measurement which strips out the impact of one-off costs such as handset sales - was down 4.9% in the second quarter due to very weak trading in Europe.

That was worse than the 3.5% fall recorded in the first quarter and well below the last record fall of 4.2% in the fourth quarter.

"Whilst trading conditions in Europe remain very tough at present, we are encouraged by the forecast return to economic growth over the next two years," Chief Executive Vittorio Colao said, in reference to general market indicators.

The investment, which is likely to prompt rivals to respond, is designed to improve network quality across Vodafone's footprint, to meet the demand of consumers who want to access the internet on the go via smartphones and tablets.

It plans to invest around £3 billion in Europe, to improve the speed of its mobile networks. About £1.5 billion will be used to extend coverage across major cities in its emerging markets. It will also spend on fixed networks and its corporate division.

Overall, first-half core earnings were down 4.1% to £6.6 billion, compared with a company-compiled estimate of £6.4 billion. That was off revenues of £22 billion, down 3.2% on an organic basis.

"The overall performance of the group in the first half of the current financial year has been in line with our expectations," the company said today.

"We are therefore on target to deliver adjusted operating profit of around £5 billion and free cash flow in the £4.5- 5 billion range," it added. 

Meanwhile, Vodafone Ireland said its contract base rose by 10.6% at the end of September compared to the same time last year. It gained over 27,300 new customers in the third quarter. 

The company's ARPU - average revenue per user - fell by 3.4% on the previous quarter to 28.20.

Vodafone Ireland said it had a total customer base of 2.4 million by the end of the third quarter.

It said today that smart phones and data usage continue to drive its growth, and the number of customers using smart phones on its network has increased by 4.3%.  It noted that almost 70% of its customers now use mobile data on their devices, including phones, tablets and notebooks.

During the third quarter, Vodafone Ireland continued to invest in its 4G rollout and it also completed a network improvement programme in the southeast of the country.