Trading at Vodafone worsened in the third quarter as customers in previously robust northern Europe joined those in the south by cutting back from using their phones.

This added impetus to the British group's efforts to cut costs.

A worse than expected 2.6% drop in organic service revenue in the three months to December 31 marked an acceleration from the 1.4% fall recorded in the second quarter and showed the intense pressure on the British group.

But Vodafone shares rose as the group maintained its outlook for the year and as analysts said the results were not quite as bad as some had feared.

They also took strength from the statement that earnings margins should show an improving trend as the group continues with cost restructuring and savings programmes.

Telecoms firms across Europe are struggling with the macroeconomic pressures at a time when they need to build networks that offer faster speeds for consumers increasingly accessing the internet on mobile devices. They are also facing regulatory changes across the region and fierce competition.

Of Vodafone's 403 million customers, those in Britain and Germany cut back on usage to stick within their price plans while fewer customers signed up to the Vodafone network.

Within such a difficult environment, Telefonica's O2 turned more competitive in Britain and Deutsche Telekom's T-Mobile upped the pressure in Germany by offering cheaper deals for smartphone contracts and more minutes in price plans.

The worsening picture in Germany and Britain compounded the ongoing problems faced by all operators in the big southern European markets of Spain and Italy where customers have cancelled contracts altogether.

Germany was also hit by regulatory cuts due to changes in the amount operators can charge each other for connecting and disconnecting calls, intended to lower costs to consumers. The group has also faced slowing growth in its emerging markets such as India.

"Our results continue to reflect very difficult market conditions in Europe," the company said. "We are addressing this through firm actions on cost efficiency, and continuing to invest in areas of growth potential," it added.

The group is considering cutting its workforce in Spain by up to a quarter as it fights an escalating price war in a shrinking market. It kept its outlook unchanged for free cash flow for the year, after it nudged it lower at the first half results in November.

Vodafone Ireland said it had a total customer base of 2.45 million by the end of December 2012. It noted that smartphone usage across the company continued to grow, with the company adding 95,000 new smartphone users in the quarter, an increase of 37.5%.

It said the number of customers using smartphones on the network reached 972,000, representing 48% of the total mobile customer base.