Home / Companies / Vodafone sales drop as southern Europe hurts turnaround efforts

London: Vodafone Group Plc, the second-largest mobile-phone company, reported its eighth consecutive quarter of service-revenue declines as phone customers in southern Europe cut their phone bills.

Service revenue fell 4.2% in the first quarter ending in June, the Newbury, England-based company said on Friday in a statement. Analysts projected a 4.4% drop, the average of six estimates compiled by Bloomberg.

Vodafone is spending £19 billion ($32 billion) on a network-improvement plan through March 2016, putting funds into faster wireless technology and expanding its broadband systems. The company is working to offer more services, combining mobile phones with fixed Internet and TV, to combat price wars and sagging economies in its biggest markets in Europe.

“The company is playing network catch-up and investing heavily," said Guy Peddy, an analyst at Macquarie Research in London, in a note to investors ahead of the results. The first half of the year may be the low point of its European trends.

Vodafone rose 0.4% to 197.85 pence in London trading on Thursday. The shares had declined 33% this year before Friday.

The company said in May that profit will take a hit this fiscal year, ending in March 2015, as Europe’s price wars continue and Vodafone carries out the network-improvement plan, called Project Spring. Earnings before interest, taxes, depreciation and amortization will fall to £11.4 billion to £11.9 billion, the company predicted. Ebitda was £12.8 billion last year.

Rating drop

Vodafone’s spending plans, as well as €18 billion ($24 billion) in deals to buy Spain’s Grupo Corporativo Ono SA and Kabel Deutschland Holding AG, spurred credit-rating provider Moody’s Investors Service to strip the company of its A3 ranking this week. Vodafone’s debt was cut one level to Baa1, the third- lowest investment grade.

The renewed investment focus from Project Spring could turn out to be a powerful competitive advantage for Vodafone, but the company will have to demonstrate that it is able to regain pricing power from this network differentiation strategy, Moody’s said in a statement.

Vodafone was also a potential acquisition target with AT&T Inc. considering a bid, people familiar with the matter said this year. Still, reports about the Dallas-based company’s interest triggered British stock-market regulations, designed to limit merger speculation, and compelled AT&T to make a statement denying plans to make an offer in the next six months.

While the cooling off period ends this month, AT&T has focused its attention at home. The company made a $48.5 billion offer for US satellite-TV company DirecTV in May. Bloomberg

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