Vodafone clings on as BT-EE giant is born

Vodafone finally slows its European decline as it invests in 'quad-play', but is it too late?

by Adam Gale
Last Updated: 19 May 2015

It’s not been an easy few years for mobile providers. While customers are happy to stomach serious margins for their Apple or Samsung handsets, they want their network provision cheap, and they’re willing to shop around to get it.

Vodafone has been particularly badly battered by this intense price competition, but seems to have steadied its ship. Today, it announced organic service revenues (a measure which ignores one off and handset sales) for the quarter to December 31st of £9.8bn, down only 0.4% on the same period in 2013. Its previous quarterly decline had been 5%.

Broken down, the results were a mixed bag. Vodafone experienced 0.9% revenue growth in the UK, and declines of 1%, 7.4% and 8.9% in Germany, Italy and Spain respectively. In Asia, the Middle East and the Pacific, where it does nearly a third of its business, revenues rose 5.9%.

Investors weren't especially impressed, with Vodafone shares falling 2% to 231.9p, but Vodafone has a cunning plan to return to growth.

'I'm always impatient that our speed of change is not good enough.' - Read MT's interview with Vodafone boss Vittorio Colao

Its strategy has two prongs. The first is investment. The firm’s capital expenditure last quarter was £2.1bn, most of it on the grandly named Project Spring. This aims to increase the network’s data capacity, and has extended its European 4G coverage from 38% of customers to 65% over the last year. The network sorely needs it – data traffic in Europe increased by 67% over the last year, as smart phones get smarter.

The second strategic prong is to get into ‘quad-play’, which is quite the fashion in telecoms these days. Quad-play is a bundle of mobile, fixed-line, broadband and TV provision that’s designed to fight the dreaded ‘churn’ in price-savvy customers. Who really wants the hassle of getting a new provider for all four services, after all, when you’re only unhappy with one?

Alongside its already impressive mobile base, Vodafone’s expanding big time into fixed-lines, and is planning to launch TV and superfast broadband in the spring. ‘Our transition to become a fully unified communications provider is well advanced’, the company said.

That’s all very well, but it could be too little too late. BT announced today that it’s finalised its £12.5bn purchase of EE. The deal gives EE partners Deutsche Telekom a 12% stake in BT and a place on the board, and Orange a 4% stake. In return, BT now has a leading market share in all four quad-play realms apart from TV. Watch out Sky.

As BT boss and MT cover star Gavin Patterson put it, ‘the UK's leading 4G network will now dovetail with the UK's biggest fibre network, helping to create the leading converged communications provider in the UK’.

Vodafone has dropped its opposition to the purchase, but chief executive Vittorio Colao has called for a separation of BT’s Openreach infrastructure network from the rest of the business, adding that the BT-EE tie up needs scrutiny.  

‘Whatever the regulatory approach it is crucially important that all providers must be able to compete effectively with a combined BT-EE,’ said a Vodafone spokesperson.

If Ofcom’s ears are deaf to such concerns, the new BT will be the telecoms firm to beat. Given that last week Sky made a deal to co-operate with O2, which was recently bought by Three owner Hutchison Whampoa, this leaves Vodafone trailing in the quadplay race. It could catch up by allying with Virgin Media, but this would require Virgin to ditch its network sharing deal with EE. It's not impossible, given the BT-EE deal, but there's no guarantee either.

Read MT's interview with BT chief executive Gavin Patterson.

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