Vodafone rings in the profits as emerging markets flourish

Phone giant delivers better than expected results - but can it continue to enjoy its Indian summer?

Last Updated: 15 Mar 2011

Vodafone has surprised the City by revealing a higher-than-expected profit of £8.7bn – thanks largely to bumper growth in emerging markets. Shareholders will be delighted: the phone giant has announced its dividends will jump by 7% as a result. But while the upcoming merger of Orange and T-Mobile might cramp its style here in the UK, it might have bigger headaches further afield – with the Indian government trying to squeeze it for the best part of £5bn, one of its highest-growth markets is getting a lot trickier...

Vodafone, the world’s largest mobile phone company, added another 8.5m customers last quarter, taking its total to 341m. Most of these were in Asia and Africa; so although European operations dropped off a little, it was able to more than double profits from last year’s £4.2bn. The bottom line has also been boosted by a £1bn cost-cutting programme, which has come in a year ahead of schedule; flushed with success, it’s now planning to embark on another two-year programme to save another £1bn. And with more and more of us signing up for smartphones – which means more data downloads – the future looks rosy (but not orange).

That said, Vodafone’s can’t put its feet up quite yet: while India is proving to be one of its strongest areas of growth, it’s also proving to be one of its biggest headaches. The company is currently bidding for one of six new 3G licenses on offer, but the price is way higher than expected – about £2.4bn. On top of that, Vodafone’s also being asked for a ‘retrospective one-time fee’ of £2.3bn for a high-bandwidth 2G radio spectrum Vodafone bought several years ago – a move it has slammed as ‘opaque, illogical and discriminatory’. So it looks like Vodafone’s honeymoon period in the East may yet turn into a monsoon season.

Vodafone also faces fresh challenges closer to home thanks to ‘Everything Everywhere’, the new (and slightly ludicrous) name for the merged Orange/ T-Mobile. The merger will create the largest network in the UK, pushing Vodafone into the number three spot behind 02. UK boss Guy Laurence, though, seems to be taking it in his stride. In an interview with Mobile Magazine, he quipped that he wasn’t surprised they had chosen the name. My view is that they are all over the place. A spokesperson for the company later hit back: Once our networks are fully combined we do expect to have coverage all over the place – so we are delighted to see our competitors taking note. Now, now, boys and girls...

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