Vodafone's Q2 revenue drops 7 percent

But CEO says data, enterprise and emerging markets are performing well

Vodafone Group reported a 7 percent year-on-year drop in revenue for the second quarter. The mobile phone giant saw year-on-year declines in almost every sector of its business, including voice, messaging and data revenue, and in most regions, the figures showed.

Vodafone's revenue for the quarter ended June 30 totalled £10.77 billion (US$16.8 billion), down from £11.66 billion a year earlier, it said Friday.

The only bright spots were small revenue rises in Turkey (up 3 percent) and Egypt (up 6 percent). It also received a boost from its minority stake in U.S. network Verizon Wireless, where data traffic drove service revenue up 8.2 percent.

"Ironically, the shining star in the results is Verizon Wireless. Had Vodafone's management capitulated to shareholder pressure a few years ago to sell the stake, Vodafone Group's results would have been even more worrying," said Emeka Obiodu, senior telco strategy analyst at Ovum.

Vodafone did, however, unload its stake in French mobile operator SFR during the course of the year. Excluding the effects of that sale, and of currency fluctuations, Vodafone said revenue grew organically by 1 percent -- its lowest organic growth rate in over a year.

One factor dragging down performance for some countries was a reduction in Vodafone's intra-group roaming fees for its customers roaming on another of its networks. By restating previous quarters' revenue to use the same roaming rates, it painted a more optimistic picture of service revenue performance in Germany (up 4.2 percent) and the U.K. (almost stable), but highlighted problems in Italy (down 7.7 percent) and Spain (down 10 percent). By this measure, Vodafone's service revenue also rose 6.3 percent in Africa, and 16.2 percent in India.

Despite those difficult market conditions in Southern Europe, Vodafone CEO Vittorio Colao said, the company continues to make progress in data, enterprise and emerging markets, while maintaining tight control of its cost base.

That wasn't enough to cheer analysts at Ovum, though.

"Emerging markets are no longer sufficiently rescuing poor performances from Vodafone's European markets," said Obiodu. "Telecoms revenues tend to lag economic trends: People first experience deteriorating personal finances before they start cutting back on telecoms spend. As long as the economic headaches persist in Southern Europe, and with concerns mounting in the U.K. too, the road ahead will be uncertain for Vodafone and other Europe-centric telcos."

Vodafone nevertheless maintained its forecast that adjusted operating profit will continue to grow, to between £11.1 billion and £11.9 billion for its full fiscal year, which ends March 31. The company did not provide profit figures for this quarter: It only reports profit half-yearly, for the periods to Sept. 30 and March 31.

Peter Sayer covers open source software, European intellectual property legislation and general technology breaking news for IDG News Service. Send comments and news tips to Peter at peter_sayer@idg.com.

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