Vodafone revenue grows, but profits hit by Euro problems

Increase in data revenue increase exceeded voice revenue decline for the first time

Vodafone Group grew its revenue for the fiscal year ended March 31, helped by increased data usage, but profit was hit by problems primarily in Spain, the company said on Tuesday.

Group revenue was up 3.2 percent to £45.9 billion (US$74.6 billion). Profits ended up at £7.87 billion, down from £8.62 billion in the previous year, according to a statement.

Profit was helped by a £2.8 billion net gain on the sale of the Group's interests in China Mobile. But the operator also recorded an impairment charge of £6.1 billion related to its underperforming businesses in Spain -- which represented about half of the total sum -- Greece, Portugal, Italy and Ireland. The need to write down the value of those operations was primarily driven by higher discount rates, Vodafone said.

For mobile operators, the current challenge is to grow revenue from data services faster than the revenue from voice services drops, while keeping costs in check.

In 2011, Vodafone's voice revenue -- which still represents more than half of the total sales at £27.2 billion -- fell by about £800 million. But at the same time, data revenue grew by over £1 billion to £5.1 billion. For Vodafone, it is the first year that the increase in data revenue exceeds the voice revenue decline.

The growth in data revenue was helped by higher smartphone penetration. In Europe, it was up from about 12 percent to 19 percent year-on-year. Today, penetration among prepaid users is only 10 percent.

That still leaves room for a lot of growth, according to Vittorio Colao, CEO at Vodafone. For example, 32 percent of subscribers with a contract at Verizon Wireless -- which Vodafone partly owns -- now have a smartphone.

Growth in data usage is now also coming from developing parts of the world.

The growth in smartphone results in more data traffic, which operators have to contend with. For Vodafone, data traffic grew by 66 percent to 147 petabytes year-on-year. During Vodafone's fourth quarter, growth eased thanks to the use of web and video traffic management.

Traffic management, or optimization as Vodafone prefers to call it, goes hand in hand with network neutrality. European regulators have taken a wait-and-see approach, which it has received criticism for from some quarters. But Colao thinks the discussion in Europe is healthier than in the U.S., he said during a question and answer session after presenting the results.

Today, Vodafone uses some throttling on the heaviest data subscribers, which represent less than 1 percent of all users, to prevent them from taking up all the bandwidth, according to a Vodafone spokesman. The operator also charges users an extra fee if they want to use VoIP services, he said. Operators have to be careful and take a "reasonable" approach, because otherwise they run the risk of being regulated, Colao said.

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Tags business issuestelecommunicationfinancial resultsCarriersVodafone Group

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Mikael Ricknäs

IDG News Service
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