Monday, November 9, 2009

Vodafone Doubles OPEX Savings Goals, Plans HSPA+ Upgrades

In its half year financial report, Vodafone reported that its group revenue increased by 9.3% to £21.8 billion. Group adjusted operating profit increased by 2.4% to £5.9 billion with a positive contribution from Verizon Wireless and foreign currency benefits offsetting lower profit in Europe.

The company showed growth in data revenues and confirmed further cost savings measures. Vodafone said it will continue to reduce its OPEX costs by leveraging its global scale, controlling marketing expenses, implementing better technology, further accelerating the outsourcing of IT functions, entering more network sharing partnerships, improving call centre effectiveness and consolidating network access expenses.

In an investor webcast, Vodafone executives stated that HSPA+ upgrades to its networks would be sufficient to handle increased data traffic for the next 2-3 years. While data traffic has risen 300% in the past two years, average network utilization has increased from 20 to 30%. Peak utilization -- or sites where 90% of network capacity is being used during the busiest hour of the day -- is actually 5%. Around 40% of the company's European 3G networks now supports 7.2 Mbps. In the coming six months, the company plans to upgrade 20-25,000 sites across Europe to a higher HSPA+ version. The company is also deploying Ethernet microwave backhaul upgrades. A major push into widescale LTE is not expected till 2011 or after.

"The Group has performed in line with our expectations and we have made strong progress with our strategic priorities, in particular in mobile data and cash generation. We have confirmed our guidance for the full year, despite the uncertainties of current economic trends. The £1 billion cost reduction programme is expected to be delivered a year ahead of plan and we have extended this to a further £1 billion of cost savings by 2012," stated Vittorio Colao, Vodafone's Chief Executive.

Some highlights:

  • In Europe service revenue decreased by 4.5% on an organic basis with continued growth in both data and fixed lined revenue offset by a decline in voice revenue resulting from continued market and regulatory pressure on prices. Service revenue decreased in the majority of markets but was partially offset by growth in Italy and the Netherlands. Data now represents 11% of all European service revenues.

  • In Africa and Central Europe service revenue declined by 3.2% on an organic basis as growth in Vodacom and the effect of a 6.8% increase in the average customer base for the region were more than offset by an adverse impact of around three percentage points from termination rate cuts as well declines in Romania and Turkey.

  • In Asia Pacific and Middle East service revenue grew by 12.3% on an organic basis driven by a 3.6 percentage point contribution from the revenue stream generated by the network sharing joint venture, Indus Towers, as well as the 48.2% organic rise in the average customer base and continued strong data revenue growth. Substantially all of the organic growth was generated in India.

  • Verizon Wireless contributed about 34% of adjusted operating profit. Organic service revenue growth was 7.5%, EBITDA margins were maintained and data revenue continued to grow rapidly.

  • The Group invested £2.6 billion in capital expenditure, a similar level to the same period last year after adjusting for foreign exchange, including £0.5 billion in India. Capital intensity for Europe and Common Functions was slightly higher at 8.8%.

  • Data revenue grew by 19.8% on an organic basis and is nearing £4.0 billion on an annualised basis.

  • In fixed broadband (DSL), Vodafone now has 5.1 million customers, up around 1.1 million in 12 months, with strong net adds share in Spain, Italy and