Vodafone bets on network upgrade as sales fall short

Telecoms firm to invest an extra £1 billion in improving its network speed and coverage

PUBLISHED : Wednesday, 13 November, 2013, 3:17am
UPDATED : Wednesday, 13 November, 2013, 3:17am

Vodafone, the world's second-largest wireless company, will plough billions into improving its network speed and coverage as it works to reverse service-sales declines that trailed analysts' estimates.

Investments in "Project Spring", the network-improvement project announced in September, would expand to £7 billion (HK$86.1 billion) by March 2016 - a year ahead of schedule and £1 billion extra - Vodafone said yesterday.

Service revenue, excluding currency swings and acquisitions, fell 4.9 per cent in the quarter to September, missing analysts' estimates for a 4.6 per cent decline.

Chief executive Vittorio Colao is betting that Vodafone can benefit from investing ahead of a recovery in European markets, expanding the reach of faster mobile and fibre broadband services.

Including Project Spring, Vodafone will spend more than £19 billion on its network by 2016, Colao said yesterday.

It may be difficult for competitors to keep pace with the company's spending, according to Moody's Investors Service.

"The clear, underlying message is that most companies in Europe are going to have to step up their capex in order to accelerate convergence to set off the challenges coming from Vodafone," said Carlos Winzer, a senior vice-president of corporate finance at Moody's.

Project Spring's goal is to improve Vodafone's high-speed wireless and fixed networks in Europe as well as select high-growth markets like parts of Africa and India. Vodafone is funding the plan with the US$130 billion it got from selling its stake in US mobile firm Verizon Wireless.

First-half sales, before changes to how joint-venture revenue is recorded, fell 3.2 per cent to £22.03 billion. Earnings before interest, taxes, depreciation and amortisation were £6.6 billion, the company said. Analysts had predicted sales of £21.8 billion and ebitda of £6.42 billion.

Colao said he saw an improvement in Europe's economic environment.

Vodafone reported first-half organic-revenue declines - which include the effect of regulatory restrictions on what it can charge other carriers for using its network - of 15 per cent in southern Europe and 3.9 per cent in northern and central Europe in the quarter.

It said northern Europe's economy would return to growth this year and southern Europe would do the same next year.