Vodafone, the world's biggest mobile phone company, said today that its revenues would come in £1 billion under target this year as the recession bites.

New chief executive Vittorio Colao also set a new target of cutting costs by £1 billion by 2011 and has cut the level of growth in the group's dividend.

He said: "Our updated strategy reflects the changing economic and market conditions and it will drive execution with a continuing focus on free cash flow."

Colao said Vodafone had to react to what its customers wanted in the downturn. In the UK, he said, that meant: "they want to spend less each month on their contracts but at the same time are prepared to upgrade their phones less frequently."

He set a new target for revenues of between £38.8 billion and £39.7 billion in the year to next March, £1 billion lower than the targets last mentioned in July and still up on last year's £35.5 billion. But the target for operating profits at £11 billion to £11.5 billion remains the same as made by previous chief executive Arun Sarin when he stood down in July.

Much of the first-half growth came from the inclusion of India for the first full period and changes in foreign exchange rates, which boosted the sterling numbers. But Colao admitted that some markets, notably Turkey, where the turnaround is taking longer than expected, and India, where prices were cut to match competitors, had not come in with the revenue growth expected

He expects most of the future growth to come from Vodafone's operations in eastern Europe, the Middle East, Africa, Asia and the Pacific region (Emapa). These include major offshoots in Turkey, China, India and most recently South Africa, where it bought control of Vodacom last week.

He said: "We are targeting broadly stable operating costs in Europe and for operating costs to grow at a lower rate than revenue in Emapa between 2008 and 2011."

That means cost cutting will spread across the whole company and he would not rule out further job losses.

Vodafone seemed to rule out further major acquisitions, with Colao stating: "There are few potential large new markets of interest to us and we will be cautious and selective on future expansion."

In terms of growing the business Colao said the emphasis now was on mobile data, supplying businesses and broadband. The global ownership of mobile handheld devices ranging from iPhones to laptops has doubled in the past two years and he is convinced that in many parts of the world like Africa and India mobiles will soon be the main way in which people go online.

Vodafone's half-year headline profit came in about the middle of City forecasts, up 10.5% at £5.8 billion, on revenues 17% ahead at £19.9 billion.

Earnings were also 17% ahead at 7.52p a share but the dividend goes up by only 3.2% to 2.57p a share.