Vodafone feels pinch as mobile users go on a bargain hunt

Robert Lea
24 Jul 2009

Mobile users are wising up to get the best value out of their phone and hurting the revenues of Vodafone, the cellphones giant conceded today.

The world's largest mobile phone operator today revealed further large falls in revenue in its core markets of the UK, Spain and Germany, which are taking the shine off the group's growth in India and Africa.

Stripping out currency gains and acquisitions, Vodafone's worldwide revenues of £10.7 billion in its first trading quarter to the end of June amounted to a like-for-like fall of 2.1%.

In the UK, those revenue declines are accelerating, down 4.7% in the last three months against the January-March quarter when sales dropped 3.5%.

Vodafone, under chief executive Vittorio Colao, is being hit by a cocktail of factors, most linked to the recession and the fact that even mobile phone users are being more careful about how they clock up their minutes and texts.

In a statement to the Stock Exchange, Vodafone said: “The 4.7% organic decline in service revenue was primarily driven by continued intense competition and economic pressures; the latter resulted in reduced discretionary spend which led to customers optimising bundle usage, higher prepaid inactivity and lower roaming revenue. The second quarter will be impacted by a mobile termination rate reduction effective from July 2009.”

What that means is that the UK's five mobile operators are locked in cut-throat price war.

At the same time, customers on contracts are trading down to “bundled offers”, under which they get fewer free minutes and texts for less per month.

Meanwhile, customers on pay-as-you-go phones are either using the phone less or, if they have more than one sim card, they are cannily hooking up to different operators at different times of the week to get the best tariffs.

It also means fewer people are travelling to Europe, where call charges have been higher. It is reckoned the fall in these “roaming charges” has been in line with the decline in the number of passengers flying — running at more than 10%.

It also means things are going to get worse: “mobile termination rates” are the fees operators charge to connect between different networks, and the Ofcom regulator has slashed them from this month.

“What we are saying is that it is fairly tough out there,” said finance director Andy Halford, who also reported falls in Spain of 8.1% and in Germany of 4.8%.

However, Vodafone's march into India is paying off with a 23% underlying increase in revenues and the addition of 7.6 million new customers to take the total to 76 million.