Vodafone NL Q4: negative impact of Red, regulation limited

Thursday 23 May 2013 | 15:46 CET | Background

Vodafone Group has announced its results for the fiscal year and fourth quarter to March. Vodafone Netherlands reported revenues for the full year down 2.3 percent to EUR 2.01 billion, with a weaker second half than the first. Service revenues, including M2M and fixed-line activities, fell 2.7 percent to EUR 1.86 billion. The operator attributed the decline to the weaker economy and lower revenues from out-of-bundle services. The fourth quarter showed some improvement compared to the third, with service revenues down 2.9 percent versus a 3.6 percent fall in the previous quarter.

Service revenues fell 3.3 percent in the second half of the year to EUR 916 million. ARPU continued to fall and hit EUR 27.5 per month. EBITDA was up 7.4 percent to EUR 371 million, and the margin reached 37.2 percent, up 3.2 percent points from the first half of the year. Capex was down 12 percent to EUR 155 million, helping operating cash flow (EBITDA minus capex) increase 28 percent to EUR 216 million. 

In the last quarter the operator added a net 10,000 new customers for a total 5.298 million, with a loss of 44,000 prepaid users offset by 54,000 new postpaid customers. Prepaid declined to 32.2 percent of all customers from 35.9 a year ago. Vodafone also released details on a number of market segments:

  • Data: data traffic increased 56 percent to 2,056 petabytes. This is a small acceleration from previous quarters.
  • Voice: traffic including wholesale totaled 2.982 billion minutes, up 0.8 percent year-on-year. Divided by the number of subscribers, the figure is stable compared to a year earlier.
  • Messaging (SMS and MMS): the number of messages was down 40 percent on an annual basis to 684 million.
On the fixed market Vodafone added 4,000 customers for a total 35,000 at the end of March. This includes consumer and business customers on both fibre and DSL.

At the group level, the mobile operator also made a number of important announcements:

  • The launch of the new Red plans has resulted in a doubling in data traffic, a higher net promoter score and a lower ARPU. Red is now available in 14 countries and has already 4.1 million subscribers, equal to 8 percent of the customer base. Vodafone targets 10 million Red subscribers by the end of the current year.
  • It's working on LTE, with dual-carrier HSPA as an interim solution. The latter technology offers up to 43Mbps. DC-HSPA coverage is expected to reach 80 percent in its major European markets by March 2015, while LTE should be at 40 percent by the same date.
  • Network sharing is now active at 44 percent of base stations and 56 percent of all new sites.
  • Given the weaker results in Europe, the focus is now on India, Africa, the US and the enterprise market. Vodafone wants to position itself as a company active in data traffic, the business market and emerging markets.
Vodafone Netherlands also announced that it will release an Integrated Report in a few months, covering five strategic pillars: networks (LTE, HSPA and FTTH), tariff plans (Red), customer support (via social media), reputation and Vodafone as employer (women in the company, mobile working). It will also start reporting from the current year a division of service revenues, based on mobile (out-of-bundle, incoming and data), fixed and other.


In terms of customers numbers and voice traffic, the situation is stable at Vodafone. SMS is declining quickly, and revenues and ARPU are also on the downward trend. The Red plans were only launched in March, so have not contributed much yet, but if the effect is the same in the Netherlands as in other countries, then ARPU will continue to decline. On the one hand Red has a positive effect, as the subscriptions are relatively expensive, but on the other hand the unlimited voice and SMS included in the plans means there is little chance of overage charges. The latter have been an important source of income, to which Vodafone now appears ready to say goodbye. After a few quarters, the negative impact of Red will work itself out. At the same time, Red shows a reasonably good take-up, with a strong increase in data traffic.

Vodafone is positioning itself well for the long term, with transparent offers and a healthy focus on networks. The effects of regulation, overage charges and lower SMS income will continue for a few quarters, but will not last forever. In the mean time, Tele2 and Ziggo's expansion on the mobile market will provide more pressure, with the bad news far from over.

The fixed market is providing something of a new income stream. The question is whether Vodafone is investing enough in this. On the consumer market (FTTH), the recent takeover of Wiericke should provide a boost, but on the enterprise market it's currently relying on organic growth. Vodafone may need to consider, as it's doing in other countries, more acquisitions. If it sells its stake in Verizon Wireless as rumoured, then money should be no object. 

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