Vodafone NL Q4: postpaid ARPU still dropping quickly, despite 4G

Wednesday 21 May 2014 | 13:26 CET | Background

Vodafone Group has reported its results for the fiscal fourth quarter to March, including those of its Dutch subsidiary. The group reports figures for the fiscal year and second half and some details for the latest quarter. We have calculated the remaining quarterly figures based on the developments in service revenues. For the definite figures, please see our quarterly Dutch Mobile Operators report, which will be available in a few weeks. 

Vodafone Netherlands posted revenues for the fiscal year down 1.9 percent to GBP 1.61 billion. In euros, sales fell 4.8 percent to EUR 1.91 billion. Service revenue fell 6.4 percent to EUR 1.74 billion, while other revenue (mainly handsets) was up 15 percent to EUR 173 million. EBITDA dropped 11 percent to EUR 652 million, and capex was little changed at EUR 275 million. Free cash flow (EBITDA - capex) declined 17 percent to EUR 377 million.

Q4 developments

Looking at Q4, based on our estimates and the conversion to euros, we see the following results:

  • Vodafone lost 12,000 mobile customers in the quarter, for a total 5.267 million at the end of March (excluding MVNOs and M2M, but including its own sub-brands). It lost 61,000 prepaid users, but gained 49,000 in postpaid. Prepaid now accounts for 28.3 percent of the customer base, down from 32.2 percent a year ago.
  • On the fixed market (consumer and business), Vodafone shed 1,000 customers for a total 42,000.
  • Data use rose 78 percent to a total 3.6 million TB, accelerating from growth of 56 percent a year ago. Voice traffic was down 15 percent to 2.53 billion minutes, and SMS traffic fell 33 percent to 460 million messages.
  • Mobile ARPU (excluding wholesale, M2M, visitor roaming) was EUR 24.3, down 5.8 percent year-on-year. In the previous quarter, ARPU totaled EUR 25.0. Postpaid ARPU fell 8.7 percent year-on-year to EUR 32.50. Vodafone said that ARPU among 4G customers is 12 percent higher than 3G users.
  • Revenue down 6.1 percent to EUR 461 million, split in EUR 419 million from services (-7.7%) and EUR 42 million other (+13.5%). Vodafone said the organic decline in service revenue was 6.4 percent.
  • Mobile service revenue fell 6.2 percent to EUR 384 million, while other revenues from fixed, wholesale, M2M and visitor roaming totaled EUR 35 million, down 22 percent.
  • EBITDA dropped 19 percent to EUR 155 million, and capex was up 11 percent to EUR 85 million, resulting in a 39 percent fall in free cash flow to EUR 70 million.
  • The LTE network reached 60 percent coverage at the end of the quarter and has since grown to 82 percent. As announced earlier, Vodafone aims to have national outdoor coverage by September, after which it will focus on improving indoor coverage.
  • The smartphone penetration rose to 60.4 percent from 58.4 a year ago.
  • Conclusion

    Vodafone continues to grow in postpaid, but the drop in prepaid customers is putting pressure on revenues, along with the difficult economic environment and regulation. The postpaid ARPU development is worrying, dropping 8-9 percent on an annual basis for the past six quarters. The decline in service revenue is also accelerating. The arrival of 4G, with its higher ARPU, cannot stop the drop in revenue. On the fixed market, growth is also stagnating, as Vodafone appears to be holding off in face of the significant marketing power of KPN and its brands.

    A positive point is the growth in mobile data traffic. It's not easy to calculate usage per customer, as the number of subscribers reported excludes MVNOs while data traffic includes MVNOs and visitor roaming. However, if we set these differences aside, we estimate data usage has doubled year-on-year to an average 231 MB per customer per month.

    The results are also suffering from investment costs, but there's no way around it: costs come before profit. Hence the accelerated investment in LTE, which should eventually support a turnaround. On the fixed market, it will be more difficult to achieve growth: the DSL market is contracting, KPN is slowing the roll-out of FTTH, regulation remains uncertain given KPN's planned takeover of Reggefiber and competition from cable is intense. The question is whether Vodafone has any options remaining to give it a boost on the Dutch (fixed) market. 

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