Vodafone's results: Emerging markets can no longer cover up Europe's woes, writes Emeka Obiodu, senior analyst, telco strategy, Ovum.
Although a poor result was expected from the deteriorating economic conditions in Europe in the quarter, it still makes uncomfortable reading to see ‘reported' revenue declines of 7.7% for the group. There is a caveat though - considering that revenues actually grew organically by 1%, the strength of the British pound has played its role in making this result seem worse.
However, the significant point from this result is that emerging markets are no longer sufficiently rescuing poor performances from Vodafone's European markets. Ovum's research in 2008/2009 highlighted that telecoms revenues tend to lag economic trends; people firstly experience deteriorating personal finances before they start cutting back on telecoms spend. Therefore, as long as the economic headaches persist in Southern Europe (and with concerns mounting in the UK too), the road ahead will be uncertain for Vodafone and other Europe-centric telcos.
Ironically, the main shining star in the results is Verizon Wireless. Had Vodafone's management capitulated to shareholder pressure few years ago to sell the stake, the Vodafone group's results would have even being more worrying.
Vodafone is not alone in noting the impact of competition, further regulator-mandated price cuts and the poor economy for Europe's telcos. Unfortunately, these dynamics are not going to change soon and the industry will have to work a lot harder to stabilize its performance while unlocking additional value in their business."