Vodafone Group Plc (VOD) Down In Europe; Looks To Brighter Future

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Vodafone Group Plc (NASDAQ:VOD) (LON:VOD) chief executive Vittorio Colao is not satisfied with the performance of the company in Europe, and he did not hesitate to show it. The telecom giant has performed poorly in Germany, Italy and Spain, which are the three most important markets in Europe.

“I am not happy with the place where we are in Europe,” Colao said Thursday.

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Price competition hurting Vodafone

Vodafone’s organic revenue from the region declined 9.6% in the third quarter. In Italy and Spain the revenue tumbled 16.6% and 14.1% respectively, even poorer than 13.8% and 11.3% a year ago. Separately, Germany suffered a setback of 7.9% compared to a fall of 0.2% previously.

The telecom giant said that intense price competition is eating into sales even when the customer base has expanded significantly. Over half of the Vodafone Group Plc (NASDAQ:VOD) (LON: VOD) mobile revenue comes from bundled data offers, but under-pressure shoppers in Southern Europe are not willing to spend. Around 81% of customers in Italy are on Vodafone’s prepaid plans rather than long term contracts, which are twice the number in the U.K.

Sounding optimistic and expecting things to get better, Colao said that, in Italy, the price has surged and in Spain almost half of the connections come with fixed line. Likewise, in Germany the fixed line revenues are moving in the right direction. He said that fixed-line revenue is better because they come from fixed contracts, which are more stable.

More investment and deals expected

Vodafone Group Plc (NASDAQ:VOD) (LON:VOD) is planning to inject around £3 billion ($4.9 billion) cash in Europe’s underinvested mobile and fixed networks over the next two years as part of a £7 billion global investment plan. Enhanced networks would help the company to improve its cash flow by more than £1 billion, in 2019. Additionally, Colao is keen to develop Vodafone “pipes” in the air and the ground, with fiber rollout and spectrum allocation to build its capacity.

However, analysts doubt that near term efforts from Vodafone will pay off. “The problems in Spain and Italy are not new, reflecting continuing macroeconomic troubles and a lack of bundled offers there, but they underline the urgent need for acquisitions,” Jason Sumner, technology and telecom analyst at the Economist Intelligence Unit told the Wall Street Journal. The analyst added that the pressure of acquisition from AT&T is not there for six months, which means that Vodafone Group Plc (NASDAQ:VOD) (LON:VOD) could easily pursue its deals to expand cables and fixed services to its portfolio in Southern Europe.