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July 24, 2015

Is Vodafone out of the woods?

Fixed line acquisitions and improved macro-economics have seen a turnaround.

By Alexander Sword

Vodafone’s share price soared more than 3 percent in its latest Q1 trading update, which suggests a continuing stabilisation in the European market.

Q1 Group organic service revenue grew 0.8 percent to £9,169bn, with the AMAP business rising 6.1 percent. India saw growth of 6.9 percent and Turkey grew 15 percent.

While Vodafone has yet to return to growth in the European market, it has slowed the rate of its decline year-on-year. Organic service revenues fell 1.5 percent, compared to a year-on-year decline of 1.9 percent the previous year.

UK revenues were flat for the quarter, falling slightly in reported terms from £1.433 billion to £1.429 billion, but rising 0.2 percent organically. This was rougly in line with EE’s most recent results, for the year ended 31 March, with operating revenue of £1.469 billion.

Meanwhile, Germany was down 1.2 percent, Italy 2 percent and Spain 5.5 percent.

John Delaney from IDC argued that the positive results from Germany, where Vodafone acquired assets, were a "vindication" of Vodafone’s strategy of acquiring fixed line assets.

"The acquisition of fixed line assets in Europe is a major aspect of Vodafone’s strategy," he commented. "This is mainly because they want to be able to compete by offering customers bundles."

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Vodafone is pursuing this strategy with acquisitions across Europe, including in Spain and the UK. This could also be a major benefit of an asset swap with Liberty Global, according to Delaney.

"A full merger would be problematic; each company would acquire things they don’t want," he states, citing the example of Liberty Global still being active in Poland with Vodafone having pulled out.

Delaney claimed that Vodafone’s recovery owed much to improving macro-economic conditions in Europe.

"The main problem has been economic sluggishness; Vodafone is exposed across the whole of the Mediterranean fringe."

However, the outlook appeared to be broadly positive, Delaney argued, with Vodafone set to benefit from the proliferation of 4G and making good progress in attacking the quad-play market.

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