More for a lot, lot less at Vodafone

(By Richard Holway 9.00am Wednesday 11th Nov 09) There are very few FTSE100 constituents that fall into the TMT category. Vodafone is one of them. Which is one reason why I have always taken a keen interest in their fortunes. The other is that I have been a long term shareholder ever since I got my first brick of a mobile phone back in the 1980s. For almost all that time, I have been used to uninterrupted revenue, profits and share price growth. Mobile was afterall the place to be.

Although Vodafone did indeed report revenue growth of 9% (to £21.8b) in the six months to 30th Sept 09, its excellent profits growth of 73% (to £5.75b) was fuelled by CEO Vittorio Colao’s £1b cost cutting programme last year.

The news that struck me most was Vodafone’s performance in India. If there was ever a growth market for mobile phones then the BRICs are it. Vodafone’s future probably lies in making it big there. But the price competition in India seems to be immense. Vodafone boosted customer numbers by 50% in India but its revenues were up just 20%. A price war between at least 12 competing suppliers is dragging down prices to levels unimaginable here. And with it margins.

The same trend applies in the UK and the rest of Vodafone’s established markets. The availability of the iPhone on Vodafone, O2 and Orange in 2010 will create price competition even at the premium end of the business. Also the huge increase in the use of mobile data services will put a strain on the network requiring additional investment.

So from almost every direction a case of More for a Lot, Lot Less.