Cell phone giant Vodafone beat forecasts for customer and revenue growth yesterday helped by emerging markets and sales of new 3G phones, but disappointed some investors by saying it would keep its US business.
The world's biggest mobile operator by sales, under pressure from some investors to sell its 45 per cent stake in US firm Verizon Wireless and return proceeds to shareholders, warned that the competitive pressure it was facing would not ease soon.
Chief executive officer Arun Sarin said Vodafone was facing "undoubtedly one of the most difficult operating environments for the telecoms sector in recent times".
"We see this more intense environment continuing over the next six, 12, 18 months," he told analysts on a conference call.
Vodafone, however, kept its guidance for this financial year and its outlook for the next, and said it was making progress in selling 3G phones that enable video calling and faster Internet access and bring it higher revenues.
It added a net 7.1 million customers in the third quarter of its fiscal year, spanning the key Christmas period, as growth in emerging markets, Spain and the United States offset stiff competition in the UK, Germany and Italy.
"We're encouraged by the fact that although Italy and Germany are worse than expectations, that impact is more than offset by the US and the emerging markets," said Jim Wright, fund manager at the British Steel pension fund.
He said the firm was right to keep its Verizon stake for now. "It's a fantastic asset and I wouldn't want them to sell it for anything other than a very, very high price," he said.
Vodafone shares rallied as much as 2.9 per cent in early trade, adding to gains on Monday. But by 1200 GMT they had reversed to trade down 2.5 per cent at 119 pence.
"A lot of people bought them on the pretence Vodafone could sell their Verizon stake, and when there was nothing on America, they flushed them out," one dealer said.
An analyst, who asked not to be named, said comments by Vodafone's finance chief Andy Halford that the sale of the Verizon stake could attract a multi-billion-dollar tax bill had dimmed hopes of a deal and also hit the stock.
Analysts had forecast organic quarterly customer growth of between 5.4 and 6.3 million users. Organic numbers refer to the company's own operations and strip out the effect of changes in its stakes in other operators.
Vodafone, which has operations in 27 countries, said its user base stood at 179.3 million at the end of December and that Verizon Wireless, its joint venture with Verizon Communications , added a record two million users in the quarter. "The financial benefits of our holding on to this asset over the last couple of years have been compelling. That's why the board has chosen not to sell this asset at this time," CEO Sarin told reporters, adding the value of the stake had risen about $10 billion over the past couple of years.
"We're not saying we will not sell this asset in the future, we're simply saying we want to make sure that when we sell this asset we have maximised value for shareholders." Vodafone said mobile revenue grew eight per cent in its fiscal third quarter and kept its full-year guidance for growth in the middle of a six per cent to nine per cent range. It also kept its margin guidance for the current financial year unchanged.
Mr Sarin also reiterated the group's cash flow targets and said its Japanese unit - long a problem area, but now on the mend - would deliver positive net additions in the second-half.
But he warned that Japanese net additions in January would not be as good as the previous two months, and reiterated a previous margin guidance for that business. "Progress is being made, but we still have a long way to go," Mr Sarin said.
The numbers from Vodafone came at a time of mounting disquiet about the prospects of the telecoms sector, the worst performer on European stock markets last year.
Vodafone said it saw strong customer growth across many markets over Christmas. It added 906,000 customers in Germany, 324,000 in Italy, 561,000 in the UK and 505,000 in Spain.
But the core European business showed scars from the mauling caused by increased competition and falling prices, with blended annual average revenue per user (ARPU) falling 7.8 per cent year-on-year in Germany, 8.3 per cent in Italy and 4.3 per cent in the UK.
Service revenues were flat in Germany, and fell 1.7 percent in Italy, where a 5.7 percent impact from cuts in call termination rates wiped out a four per cent rise in underlying growth.
"The business has to pedal faster on subscriber growth to offset falling ARPU in order to meet expectations," Investec analyst Christian Maher wrote in a research note, keeping his "reduce" rating on Vodafone shares.
Vodafone shares fell 11 per cent in 2005 and had fallen around 3.5 per cent this year by Monday's close. The shares trade at around 11.7 times forecast earnings versus a European sector average of 12.4, according to Reuters data.