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The Wireless Blog from Unwired Insight discusses the latest developments in wireless networks and services, including the new technologies and architectures of LTE-Advanced and 5G. For expert advice on 2G, 3G, 4G and 5G mobile systems and standards, including GSM, UMTS, LTE, LTE-Advanced and 5G-NR, please contact us.

Smartphones bolster Vodafone revenue but profitability challenges remain

Photograph of Alastair BrydonSmartphones are starting to have a significant positive effect on mobile network operator revenues as a whole, with positive news from Vodafone today. Vodafone announced its results for the year ending 31 March 2011, with group revenue up 3.2% on the previous year to GBP45.9 billion. Vodafone claims to be leading its competitors in the migration of customers to smartphones and data packages, as it believes increased penetration of smartphones is a key driver of data adoption.

Furthermore, helped by the increasing penetration of smartphones, Vodafone is making progress with mobile data services, with mobile data revenue up 26.4% on the previous year. This represents 12.0% of service revenue across the Vodafone Group as a whole. 48% of Vodafone’s European smartphone base now take some form of data plan.

However, there continue to be challenges in terms of profitability. For example, the acceleration in smartphone adoption resulted in higher costs. The EBITDA margin for the Vodafone Group as a whole fell 1.1 percentage points compared with the previous year. For the year ahead, Vodafone expects its overall EBITDA to decline further, although the annual decline will be more modest than the 1.1 percentage points declared today.

Vodafone appears to be slowing the decline in service revenue it has experienced previously. Organic service revenue in Europe was down 0.4% compared to the previous year, which is significantly better than the annual decline of 3.8% reported in last year’s results.

In Europe, there continue to be significant differences in profitability of Vodafone operations in different countries, due in part to differences in market share. For example, the EBITDA margins for Italy and Germany (46.2% and 37.4%, respectively) are significantly higher than the UK (29.5%), where Vodafone suffers from a relatively low market share. However, progress is being made in the UK. Service revenue in the UK increased by 4.7% over the previous year, while the EBITDA margin increased by 0.7 percentage points.

So, overall, there seems to be some limited evidence that encouraging adoption of smartphones can have a positive impact on overall revenues although, so far, this effect across the whole business has been relatively modest. With continuing concerns about profitability, capital investment by Vodafone across Europe as a whole declined slightly compared with the previous year, so there seems little immediate prospect of substantial LTE deployment. We look forward to future announcements, to understand the early impact of LTE roll out. Vodafone has already launched LTE services in Germany,  initially targeted at rural areas, as discussed in our post on Extensive LTE Coverage Essential to Avoid 3G Mistakes.

Dr Alastair Brydon has worked in digital radio communications for over 25 years. He provides expert advice on 2G, 3G and 4G mobile systems and standards including GSM, UMTS and LTE. He has written over 40 reports on the development of wireless technologies and services and has acted as an expert witness in major patent disputes.

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