Italian reservist Colao must hold his nerve

VODAFONE boss Vittorio Colao is a renowned cost cutter, but yesterday’s results were all about the top line. The world’s largest mobile operator by revenues has to prove that it is still a high-growth company and not a dependable utility. For that reason, investors will be relieved that the group booked revenues of £11.5bn, up from £10.47bn a year earlier.

Organic revenues might have been better-than-expected, although the figures were still appalling in places. In the EU, revenues fell by 3.2 per cent; the UK and Spain performed the worst, falling 4.9 per cent and 6.8 per cent respectively. When one considers that these are being compared to already weak numbers from 2008, it’s clear the firm has a problem.

Italy offered the only bright spot in the EU, eking out growth of 0.7 per cent. Colao used to run the Italian operations and their resilience is mainly down to his leadership, explaining why he won the top job. Now he needs to turn around the rest of the group.

Outside the more mature markets, it was the Turkish business that gave cause for optimism. Organic revenues here were up 12.9 per cent on the same quarter last year, compared to a drop of 7.9 per cent in the first half. Vodafone has done well restructuring this region, sacking 250 staff and bringing 500 new people in.

This approach is needed in the EU. Too many middle managers are failing to execute Colao’s vision; they cut their teeth in the boom years, when voice revenues were exploding, and became too complacent.

A much-repeated tale in telecoms circles is that when O2 realised it wasn’t going to win the first exclusive iPhone contract, an executive jumped on a plane and made an impromptu pitch that won Apple round. It’s hard to imagine Vodafone having the same gumption.

With voice revenues in the doldrums, it was data sales that allowed Vodafone to grow the top line. These were up 18 per cent in the quarter, but the headline figure is misleading. Collins Stewart analyst Morten Singleton points out that data now uses 2.5 times more network capacity than voice does, even though it accounts for just 11 per cent of revenues.

Nor is data that profitable, with mobile carriers competing fiercely as smartphones take off. The cost of improving networks and bidding for licences eats into margins. The firm would do better capitalising on emerging markets, where call revenues are growing.

Colao has proven he can get results in Italy, where he is a reservist in the Arma dei Carabinieri. He might have stopped the Vodafone tanker from going in the wrong direction, but now he must hold his military nerve and turn it around.