Pricing pressure in both Europe and India continued to weigh on Vodafone, after the telecoms giant revealed its third quarter trading today.
Organic group service revenue grew by 1.7 per cent during the third quarter to December, a touch ahead of market consensus expectations of 1.6 per cent.
Shares initially fell nearly three per cent in trading before being slightly down at lunchtime.
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The firm can be loosely split into two divisions: Europe and Africa, Middle East and Asia Pacific (AMAP) – which generate around two-thirds to a third of revenues respectively.
Plans announced earlier this week revealed Vodafone's Indian arm was in talks with Idea Cellular over a £10bn merger of operations. Vodafone's $20bn investment in the country has caused a number of headaches, including a painful $5bn writedown last year.
So here are four things you need to know about today's update, one good and one bad for Europe and India.
India – the bad
Salmon caveated his comments on Europe though. He said: "A robust performance in Europe is unlikely to be enough to distract investors from the continued uncertainty around the group’s Indian business."
And while the mammoth Vodafone merger will lead to cost savings and boost earnings, credit agency Fitch said: “The recent entry of Reliance Jio is likely to ensure that price competition will remain very high for at least one to two years.”
Neil Wilson of ETX Capital summarised the problems. "India is proving a tough nut for Vodafone… Free data from Reliance Jio means data revenue growth is sliding as data prices decline.
"Revenue growth from data browsing slowed from 16 per cent in the second quarter to a meagre 0.6 per cent in the third quarter, because of the impact of free services from Jio."
The competitive pressures here have been outlined before, but they seem to be intensifying rather than diminishing.
Despite Vodafone dropping prices by 11 per cent, the fact that the decline in customer numbers has accelerated will likely raise a few eyebrows, which might then furrow when investors see that this means profits are now likely to be at the bottom end of expectations.
India – the good
There is hope for Vodafone and it could be updated as early as today, according to Wilson. He said:
"The Indian telecoms regulator is set to rule on whether the free offers from Jio are in breach of its rules on tariffs.
This ruling is certainly one to watch because if the Telecom Regulatory Authority of India backs Vodafone, Idea and Bharti Airtel in their representations it could mean a rebound in data price and revenue growth.
It’s understood that the decision has been made and will be conveyed to telcos today.
And Salmon was slightly more positive that the tie-up with Idea Cellular could bare fruit.
"The possible tie-up between Vodafone India and Idea, the second and third biggest networks in the country, could bring the extra economies of scale needed to combat the threat," he said.
"However, it’s worth remembering that Reliance Industries, the group behind Jio, will have deep pockets too. A price war could be on the cards.”
Europe – the bad
"Everyone is chasing growth and customers," said Vodafone's finance director Nick Read. This can also be applied to India (see above) but it is rather trying in Europe too, especially in the UK.
The UK is Vodafone's second largest European market, in terms of revenue, and organic sales fell 3.2 per cent – EE, now owned by BT, Three and O2 are making for a fierce environment.
"We remain cautious about Vodafone's prospects, at the current share price level, mainly because in Europe, we are concerned that competition may again turn from intense to irrational," said John Karidis an analyst at Haitong Research.
Europe – the good
George Salmon, an analyst at Hargreaves Lansdown called the Vodafone's European performance "robust".
Unfortunately, the consensus from analysts is that this is about as good as it can get in Europe for Vodafone.