Vodafone’s Colao Plots £19bn Investment To Arrest Sliding Revenues

Vodafone has responded to falling service revenues in Europe by pledging an additional £7 billion to its existing £12 billion investment programme over the next two years as it begins what CEO Vittorio Colao described as the next chapter in the operator’s development.

Speaking at a press roundtable discussing Vodafone’s half year results, Colao claimed it is the largest investment programme the firm has ever made and will ensure Vodafone’s transformation into a data company.

He blamed ongoing economic and regulatory challenges in Europe for a 4.2 percent decline in service revenues to £20.04 billion, as previously strong markets such as Germany and the UK added to its ongoing woes in Southern Europe.

Project Spring

Colao said the company would improve its mobile network infrastructure, strengthen its unified communications and fixed line offerings and become the market leader in emerging markets where service revenues have actually increased by 5.8 percent.

The company will add 47,000 new 2G sites for improved voice coverage, 73,000 new 3G sites for data, 77,000 new 4G sites as well as 70,000 new small cell and Wi-Fi locations and 87,000 new backhaul links. It currently has no plans to introduce Voice over LTE (VoLTE) as 4G-smartphone penetration has not reached the desired level to make it worthwhile just yet.

“Project Spring does not happen in isolation,” said Colao. “It is a boost to a plan that started last year.  This is an opportunity to overinvest to prepare for the future.”

Vodafone declined to reveal how much will be spent in each country, but it has revealed that the UK will be one of the largest recipients of the £19 billion, with London receiving £150 million. Colao said that this was because of the large number of big-spending businesses in the British capital.

Vodafone UK

“We want to lead in London,” he declared, adding that he was very pleased with the rollout of 4G in the UK and was encouraged by the increased use of data, which he believes can eventually compensate for declining voice revenues.

The operator launched its 4G service in August with coverage gradually rolling out across the country, but its 3G network came in for criticism from Ofcom last week, after it emerged Vodafone was the only UK network to miss its coverage requirements.

Vodafone regards content to be a key driver of usage and believes increased consumption will eventually see European users adopt similar data intensive plans to those used by mobile subscribers in the US and Asia. However he said the investment did not necessarily mean that its target of 98 percent coverage in the UK by 2015 would be brought forward.

The company has also invested heavily in fixed line broadband and recently acquiring Kabel Deutschland, but its interest in the UK is to be limited to enterprise customers in the near future, which Colao believes are more lucrative, although he said things could change in the future.

European regulation

He promised that the investment, coupled with better economic conditions in Europe, should lead to a positive future for Vodafone.

“The European economic situation will improve,” he predicted. “We have more reason to be optimistic for the next five years than the last five.”

He made specific reference to the regulatory situation in Europe, saying there was more spectrum available than this time last year and that “there are changes towards an investment friendly environment.”

However he lamented the “nonsensical price war” that had seen mobile prices in Italy become lower than in India and reiterated his opposition to Ofcom’s proposed licence fee increases for 900MHz and 1800MHz spectrum.

“There’s no doubt that governments will try to get a little bit more money out of operators,” he said, but insisted that this row formed a small part of its regulatory concerns. “Regulations will become less impactful or even favourable and you can see economic recovery starting to spring up everywhere.”

AT&T interest

Colao is optimistic that Vodafone will be in a better place in the next five to ten years, but he would not discuss the possibility that this could attract a US network looking to expand in Europe. AT&T is reportedly considering a bid once Vodafone completes the sale of its holdings in Verizon Wireless, but the Vodafone chief executive would not entertain a “hypothetical question.”

“We have good assets, a strategy and a very solid balance sheet,” he said. “Any further question should be asked to them, not to us.”

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