5/28/2008 10:35:00 AM
Vodafone takes margin hit
Vodafone’s outgoing CEO, Arun Sarin, has predicted a less than rosy outlook for the UK business, amid intense price pressure in the market.
The operator has seen a sharp downturn in its margins throughout Europe because of fierce competition, reduced revenue from mobile termination rates and the weak pound compared with the Euro.
Vodafone’s UK business saw a 16% dip in profits from £511m in 2007 to £431m in March this year.
Over one million new customers joined last year, taking the total base to 18.5m customers (40% from contract), just ahead of second placed O2’s 18.4m.
However, the battle to control churn has resulted in Vodafone cutting prices to keep customers. The operator has also had to slash prices on mobile broadband to match the likes of 3.
The hit on margins comes despite Vodafone slashing its costs by £550m across its European business – largely through centralising parts of the business, such as handset buying, technology and its supply chain. It has also tried to out-source or share the cost of building and developing its HSDPA networks across Europe.
Sarin said: ‘We will try to continue to push down costs, and we will look at more areas of the business where we can be more efficient. But the reality is that margins will continue to fall due to competition, acquisitions and building our broadband business.’
Sarin (pictured) also warned of an annual drop of 10% to 15% in revenue from the money it makes from termination rates, in light of greater regulation across Europe.
The UK management team is understood to have warned the group that the difficult UK economic climate will have an impact on the forthcoming financial period, with British consumers paying greater attention to where they can cut their household spend.