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Vodafone sees 3G demand pickup
Sarin still after acquisitions; no comments on cash return

By Aude Lagorce, MarketWatch
Last Update: 8:25 AM ET Sept. 19, 2005

http://www.marketwatch.com/news/story.asp?guid=%7B4EAECE5F-6D7E-4DCF-B8F7-FE3447008935%7D&siteid....

LONDON (MarketWatch) -- U.K.-based mobile phone giant Vodafone Group PLC on Monday said adoption of third-generation devices were gaining momentum, but Chief Executive Arun Sarin's absence of comments on cash returns at the company's analyst day pulled on the company's share price.

Vodafone (VOD: news, chart, profile) (UK:VOD: news, chart, profile) said it had sold 4.35 million 3G devices, comprising 3.95 million consumer devices and 400,000 Vodafone Mobile Connect 3G/GPRS data cards, at the end of August. The number represents 2% to 3% of the carrier's customer base.

Vodafone expects 10 million customers to be using 3G services by the end of the fiscal year, which runs to April.

"The rate of take up is accelerating. The 3G average revenue per user, a key measure of profitability, is 24% higher than for the 2.5G user," Chief Marketing Officer Peter Bramford said in a presentation.

Vodafone shares were down 1% in afternoon London trading.

One analyst said the 3G figure may be a good omen for sales in December.

"It's a good straw in the wind for Christmas," said Julian Hewett, a telecommunications analyst for Ovum, a telecommunications consultant.

"But 3G adoption depends less on Vodafone now than on what users are doing with the handsets, if they're still just using voice, it's going to be an issue. The problem with 3G remains that there's no killer application," he said.

Although 3G handsets have been available for years, adoption has been slow and the devices have struggled to find their clientele.

Improved networks, more handset variety as well as improved screen and battery life suggest that the devices might be taking off for good this holiday season.

Vodafone said it feels confident that a new range of 3G handsets for Christmas will boost sales in the category, also noting that 3G prices have come down 30% from 2004.

Vodafone also indicated that it's already looking beyond its current 3G offering by announcing the deployment of HSDPA, a faster version of 3G communication services, in the first half of 2006.

Outlook confirmed for fiscal 2006

At the conference, Vodafone also reiterated its guidance for fiscal 2006, saying it expects to deliver organic mobile revenue growth in the 6% to 9% range. Mobile EBITDA margin is expected to be in the range of flat to 1 percentage point lower than that achieved in the 2005 financial year, after taking into account the effect of declines in interconnect rates and increased competition.

On the topic of shareholder returns, however, CEO Sarin stayed mum, saying financial details would be discussed in November.

This may come as a disappointment to the market, which was hoping for some cash returns.

Ahead of the conference, Deutsche Bank analysts had told clients to keep an eye out for announcements regarding the sale of a non-core asset sale like Sweden or for a hike in cash return strategy.

Sarin was less taciturn on the topic of acquisitions. He reiterated his interest in French operator SFR, which is mostly held by Vivendi Universal (V: news, chart, profile) , and said he continues to examine opportunities in Eastern and Central Europe, with a particular focus on Poland.

"We continue to look for opportunities in Asia. There are clearly one or two investments that we have, where we would like to take our investments up (increase our holdings) -- countries such as Poland or in SFR (in France)," he said.

Vodafone has long been trying to increase its near 20% take in Poland's Polkomtel as well as its 44% stake in SFR.


Aude Lagorce is a reporter for MarketWatch in London.