November 14, 2017

Breakingviews: Vodafone is Doing Just Fine Without Liberty

by Breakingviews

Vodafone is figuring out how to go it alone. The 58 billion pound mobile operator and cable group Liberty Global ended talks over a tie-up in 2015. The possibility of a deal hasn’t gone away. But an improving outlook and fibre-broadband growth plans in Germany and Britain make a combination with John Malone’s group – or anyone else – less urgent.

Boss Vittorio Colao upped his EBITDA growth forecast for the financial year ending in March 2018 to 10 percent excluding currency movements, deals, joint ventures and one-offs. The previous forecast of between 4 percent and 8 percent was outstripped by improved cost cutting, price increases and new customers added in the six months to the end of September.

Long-running problems such as a near-stagnant top line in Europe, which accounts for about three-quarters of revenue from ongoing services, are still evident in Tuesday’s half-year report. Vodafone’s European service revenue grew by a modest 0.8 percent in organic terms compared with the same period last year. Colao has little room to increase mobile revenue in places like Germany, Italy, Britain and Spain given an already-high market share and the threat from low-price competitors like Iliad in Italy. Vodafone also lacks the expansive fixed-line internet infrastructure inherited by former monopolies BT, Deutsche Telekom and Telecom Italia that allows them to cross-sell fixed and mobile services.

Teaming up with Liberty Global, which has fixed-line networks in Germany and Britain, once seemed almost the only solution. No longer. Vodafone’s adjusted EBITDA is increasing in both markets, despite sluggishly growing or shrinking sales. Colao has announced plans to spend 2 billion euros building ultra-fast broadband in Germany, and a partnership with UK network builder CityFibre that could reach as many as 5 million households and businesses.

That means Vodafone can sell more internet connections to its big base of mobile customers. Berenberg analysts reckon the group had a 40 percent share of new broadband additions in Germany in the 12 months to October, compared with an overall market share of around 19 percent. A marriage with Malone’s assets might still be nice to have, but it no longer looks a necessity.

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