Vodafone is to double its cost-cutting plan to save a further £1 billion over the next two years.
The mobile phone group expects to complete its initial £1 billion cost-cutting a year early and has decided to expand the programme to counter a continued slowdown in revenue growth.
Vodafone expects that about half of the new savings will offset declining prices and regulatory action, while the other £500 million has been earmarked for bolstering margins and investing in growth opportunities.
Vittorio Colao, the chief executive, said that it was too early to say if the funds would be used for acquisitions.
The new target comes as Vodafone, which has 323 million customers worldwide, reported that its organic revenue growth had fallen 3 per cent in the first six months to £21.8 billion. It recorded a fall in margins despite its cost-cutting activity as it invested in improving the performance of its Turkish business.
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Vodafone suffered as rampant competition in the Indian market took its toll on profitability. While its customer base in that country increased by 54 per cent during the second quarter, prices declined 15 per cent. Mr Colao said that he expected competition to remain “vibrant” until consolidation among the 12 operators could occur.
Vodafone is prohibited from shoring up its position in India by acquiring smaller rivals because of local regulation. However, Mr Colao said changing those rules was a matter of time and that the company was prepared to consolidate when it could do so.
As it has come under pressure in growth markets, such as India and Turkey, Vodafone has relied on further cost-cutting to improve its margin performance in Europe. The company has argued that the new cost-saving target should not result in big job losses, as it expects to save money in functions such as technology, network consolidation and logistics.
Vodafone has been struggling in Britain and Mr Colao warned that it could be two to three quarters before the benefits of its recovery strategy fed through to the region’s performance.
Revenue in the second quarter fell by 6.6 per cent compared with the previous quarter as Vodafone tried to stop a customer exodus by offering better-value tariffs. The strategy paid off in terms of numbers, with 147,000 new customers being added during the quarter, but margins came under further pressure.
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Mr Colao dismissed concerns that, after the merger between Orange and T-Mobile, Vodafone would become the third-biggest operator in its home market — behind the merged company and O2. He said: “Would I prefer to be No 2? Yes. Will I push to be No 2? Yes. But we are not a weak No 3.”
Vodafone will start to sell the iPhone next year, after Orange’s launch of the handset yesterday, but would not give any indication on pricing. The company also poured cold water on hopes that dividends from Verizon Wireless, its American unit, would kick in ahead of schedule next year. Vodafone will meet Verizon, its partner, next month to discuss how to allot the cashflow of the US company, which carries $29 billion (£17 billion) in debt.
Meanwhile, Orange said that it sold 30,000 iPhone handsets yesterday, with customers who had been waiting to get hold of the handsets on its network smashing the previous record for total sales in one day.