Jeremy Warner: Colao makes cash his main priority at Vodafone

Outlook Despite its relative youth, mobile telephony has seen downturns before, but none in which the opportunity for growing market penetration hasn't been able to compensate. In this respect, the present contraction is a new experience for the mobile phone operators; it is the first time they have had to cope with tough times in a saturated market. With interim results yesterday, the new man in the hot seat at Vodafone, Vittorio Colao, was able to explain how he intends to cope. The stock market seemed to like what it heard, with the shares ending up more than 6 per cent on the day. Not that this makes up for the attrition of the last year, during which – oddly, given the company's defensive qualities – the share price has nearly halved.

At first glance, the results look good, with group revenue up more than 17 per cent at nearly £20bn. Unfortunately, most of this growth was down to the weakness of the pound. In constant currency terms, European revenues were slightly lower, and even emerging market growth, with the possible exception of India, now seems to be slowing markedly. Perhaps inevitably, for the second time in four months the company has been forced to cut its full-year revenue guidance.

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To address the problem, Mr Colao promises a renewed focus on costs and execution, with a further £1bn of annual cost savings targeted by 2011. He's not ruling out more acquisitions, but promises that if there are any, they will be funded through disposals elsewhere.

Again, Mr Colao won't say that the group's 40 per cent interest in Verizon Wireless in the US is one of the assets earmarked for disposal, but the changing of the guard at Vodafone may mean it is less of a totem than it used to be. Vodafone's decision to resist City pressure a number of years ago for a swift disposal was fully vindicated by the subsequent climb in mobile valuations, but the investment remains largely dead capital over which Vodafone has limited management influence. For the right price, it makes sense to sell. Still, for the time being, it is the hard graft of operational management that interests Mr Colao. Vodafone's main attraction as an investment is that it remains hugely cash generative, and Mr Colao aims to keep it that way. Despite the damage to top-line growth, cash flow guidance is unchanged and the progressive dividend policy is reaffirmed.

Nor is it all about hunkering down for the bad times. In mature European markets, pressure on prices, both regulatory and market-led, remains intense, but there's still growth to be had from data and emerging markets.

On data, the iPhone has opened up a wealth of new possibilities. The new Blackberry Storm will enable Vodafone fully to compete in this fast growing area of the market, and may eventually enable a meaningful boost to average revenue per subscriber, which in recent years has been in real danger of turning negative. In some markets, where the continuation of four or five competing network infrastructures makes little sense, there may also be the opportunity for consolidation.

Mr Colao has stepped into the chief executive's shoes at a challenging time for mobile telephony. Even in emerging markets, stellar growth can no longer be taken for granted. Still, he can't grumble. Compared with banking, he's in clover.

As we are already seeing, mobile telephony is not entirely recession-proof, but however bad the downturn becomes, it will retain its cash cow characteristics. Mr Cola task is merely that of making sure they are optimised. Compared with the battle for survival faced in many other industries and businesses, it looks like a stroll in the park.