500 jobs to go at Vodafone as Sarin unveils deep cost-cutting strategy

Arun Sarin, the under-pressure chief executive of Vodafone, will unveil a deep cost-cutting programme tomorrow alongside record annual pre-tax losses of around £15bn.

About 500 jobs are likely to be cut at the mobile phone operator's Newbury headquarters, and other central functions, in the first salvo of a battle to slash overheads by up to 20 per cent over the next few years.

The cost-cutting drive will form a key plank of Mr Sarin's response to concerns within the City over sluggish growth in more mature markets and the lacklustre performance of Vodafone's shares.

Many back-office jobs will be outsourced to IT specialists, such as Hewlett-Packard and IBM.

Vodafone will detail the results of an eagerly awaited strategic review of its business at the same time as posting one of the steepest pre-tax losses in British corporate history. But that loss, outstripping Vodafone's own £13.5bn record set in 2002, is unlikely to ruffle big City investors as it encompasses a £28bn write-down of the value of the company's assets rather than cash haemorrhaging from the business.

Vodafone will also seek to appease shareholders by taking the opportunity to announce a substantial increase in future dividend payments. Experts believe the company, which is already returning £15bn to shareholders, can afford to lift returns by around 15 per cent.

Following the review of its operations, Vodafone is expected to signal its intention to bolster revenues by targeting fixed-line rivals, and is working on plans to offer fixed-line broadband services. However, it is thought unlikely that Vodafone will sweep up an existing provider, such as Cable & Wireless' Bulldog. Instead, it will look to form partnerships with current providers, such as BT.

Its rival, Orange, is aiming to offer both fixed-line and mobile telephony to the same customers and is expected to launch a "free" broadband service this week as it rebrands its sister company, Wanadoo.

Vodafone will also unveil a new tariff allowing mobile customers across Europe to make ultra-low cost calls if they are within 2km of their homes.

Mr Sarin is expected to resist calls from some investors for a wide-ranging disposals programme, but his comments on Vodafone's 45 per cent stake in the American Verizon Wireless business will be keenly awaited.

That stake is reckoned to be worth around £25bn, and pressure is mounting to sell to Vodafone's partner in the US joint-venture, Verizon Communications.

Investors will also be looking for initiatives to trim the amount Vodafone is shelling out to retain its customers. Much of the estimated £4bn it spent last year went on subsidising the cost of expensive handsets for customers who may otherwise have defected to rival operators.