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Tough times taking their toll on Vodafone

World’s second-biggest mobile operator is feeling pinch as punters tighten belts

Vodafone has warned that cut-throat competition and weak consumer confidence are hitting its UK operation as revenues tumbled in a sign that economic conditions remain tough.

The world’s second-biggest mobile operator said Britons are sticking to their fixed-price plans and spending less on extra calls and texts beyond their allotted allowance or bundle.

UK revenues fell 4.5 per cent to £1.52bn in the three months to June, with so-called “out-of-bundle” spending diving 7 per cent.

“In-bundle” revenues rose by  1.5 per cent as Vodafone persuaded some of its 19.2 million British customers to move to its new Vodafone Red tariff, a price plan with more calls, texts and data.

Analysts at Espirito Santo bank suggested that Vodafone might be losing out to EE’s super-fast 4G phone service, which has been winning premium customers since its launch last autumn. Those close to Vodafone played down such talk, noting that EE’s service had picked up only some 500,000 users, and said it is on track to launch its own 4G service.

Vodafone said the tough UK market was part of a wider picture of “increased competitive intensity in northern and central Europe”, particularly in Germany, where revenues dived 5.1 per cent.

The FTSE 100 giant bought the German telecoms and pay-TV firm Kabel Deutschland for £6.6bn last month to boost operations in its biggest European market.

Conditions in southern Europe remain little short of dire, with revenues in Italy crashing 17.6 per cent and Spain down 10.6 per cent. Group sales, including joint ventures, fell 3.5 per cent to £10.15bn.

Vittorio Colao, chief executive, said profits should still hit forecasts, and pointed out that growth in emerging markets had accelerated, with Turkey and India surging.

Vodafone said the launch of the Samsung Galaxy S4 had helped to drive smartphones sales in the UK, with 57 per  cent of its customers having a smartphone compared with 46.5 per cent a year ago.

Mr Colao has pioneered the Vodafone Red strategy to win over customers with a combined phone-and-data price plan to offset the rise of free online messaging services such as What’s App.

Big call: Germany key

Germany is Vodafone’s biggest market in Europe but has proved costly as its £112bn merger with Mannesmann in 2000 was over-priced. While the economy has been resilient, competition is fierce and revenues dropped 5.1 per cent in the last three months against 3.5 per cent in the prior quarter. A million Germans have signed up for the new Vodafone Red tariff but “out-of-bundle” revenues – outside the tariff – plunged by 25 per cent. Buying Kabel Deutschland for £6.6bn last month was a sign that Vodafone wants scale by offering a quad-play of services: landline, broadband and pay-TV as well as mobile.