Vodafone emphasised the importance that emerging markets will play in its future growth strategy yesterday after revealing that its investment in Turkey has started to bear fruit and that the company is keen to increase its presence in high-growth regions like India and China.
Vodafone said that its Telsim business in Turkey has improved well ahead of plan. It raised the unit's earnings forecasts and revealed that it no longer needs to pour a further $1bn into the Turkish business to fund its recovery.
When Vodafone paid $4.5bn (£2.2bn) for Telsim late last year analysts deemed the takeover to be far too expensive. Yet the fast pace of recovery has quelled such concerns.
ING analyst Damien Chew said: "There are obvious growth opportunities in emerging markets and Vodafone has shown with its recent acquisitions in Turkey and Romania that it can add value despite potential acquisition risks."
Vodafone has increased its investment in regions like eastern Europe, Africa and India over the past year to offset the significant challenges it faces in the UK and Germany where rampant competition and increased regulatory intervention in pricing structures have reduced profitability. In contrast, emerging markets present mobile phone companies with massive growth potential. Mobile phone companies can make significant profits in some of the world's poorest regions by offering extremely cheap tariffs in areas where there is no fixed-line telecoms infrastructure. Margins remain very high because there is no need to subsidise expensive handsets or pay high commissions to third-party retailers. Companies can also control network costs as cheaper equipment can be used.
Mr Chew said the company could apply some of its emerging markets expertise in European markets to improve efficiency. He said that the emerging markets business has proved a success story but it only accounts for 20 per cent of group revenue.
Vodafone also reiterated that it is keen to increase its exposure to the high-growth Indian and Chinese markets. Vodafone owns 10 per cent of India's largest operator, Bharti Airtel, and around 3 per cent of China Mobile but has previously said it could prove difficult to lift its stakes in those operators given the current valuation of the companies.Reuse content