Vodafone results reflect telco insurgence on cable

Q3 2017 produced a mixed bag of fortunes, with cable majors such as Liberty Global posting frankly unsurprisingly poor results, with a 30% net income dive and video subscriber losses, but where some fall, others rise. At present, the ball is in the telco park, where Vodafone was perhaps the standout performer in Europe in the last quarter, posting a significant uplift in broadband subscribers and a small video customer boost in its first half 2017 filing.

Vodafone’s impressive rise to 17.1 million broadband customers across Europe from 12.9 million this time last year builds on the strong telco insurgence into cable which has been a long time coming, as cellular operators tap into wired infrastructure for cellular backhaul. Granted, much of Vodafone’s broadband growth has been acquired, snapping up local cable operators in Germany and Spain and ISP lines in Italy, not to mention the Ziggo merger, but Vodafone has also put its money where its mouth is by pledging significant sums to broadband development projects.

The telco made positive progress in its attempts to make headway in the UK broadband market last week, where it has previously struggled to slide projects past regulators, with the announcement of a new £700 million ($921 million) project with network infrastructure provider CityFibre. It aims to connect 1 million homes in 12 UK cities by 2021, followed by an additional 5 million should the project prove a success – mounting pressure on British Telecom and Virgin Media.

In the UK, Vodafone has just 254,000 subscribers to broadband services, on copper lines which it rents from BT’s Openreach subsidiary, and its healthy performance was also boosted by a £100 million ($131.6 million) compensation payment from BT for installation delays. A collaborative investment between Vodafone and Openreach could be on the cards, according to Vodafone CEO Vittorio Colao, on the condition that Openreach matches CityFibre’s wholesale prices.

In the first half of this year, Vodafone saw the most broadband net additions in Europe with 1.2 million in the six-month period, leading Orange which saw net adds of 0.8 million, followed by Liberty Global with 0.7 million, Deutsche Telekom with 0.5 million, and BT with 0.1 million, while Telefonica actually lost 0.1 million broadband subscribers.

The last quarter accounted for 628,000 of these broadband adds, topped by Germany where fixed broadband KPIs climbed 94,000 in the last quarter to total 2.3 million, Italy saw 54,000 net adds to also reach 2.3 million and Spain added 42,000 to hit 2.5 million – helping Vodafone to hit 15.4 million broadband subscribers, or 18.6 million including VodafoneZiggo.

Vodafone video subscribers increased by 60,000 in the last quarter to total 9.68 million in Europe, with Spain performing strongest where it added 47,000 in the period. In the key German market, Vodafone holds 7.7 million video customers but lost 24,000 in the last quarter, while Unitymedia has 6.4 million and DT has picked up 2.7 million IPTV customers in Germany (since 2007), but growth has slowed, and Sky Deutschland recently passed the 5 million milestone.

Vodafone even managed to escape the brunt of the financial dent expected from the EU ban on roaming fees, slashing its guidance for the impact of EU roaming regulations on EBITDA from €300 million ($355.1 million) to €200 million ($236.7 million) for the financial year.

Performance in the fiery Indian market was poor due to consolidation as Vodafone merges with Idea Cellular, with a net loss of €79 million ($93.6 million) in the first half of 2017, from service revenue of €2.6 billion ($3 billion). The merger is on track, according to Vodafone, receiving approval from SEBI (Securities and Exchange Board of India) and CCI (Competition Commission of India), but awaiting clearance from DoT (Department of Telecommunications) and NCLT (National Company Law Tribunal). “In India competition remains intense. There are however signs of positive developments in the Indian market, with consolidation of smaller operators and recent price increases from the new entrant,” said Colao.

On the mobile front, Vodafone reported that for the first time in years, the volume of data consumed by subscribers over its mobile network won back lost ground on WiFi – signaling a significant trend which Vodafone hopes to harness using more personalized offers driven by advanced data analytics. WiFi still accounts for the bulk of data consumption, at between 72% and 85% of total usage, but the company highlighted that the share of data usage on smartphones increased by between 3% and 8% over last year.

Vodafone’s zero-rating service Vodafone Pass, similar to T-Mobile’s Binge On, launched elsewhere in Europe at the start of this month following its Spanish and Italian launches over the summer, offering mobile customers a Chat pass for £3 ($3.95) a month, a social pass for £5 ($6.60) a month, and a video pass for £7 ($9.20) a month.

“We now have around 8 million active customers on Vodafone Pass, and Vodafone Pass is active in nine markets to-date. Pass is good because it’s driving both ARPU and usage,” said Colao.

Vodafone posted first half profit of £1.1 billion ($1.4 billion), compared to a £4.5 billion ($5.9 billion) loss in the same period last year, and adjusted its full year earnings projection to between £13.1 billion ($17.3 billion) and £13.33 billion ($17.5 billion), a hike of between 4% and 8%. However, group revenue dipped 4.1% to £20.58 billion ($27 billion).