Telecoms giant Vodafone (LSE: VOD) (NASDAQ: VOD.US) posted its interim management statement for the quarter ended 31 December 2014 today, and the results were better than analysts had been expecting.
For the third quarter, organic service revenue declined 0.4%. Analysts were expecting a 0.7% decline in organic service revenue.
Overall, total group revenue for period fell by 13.5% but this number was overshadowed by the better-than-expected organic service revenue figure. On a country-by-country basis, Vodafone’s revenue returned to growth within the UK, while it has also seen a steady recovery in the rest of Europe. Revenue from growth markets India and Turkey expanded at a mid-double-digit rate.
What’s more, along with an improve performance across all of its markets, Vodafone also reported today that the group’s ‘Project Spring’ mobile build was 50% complete.
European assault
Vodafone’s £19bn Project Spring infrastructure project is designed to make Vodafone one of the best mobile service providers within Europe.
Around half of the cash earmarked for Project Spring will go towards speeding up 4G deployment. Vodafone will also add additional infrastructure to boost its wireless network capacity. In today’s interim management statement Vodafone noted that the group’s European 4G covered has now increased to 65%.
And the company has chosen the perfect time to embark on this huge transformation of its network.
LTE, or Long-Term Evolution is a standard for wireless communication of high-speed data and only serves to improve 4G connectivity and speed for mobile devices. At present, the LTE presence within Europe is severely underdeveloped. In particular, only around 6% of European subscriptions are paying for 4G services. Over in the US, Verizon Wireless has a 60% penetration rate in LTE services.
So, it’s pretty easy to see that LTE has huge growth potential within Europe.
High quality
As Vodafone improves its network across Europe, customers are going to come to see the company as the gold standard in 4G LTE connectivity. With one of the best mobile networks around, Vodafone’s management expect that the company will be able to add 1.5% of penetration in the 4G LTE market per quarter over the next few years.
Some analysts have stated that this is a conservative estimate but whatever the rate of growth turns out to be, anything above 1% per quarter is extremely impressive.
Additionally, the margins on 4G LTE data contracts are usually higher than the traditional text and voice messaging services. So, not only will Vodafone benefit from the company’s high-speed network coverage across Europe, which will undoubtedly attract customers, but the company will benefit from higher profit margins on the data contracts it’s selling to customers.
Then there are Vodafone’s strategic acquisitions to consider. The purchase of Ono and Kabel Deutschland should allow the group to cross-sell its products. When fully integrated, Vodafone will be able to offer customers across Europe broadband, cable television, and mobile connectivity in one bundle.
Income champion
Vodafone’s earnings are set to return to growth next year — growth of 2% and 23% is pencilled in for the years ending March 2016 and 2017 respectively — which should support the company’s hefty dividend payout.
Indeed, at present the company is offering a yield of around 5%, a market beating payout that’s difficult to find elsewhere.
