Vodafone puts faith in Kabel deal

Mobile phone giant Vodafone hailed its deal to buy Germany’s biggest cable company as a pivotal move in its “most important market” as it continues to feel the squeeze in battered European economies.

The group reported a 3.5 per cent fall in underlying service revenues to £10.2bn during its first quarter to the end of June on a year earlier, with sales in Italy and Spain suffering double digit declines, while the UK was 4.5 per cent lower.

Vodafone announced a £9.1bn deal for Kabel Deutschland last month to boost its ability to offer consumers bundled packages of telecoms, broadband and television services.

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Rival bid interest from Liberty Global had at one stage threatened to derail the deal, but the US media group has since admitted defeat, and Vodafone now hopes to complete the takeover in early 2014.

Vodafone boss Vittorio Colao said the group has made a good start to its financial year despite weak economies and intense competition, adding trading was in line with its expectations.

He said: “The proposed acquisition of Kabel Deutschland will create an excellent platform for our unified communications strategy in our most important market.

“Although regulation, competitive pressures and weak economies, particularly in southern Europe, continue to restrict revenue growth, we continue to lay strong foundations for the longer term.”

The addition of Kabel Deutschland’s 8.5m connected households will leave Vodafone with around 32.4m mobile, five million broadband and 7.6m direct TV customers in Germany.

Operators are increasingly attracted to the ‘’quad play’’ business model, in which customers are able to subscribe to a package including TV, internet, landline and mobile services.

The Berkshire-based company has been expanding its presence in Germany recently, announcing a tie-up with Deutsche Telekom to offer pay-TV over high-speed broadband to its customers.

Germany has been one of Vodafone’s better-performing markets in Europe, although service revenues there fell 5.1 per cent during the first quarter.

Vodafone, which has 19.2m mobile customers in the UK, said its 4.5 per cent underlying sales slide in its domestic market was driven by tougher competition and cash-strapped customers cutting back on mobile use.

But the group added it continues to invest in its fourth-generation (4G) network, which launches later this summer and will offer much faster mobile internet.

It has already rolled out 4G in 10 countries including Germany, Spain and Australia.

Underlying sales across southern Europe slumped 11.6 per cent, driven by a 17.6 per cent plunge in Italy and a 10.6 per cent fall in Spain.

Service revenues in Greece fell 17.5 per cent and were down 10.8 per cent in Portugal.

However, Vodafone reported strong growth in emerging markets, with revenues in Turkey growing 15.5 per cent, and increasing 13.8 per cent in India.

Data use surged by 60 per cent, driven by more customers using smartphones.

Total group revenues for the quarter were £11.1bn.