Vodafone, MMO2 Keep On Growin'
By Carlo Longino, Wed Nov 17 22:15:00 GMT 2004

The two UK-based carriers both added subscribers in the last few months, but warn that the cost of launching 3G networks could hold profits back over the next year or so.

Vodafone added 7.5 million subscribers worldwide in its fiscal second quarter that ended in September, taking its total to 146.7 million, though it still trails China Mobile, the world's biggest operator by subscribers. EBITDA (earnings before interest, tax, depreciation and amortization) fell slightly to GBP 6.5 billion, though the company posted a net GBP 3.2 billion in the six-month period, ahead of analyst estimates and down from last year's 4.25 billion pound loss. The losses are linked to goodwill writedowns of acquisition costs, however, and a change in accounting standards beginning next fiscal year will should see the company swing to a profit.

Mobile revenues grew 6% to 16.4 billion pounds on strong performances in the UK, Spain, Germany and the US, offset by continued weakness in the company's Japanese unit. The percentage of those revenues from non-voice services grew a little over a point to 26.7%, and ARPU grew in most of the company's major markets, except in Italy, where it was essentially flat, and in Germany and Japan, where it dropped.

Smaller rival mmO2 reported a strong set of half-year results, seeing its core earnings (or EBITDA) jump 37 percent over the same period last year to GBP 851 million on a 23 percent rise in revenues to GBP 3.285 billion. It added 15% more customers in the period, growing to 22 million, and in the second quarter, ARPU edged up in its three markets. Data revenue also edged about three-fourths of a point to 21.9% of the total.

Vodafone also announced it would pay out a significant dividend to investors, perhaps a sign the company's put its acquisition checkbook away for the time being. mmO2 also said it would pay a dividend on its share for the first time, with CEO Peter Erskine denying the growing rumors that the company is discussing a merger with Spanish operator Telefonica. He also said the company would decide by the end of the year if it would deploy i-mode, putting an end to any existing doubt the company was looking at NTT DoCoMo's technology. mmO2 also said it planned to build its own 3G network in Germany, rather than share a network with T-Mobile.

But the real concern is that both companies said growth in the fiscal year beginning in March 2005 would slow as 3G deployment picks up pace and costs to get customers on the new networks rises. Vodafone's notes on the performance of its Swedish unit may offer some foreshadowing of what to expect: "due to significantly higher operating expenses and depreciation charges, following the continuing cost of developing the 3G network which was launched in July 2004, and increased acquisition and retention costs as competition intensified."