Vodafone's revenue drops as European struggles continue

Vodafone reported a 2.3 percent drop in revenue for the last three months of 2011, as economic conditions, particularly across southern Europe, continue to be weak

Vodafone reported a 2.3 percent drop in revenue for the last three months of 2011, as economic conditions, particularly across southern Europe, continue to be weak.

Revenue for Vodafone's third quarter was £11.6 billion. The company didn't report on its quarterly net profit.

"The results are alright. On an organic basis, revenue grew by 0.9 percent," said Charlotte Patrick, principal analyst in Gartner's Carrier Strategy team.

Vodafone said it delivered revenue growth in data services and in emerging markets. However, the sector remains competitive and the economic environment, especially in southern Europe, was challenging.

For example, year-on-year, service revenue dropped by 5.4 percent in Italy and 9.3 percent in Spain. Service revenue also dropped in Greece, Portugal and Ireland. That drop was partially offset by growing revenue in the UK, Germany, the Netherlands and Turkey, according to Vodafone.

Data revenue grew by 18.1 percent thanks to increasing smartphone penetration. In Europe, smartphone penetration was up from about 16.5 percent to 24.4 percent year-on-year.

For operators, the current challenge is to grow revenue from data services faster than the revenue from voice services drops, while keeping costs in check.

Vodafone's data revenue may have grown by £240 million, but voice revenue dropped by £648 million. Vodafone's results were also helped by more revenue from messaging and fixed services, but that wasn't enough for overall service revenue to grow.

The drop in voice revenue is a big issue, and something that Vodafone can't sustain much longer, according to Patrick. There is also a looming threat on the messaging side from applications, including WhatsApp and BlackBerry Messenger, that allow people to send messages without having to pay for SMS, she said.

Looking forward, Vodafone expects to continue to face challenging market conditions, but remains confident, it said.