Vodafone hit by Germany and Italy woes

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Vodafone posted an as expected first-quarter 3.5 percent drop in its key organic service revenue as increasing competition in Germany and Italy wiped out improvements in India at the world's second largest mobile operator.

Vodafone, which has been battling increasing regulation, recession and competition across Europe in the last year, said on Friday its organic service revenue was down 5.1 percent in Germany, its biggest European market.

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Service revenue in Britain was down 4.5 percent while Spain was down 10.6 percent and Italy down 17.6 percent, as customers sought to save money by making fewer calls and retaining older handsets, and as rivals stepped up competition.

Overall, the fall of 3.5 percent was slightly improved on the record fall of 4.2 percent recorded in the fourth quarter, but it is still a sharp drop for a group that was posting growth only 12 months ago.

"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," Chief Executive Vittorio Colao said in a statement.

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The tougher competition in the once-stable market of Germany has surprised investors who only last year saw the market as a haven of growth and high margins in a region of furious competition..

The British group has also been hit hard in its southern European markets, and was forced to write down the value of its businesses in Italy and Spain by 7.7 billion pounds in the last financial year.

Vodafone said the Italian market was struggling with the tough economic conditions which had resulted in intense price competition as well as changes to regulatory rules over how much operators can charge each other to connect and disconnect calls.

The group did enjoy better fortunes in its emerging market division however, with organic service revenue in India up 13.8 percent as the market started to stabilise following an intense price war.

The British firm reiterated its full-year outlook and said group overall revenue in the three months to the end of June was 11 billion pounds ($16.7 billion), in line with consensus.

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