Phone-y war

Vodafone's drab results are a sideshow

Vodafone's predictably drab results are something of a sideshow. The key question for investors remains whether Chief Executive Vittorio Colao can agree a good deal for partner Verizon Communications to buy Vodafone out of the duo's US joint venture.

The mobile giant's full-year figures, released on May 21, largely met or beat analysts' forecasts. But these reflected diminished expectations. Revenue fell 4.2 per cent to £44.4 billion, while Ebitda dropped 3.1 per cent to £13.3 billion. Still, the JV, Verizon Wireless, helped power a surprisingly strong rise in adjusted operating profit, up 9.3 per cent to £12 billion.

Unsurprisingly, Vodafone stresses the positive: progress in data, business-to-business sales and emerging markets. But the weakest markets are in terrible shape. Adjusted operating profit fell 32 per cent in Southern Europe. And, as expected, a three-year programme to increase dividends seven per cent a year will not be renewed. Vodafone now just aims to keep payouts at least flat. Nor will shareholders receive cash from the next big dividend from Verizon Wireless. The company's main problem is strategic. As a mobile-only operator in Europe, it struggles to thrive. Former telecom monopolies and cable firms are now luring customers with combined packages of mobile, landline, broadband and television. Vodafone is trying to respond. Depending on the market, it is trying or considering wholesale deals with fixed-line providers, building fibre networks and selective takeovers. But it is on the defensive.

The list of European headaches also includes weak economies and tough regulators. It only highlights the importance of the United States. A Verizon Wireless buyout might value Vodafone's 45 per cent stake at perhaps $120 billion. Optimism on a deal is reflected in Vodafone's shares: over the last decade they have traded on average at a 17 per cent discount to analysts' price targets, Datastream shows, but in 2013 that gap has disappeared. Yet, the two sides still seem far apart on price, and on whether a deal could avoid a huge tax bill. Since Vodafone's results will not provoke a flurry of major price upgrades, the shares look very fully priced - unless and until a Verizon deal arrives.