Vodafone Group PLC Earnings Call Nuggets: Regulation in Germany, Italy & Spain
Vodafone Group PLC (NASDAQ:VOD) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.
Regulation in Germany
Tim Boddy – Goldman Sachs: I wanted to ask a little bit about what’s happening in Germany where it looks very much as if a new price war is beginning or a further intensification, if you could comment that would be very helpful. Secondly, I wondered if you could give us an update on regulation, where it seems disappointing to an outsider perhaps that the only concrete proposal we’ve seen so far is the cancelling of roaming fees. Perhaps as if you could generally comment on how you see EC regulation developing at present, and just quantify the EBITDA exposure to roaming fees, that would be most helpful.
Vittorio Colao – Chief Executive: Tim, I give you a quick answer on Germany, but maybe it’s better if Philipp then expands on it and then I will – if I can, I comment immediately on roaming and regulation. So on Germany, I wouldn’t describe it as a price war. I mean to me price war is more what’s happening in Italy, that I call price war. I think in Germany there is more pressure to have changed tariffs and they are discounting plus is attacking more on the low-end even if not generating growth for them and Deutsche continues to subsidize heavy and we have actually increased also our investment in that area. We are still a little bit below them, but of course we cannot let market share sleep, but then Philipp maybe will be more precise. Let me go on the regulation point immediately. I have to say, first of all, keep in mind that roaming is not huge part of our revenues and a large part of it is outside of Europe and so of the 6%, 7% which is roaming large part is outside of Europe and large part is enterprises which anyhow, we did commercially. It is important we are watching, what is coming out of Brussels, of course, we are interacting with them. I share some disappointment that once again instead of letting the free market develop, we think regulation and regulation over multi-country as always has the risk of creating wrong unintended consequences and deterring investment. Having said that, we are engaged and most importantly, as I said, many customers in Vodafone Red now are taking roaming in Europe. 7 million customers take our daily tariff. So we are proactive in using roaming more to our advantage than to be an area that has to be regulated. Do you want to comment Philipp a bit on Germany.
Philipp Humm – CEO, Northern and Central Europe: Yes. Few words on Germany, as Vittorio said, we see some price pressure coming from the (third and first) player. And we also see that (Dutch) continues to be aggressive on handset offers in consumer and enterprise and we are obviously then responding to it. Overall, the market is a little bit soft in gross adds. Now, we are saying on strategy and start to see some pretty encouraging signs as we are reaching our 1.3 million customers with Red. We see our ARPUs stabilizing in the consumer area, which is good and we are also seeing first time net positives on contracts, which is also good. So we are saying on cost, continuing to invest in Red, continuing to invest in the network, and playing a defense game with our smart tariff rate plans in the lower end to offset potential enrolled from third and (fourth) player.
Italy & Spain
Nick Lyall – UBS: Could I ask on the Italian comment you made on the low cost, could you expand a bit on the cost that you might be able to cut from the business, so we could see or at least try and calculate some potential effect on margins for the full year? Then secondly, on Spain, you mentioned again the access to Telefonica’s vertical fibre. Do you have any idea of what price that Telefonica might be asking first or what price the CMT sets? Do you think that’s reasonable?
Vittorio Colao – Chief Executive: Let me pass the question to Paolo, but let me tell you that by definition whatever price Telefonica asks is never reasonable being an incumbent. So Paolo, you might elaborate.
Paolo Bertoluzzo – CEO, Southern Europe: Yes, on the Italian cost structure, obviously we are taking all possible initiatives that do not affect our customers’ experience in differentiation and competitiveness, which we believe is 100% important to maintain in the market. The areas where we are working and we are already having strong results are obviously the right-sizing of our workforce and in particular our support functions including marketing and those which are not facing the customer or delivering clear direct value to the customer. We have just finished our restructuring plan with 700 people exiting the Company just to give an example plus unitary cost of labor is going down at the moment through an agreement we had with the (indiscernible). We are going ahead with network sharing, passive network sharing with all the operators, which allows us not to dilute our differentiation on the network side, but still achieve the important OpEx and CapEx for cash cost reductions. We have pricing ahead on the customer service side that not are using the level of service, but actually increasing the level of services through very advanced self-care, mobile-based self-care which is giving a better service and higher interaction with the customer, but also making sure that we talk to the customer through our call centers when there is an important issue and we do it as professionally as possible to solve the problem. We are also looking at our commercial cost, as you can imagine, across the board. On Spain, as you know, we have reached an agreement on vertical sharing. The price attached with agreement had to be set by the regulator, because it was impossible to reach an agreement on this one with Telefonica for the moment and this is not final. The regulator is setting a price, which is above EUR170, which we believe is not the right price and therefore, we are challenging this as the pricing between Orange and Telefonica as far as we understand is around EUR150 and therefore, there is no reason why it should be higher. Our own view is that the real cost to build, which we are seeing in our own experience, is more around EUR80 and therefore, we are challenging this decision at the moment.