Vodafone Profits Hit by Regulation, Competition and Europe's Recession

The world's second-largest mobile operator Vodafone revealed that first quarter income and sales were slammed by regulation, rising competition and the ongoing recession across Europe.

However, Vodafone said it is still on track to meet its full-year targets but stopped short of reporting a profit figure.

First quarter service revenue at Vodafone fell 3.5% to £10.16 bn ($15.47bn , €11.78bn) which is the fourth successive quarterly decline. The company expects to log a similar rate of decline in the second quarter.

Service revenue in Northern and Central Europe, where it derives most of its income, declined 3% in the three months to 30 June, 2013. The company cited 'increased competitive intensity, lower market growth and price pressure' as reasons for the decline.

The British firm logged a worse-than-expected 5.1% fall in service revenue in Germany, its largest European market, and a 4.5% drop in Britain.

Service revenue in southern Europe plunged 14.4%. Italy was down 17.6% owing to 'price reductions, a deteriorating economic environment and the ongoing impact of steep mobile-termination-rate cuts.'

Spain fell 10.6% owing to a 'lower customer base and the increased popularity of discounted-converged consumer offers' in that market, the company said.

Lower income across the core European region offset gains reported by Vodafone's better-performing units. In India, service revenue shot up 13.8% owing to a stable price environment, after years of a price war, and a higher demand for its internet services.

Vodafone's stock was trading 0.59% higher at 12:15pm on Friday in London. The company's stock price has shot up by about 25% so far this year.

Verizon Deal on the Horizon?

Investors have bought into Vodafone in recent years on hopes that the telecom firm will sell its 45% stake in its US joint venture.

Verizon Communications has said it would like to buy out its British partner and the deal could be worth over $120bn.

However, Vodafone chief executive Vittorio Colao said on Friday that there is "no update" on the proposed stake sale.

The British firm also said it expects to complete the €7.7bn (£6.5bn, $10.1bn) acquisition of German cable provider Kabel Deutschland by the end of the year.

"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," Colao said in a statement.

In June, Vodafone inked a preliminary agreement to acquire Kabel Deutschland after raising its offer price amid a rival bid from US-based Liberty Global.

Vodafone plans to change its product strategy with the deal by offering combined land-line, mobile and TV subscriptions. The company was focused on mobile phone services and was renting broadband lines from competitors.

The British firm recently expanded its services portfolio in Germany through a tie-up with Deutsche Telekom to offer pay-TV via high-speed broadband to its customers.