Vodafone's downturn deepens telecom clouds

Vodafone's downturn deepens telecom clouds

By SiliconIndia   |   Wednesday, 23 July 2008, 12:51 Hrs
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London: Telecom service provider Vodafone has massively cut its revenue outlook on Tuesday, pulling down the company's shares by 13 percent to a 20-month low and wiping about $20 billion off its market value.

The main reason behind the blow was an unexpectedly sharp fall in the Spanish market, where large numbers of immigrant construction workers who had been Vodafone customers left the country as the housing market slowed. It was coupled with consumers delaying buying new phones, worsening the condition.

Sending fears across the sector, Vodafone's forecast downgrade has also affected shares of European rival Telefonica and supplier Ericsson.

"We are beginning to see an impact from the current economic environment which is greater than we expected," outgoing Vodafone Chief Executive Arun Sarin told investors and analysts on a conference call.

"Though telecoms companies had shown remarkable resilience to date to the macro-economic slowdown, Vodafone had kicked off the telecoms results season with a reminder that nobody was immune, said Collins Stewart analyst Mark James. Dutch KPN, Norway's Telenor, Nordic operator TeliaSonera and Belgium's Mobistar and Belgacom are all due to report quarterly results later this week.

Vodafone said it had seen smaller but similar effects in other countries, though it cannot tell how much the company had been hurt by the economy and how much by competition. "Clearly, both factors are there," said CEO-designate Vittorio Colao.

Vodafone shares fell 14.4 percent to 127.9 pence by 1051 GMT, pulling the European telecoms index shares down 7.8 percent. Telefonica shares fell 7.5 percent, Deutsche Telekom 6.4 percent and France Telecom 4.4 percent. Credit markets reacted with widening spreads.

Vodafone left its capital expenditure plans unchanged for now, but indicated it had no urgent need to expand network capacity in response to higher demand for third-generation services such as video or Internet browsing.

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