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Vodafone plans a £1bn ($1.6bn) cost cutting programme, as it warns of a revenue shortfall of a similar magnitude for full year 2008. The largest cellco by revenues is clinging hard to that crown as it forecasts full year figures of £38.8bn-£39.7bn. The low end of this guidance would be over £1bn less than Vodafone's previous estimate of £39.9bn, which in turn represented a slashing of its original forecast, of £40.7bn.

This has led CEO Vittorio Colao to initiate a cost cutting drive, designed to reduce operating costs by £1bn a year by 2011. He has also refocused the company's key objectives, to focus on ""customer value enhancement", as well as cost reduction, rather than on increased sales during 2009-2010. In other words, customer loyalty and higher margins will be key in developed markets, implying a shift towards enterprise business and mobile web services, as well as trying to build growth in emerging economies.

Colao has reversed a five-point strategy that has been in place at Vodafone since May 2006 and will now focus on three main areas - mobile data, enterprise and broadband. "We will shift our approach away from unit pricing and unit-based tariffs to propositions that deliver much more value to our customers in return for a greater commitment, incremental penetration of the account or more balanced commercial costs," he explained.

He also said Vodafone would chase acquisitions where appropriate, and would be prepared to sell assets to fund growth, sparking the perennial speculation that the company would sell its 45% stake in Verizon Wireless, though Colao dampened this, saying he was concentrating on creating value from Verizon.

For the first half of Vodafone's fiscal year, to the end of September, the group reported a 17.1% revenue rise to £19.9bn, largely due to favorable currency changes. Pre-tax profits for the period dropped 27% year-on-year to £3.3bn, but EBITDA rose 10.3% to £7.2bn. However, significantly, European EBITDA margin fell 2.2 percentage points to 38.2%.

"The first half results reflect a solid overall performance in a challenging operating and a weaker macroeconomic environment," Colao said. "Our updated strategy reflects the changing economic and market conditions and it will drive execution with a continuing focus on free cashflow."

Analysts criticized the new plans, saying Vodafone should target other areas of its £22bn cost base apart from operating expenditure, which accounts for 35%.

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