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Vodafone continues its stringent cost cutting program in its UK home market, with new urgency ahead of the merger of T-Mobile and Orange in the country. This will create a new market leader and push Vodafone into third place among four cellcos, necessitating new customer propositions such as the 360 web platform, but also tight cost controls.

With TMo and Orange looking for major cost efficiencies from their joint venture, which has now been approved by EU competition authorities, Vodafone has stepped up its own economy drive and will axe 375 more jobs in the UK from this month. This is in addition to jobs lost last year, during a campaign to reduce its global overheads by £1bn ($1.36bn), the sum Vodafone feared could fall off its top line during the recession. In November, it targeted a further £1bn in cuts by 2012, having hit that original target a year ahead of schedule.

Most of the latest job losses will come from back office functions, and the firm warned that there would be "additional changes as further efficiencies and natural attrition in these functions take effect". Vodafone has around 9,000 staff in the UK.

This is not all a one-way street though - the operator plans to increase its resources in certain areas that will help it compete better against TMo-Orange and current market leader O2, notably in improving customer service and targeting higher value users. So it will hire 170 people this year in "customer facing roles", plus 50 graduate trainees to start in September in various units.

Vodafone is certainly taking a proactive approach to possible shortfalls in its business, brought on by recession or competitive change. Despite its 2008 warning of possibly huge revenue decline during the downturn, its performance has held up well compared to many rivals, and last month it raised its earnings guidance for its current fiscal year on the basis of improved cashflow and an increase in data revenue. Vodafone said that operating profit for its fiscal year 2010 (ending in March) would be between £11.4bn and £11.8bn. Its third quarter revenue growth beat expectations and service revenue in Europe showed some signs of stabilization.

Analysts are now looking for Vodafone to make further cuts in other markets, especially some of its more saturated European bases, such as Germany. Robin Bienenstock of Sanford Bernstein thinks the carrier could reduce costs in its German unit by 15% to 20%, particularly as incumbent Deutsche Telekom has been reducing spending by a similar amount. The UK Communications Workers Union said it was disappointed by Vodafone's decision.

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