Vodafone to initiate deep spending review

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Vodafone to initiate deep spending review

CEO admits need to examine group's cost structures as it struggle with eurozone crisis and tax probes

By CAROLINE GABRIEL

Published: 22 November, 2011

READ MORE: Financial | Europe | Vodafone Group

The eurozone crisis is putting pressure on all the major cellcos to step up their reorganization efforts, and Vodafone is the latest to discuss such plans, with CEO Vittorio Colao promising an in-depth review of companywide costs.

He acknowledged that such a move was necessary, speaking last week at a Morgan Stanley technology conference in Spain. Since then, Vodafone has come under renewed scrutiny in its UK homeland amid allegations that it has underpaid company tax by as much as £7bn.

This will be an additional headache for Colao, who is already feeling the effects of the crisis in southern Europe, particularly in Vodafone's Greek and Italian operations. He told the conference that a deep review of cost structures was needed "because I don't know what the economy will be".

He said Italy was in the grip of a crisis of consumer confidence, while Vodafone had taken a recent writedown in Greece, while Spain was afflicted by a "poor market structure and weak consumer spending". The more northerly territories of the UK, Germany and The Netherlands were resilient, but Vodafone, like its peers, needs to focus even more heavily on emerging markets to offset the European slowdown. Its recent results showed Turkey and India as its most powerful growth markets.

Despite his caution, Colao told Reuters that Vodafone could still increase its capex budget in some countries, like the UK, but this would not be dramatic. "Can I see a little bit more capex?" he said. "Maybe, but a huge amount? No."

In a brighter mood, he also told Reuters that tensions with US joint venture partner Verizon had eased this year. There have been many rounds of speculation that the one of the companies would buy out, or even acquire, the other. Vodafone shareholders have sometimes called for a US exit because of the suspension of dividend payments from Verizon Wireless, while Verizon Communications has made no secret of its desire to have full control of the successful JV. For now, Colao said: "How deep this becomes will determine what eventually will be the final state (between us). We may decide that this is the perfect state...if we don't see anything further we'll say fine, we'll stay here and be good partners. We help them in allowing Verizon Wireless to make investments, they give us dividends, we cooperate together."