Andrea Bauer

Vodafone became a prominent beneficiary of the pound’s recent decline on Tuesday after saying profits this year would be higher than previously thought once overseas earnings were translated back into the weak UK currency.

Vittorio Colao, chief executive of the mobile phone operator, said he was on track to achieve the strategy outlined in November, despite a slight fall in underlying revenue in the final three months of last year.

Mr Colao said trends in the third quarter were similar to those in the second, with the recession making trading conditions challenging. Emerging market growth continued to be offset by “modestly declining revenue in Europe,” he said.

The group was on track to achieve cost savings of £500m by the end of the 2010 financial year and a £1bn by the end of the 2011. Mr Colao said the cost savings would include job cuts but he did not put a figure on the likely total.

Vodafone said its underlying guidance for the year remained unchanged, but added £500m to its estimate of adjusted operating profits, moving the range up to £11.5bn to £12bn. It added £1.8bn to its revenue forecasts, lifting the range to £40.6bn to £41.5bn.

Group revenue rose 14.3 per cent to £10.5bn in the third quarter. The vast majority of the increase came from exchange rate translation, with recent acquisitions also providing a boost.

The shares responded strongly, rising 9p or 7 per cent to close at 137.15p.

In the face of tougher competition in many markets, Vodafone was reducing prices to increase volumes which had helped increase minutes of usage by 10.3 per cent. It was also allowing customers to upgrade their packages without buying new handsets.

Mr Colao said equipment revenues had fallen by 17-18 per cent as there had been particularly weak sales at Christmas. Sales were polarising between expensive handsets with extra functions, and low-priced handsets, with mid-range models less popular.

In Europe underlying revenues fell 2.8 per cent but were up 13.5 per cent to £7.55bn thanks to currency translation. Spain continued to be particularly weak, Mr Colao said, but Germany improved.

Vodafone’s Africa and central Europe division increased revenues by 6.9 per cent to £1.39bn, an underlying increase of 3.5 per cent. A strong performance from the South African business Vodacom, where Vodafone is planning to increase its stake by 15 per cent to 65 per cent, was partly offset by a weak performance in Turkey. Mr Colao said service revenues in that country fell 13.5 per cent in an “intensely competitive” market, but he had changed the chief executive of the subsidiary.

In the Asia, Pacific and Middle East region revenues rose 26.9 per cent to £1.51bn, with 8 percentage points of the increase due to the inclusion of Vodafone’s acquired business in India. Underlying revenues rose 9.2 per cent.

In the US Verizon Wireless, Vodafone’s joint venture, increased service revenues in local currencies by 12.2 per cent. Since the end of the third quarter Verizon’s acquisition of Alltel has been completed, at a cost of $22.2bn (£14.6bn).

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Microsoft has finalized a mutli-million deal with Verizon Wireless for the right to provide the country’s largest carrier with portal, local, Internet search and mobile advertising services. The announcement is expected to take place during Microsoft’s Steve Ballmer’s opening keynote at CES tonight, starting at 6:30 p.m., although Verizon spilled the beans earlier at an investor conference. The search deal was hard fought and lasted nearly two years, in which all three Internet giants Yahoo, Google and Microsoft were first involved, and then more recently, only Google and Microsoft were left. During the negotiations, the WSJ reported that the deal size ranged between $550 and $650 million, making it a significant coup for the emerging mobile search and advertising industry that is just getting off its feet.

The decision by Verizon Wireless is important for a number of reasons. First off, it gives Microsoft a foot in the door, which had been rapidly closing—the other U.S. carriers were already locked up. If the deal went to Google, it would have owned half the market between Verizon and Sprint. If it had gone to Yahoo, it would have been a landslide victory for the Sunnydale company, which already works with AT&T and T-Mobile USA. With Microsoft also in the game, the mobile search industry—especially in the U.S.—is still completely up in the air.

The second thing to point out is the vote of confidence on Microsoft’s behalf that they believe the mobile search and advertising market could be of significant value over a five year period, which is the length of their contract with Verizon. Perhaps it is just buying marketshare, but Medio Systems’ CEO Brian Lent, who provides white-label search services, and to Verizon Wireless specifically, believes differently. “I would suspect that it would be recoupable. Why would anyone would bid that amount?...I think these are not completely unreasonable numbers, given the size of the space. My industry expertise says that over a period of five-ish year period, one should be able to make those types of revenues.”

—Some more details: The deal will last for five years and the first devices are supposed to launch in the first half. Searches will integrate voice commands and location-based services, and results will include maps, directions, traffic information, local business information; movie show times, gas prices and weather. In addition, users will be able to search for full-track songs, videos and games. Microsoft’s Live Search will be available on a device’s home screen, by downloading an app. The company did not say what the financial terms of the agreement were, or whether it also included a side deal in which Verizon committed to selling more Windows Mobile devices.

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The Japanese government is looking into new guidelines on the country’s mobile phone system that could see connections fees between carriers reduced as early as next year, Reuters reports, citing local newspaper Asahi. Currently, connection fees between Japanese mobile operators, which are unregulated, are seven times those of landline carriers. At around 35 yen ($0.38) per three minutes, the connection charges have been blamed for the high cost of domestic mobile phone calls.

A communications ministry official told Reuters that the government has not yet decided to reduce connection charges, and is in fact, still gearing up to gather opinions on how to better the Japanese mobile phone system. At this stage, it’s unclear how this will impact operators and consumers. If connection fees are reduced across the board for all operators, Daiwa Institute of Research analyst Naoto Osugi told Reuters there shouldn’t be much of an impact on earnings. But if operators are obliged to pass savings on to consumers, it could be “negative” for carriers. Japan’s three main carriers include NTT Docomo, KDDI and Softbank.

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Advertisers are going to spend a lot of money mobile media this year, but it pales to the amount of cash they’ll be spending in just a few years. According to a new Strategy Analytics report, “Global Mobile Advertising Update: Outlook Bright as Inventory Expands,” advertisers may spend $1.4 billion on mobile media this year, and the firm predicts that mobile media advertising could account for a fifth of global spending on Internet advertising by 2011, to the tune of $14.4 billion.

“The outlook for mobile advertising spend has significantly advanced in the past 12 months,” says Phil Taylor, director of Global Wireless Practice. “The supply of advertising inventory is rapidly increasing as mobile publishers look to develop advertising as a revenue stream. Major mobile network operators like SprintNextel, Verizon Wireless and Vodafone have all accelerated plans to sell advertising within their mobile media channels and advertisers appear to be responding positively.”

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Slowly, mobile payments are starting to creep their way into the US. Though foreign countries tend to use the service more, the US will eventually catch on when we all realize that paying your bills while out and about can be easy. Verizon has now announced that it will be using Obopay’s service to allow customers to send mobile payments to each other and stores by using their cellphone.

The service will allow customers to walk into participating stores and pay for items by waving a cellphone in front of a register. Both prepay and billing options will be available, with MasterCard getting in on the prepay deal. Though convenient, don’t expect to be paying for a Snickers Bar at the 7-11 anytime soon. A lot more stores need to participate in the program before Verizon and Obopay’s plan can be effective. At this time, Verizon has yet to announce how much the service will cost.

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The Mobile Payments Services Association has changed its name, before it's really got started. The group, set up this year by Orange, Vodafone, T-Mobile and Telefonica Moviles, is now called Simpay.

Simpay is targeting a billion sales transactions paid for by mobile phone a year within five years, and the group is in talks with 14 mobile operators to join the club.

M-payments have failed to set the world alight so far because there are, or have been, too many incompatible systems; they are expensive to implement; the operators levy outrageous charges on the retailers; and there simply aren't enough customers to make the exercise worthwhile for the merchants.

With Europe's mobile industry uniting around a single interoperable platform (to launch in 2004), and heavily promoted brand, the concept of MPayments may turn into profitable reality. But for whom? Merchants will stay away in droves, unless they get more reasonable rates.

Simpay is gunning for big ticket items as well as cheap things, such as MP3 downloads, which would be charged straight to the customer's phone account. For more expensive stuff, Simpay would facilitate payments "using credit and debit cards to complete transactions such as travel bookings, theatre tickets and gift orders".

The Simpay rebranding is refreshingly free of marketing bull - the MPSA founders simply say Simpay will distinguish the company as a separate entity from its founding members and should position the brand strongly in the consumer segment. The Simpay tagline is straight and to the point too: "Pay for Stuff with Your Mobile".

Even the most high-falutin' claim for the Simpay name is relatively restrained. Simpay "also highlights the evolution of the mobile phone from being purely a communications device to being an essential lifestyle tool that enables payments." OK, we'll let you get away with that one.

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