Vodafone Writes Down Units in Spain and Italy

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BERLIN -- Vodafone, the British telecommunications group, on Tuesday wrote down the value of its network businesses in Spain and Italy by £5.9 billion as it struggled to weather Southern Europe's economic downturn.

The charge, equivalent to nearly $9.3 billion, pushed Vodafone to a £1.9 billion loss for the six months through Sept. 30 after a £6.6 billion profit in the period a year earlier.

The chief executive, Vittorio Colao, blamed Southern Europe's economic woes, which has led to rising unemployment and economic stagnation in Spain and Italy, where Vodafone owns the No.2 carriers behind Telefónica and Telecom Italia Mobile.

"Our results reflect tough market conditions, mainly in Southern Europe," Mr. Colao said.

He reiterated, however, that the company's strategy remained one of cost-cutting and investing in faster networks to increase the sale of wireless data and offset other declines.

Shares of Vodafone, based in Newbury, England, fell as much as 4.5 percent in London trading on Tuesday, before closing down 2.5 percent, at 162.5 pence. The company is the largest telecommunications by market value.

Vodafone was not the only company to blame the recession while writing down the value of its business on Tuesday. Imperial Tobacco of Britain, which makes Gauloises and Lambert & Butler cigarettes and is the market leader in Spain, said it would take a £1.2 billion write-down on its Spanish business.

In the six months through September, Vodafone said its revenue fell 7.4 percent, to £21.8 billion from £23.5 billion a year earlier. In Southern Europe, the declines were twice as steep, with revenue falling 18.1 percent to just under £5 billion.

Revenue fell 18.4 percent in Italy and 19.3 percent in Spain. About half of the declines stemmed from the weakening of the euro against the pound, which eroded the value of Vodafone's earnings in the single-currency bloc.

The company also faltered in Germany, Vodafone's largest single market in Europe, where revenue from voice service and text messaging, its traditional source of earnings, is being increasingly eroded by free Internet-based mobile calling and smartphone message applications.

Revenue in Germany, where the company and T-Mobile are roughly equal as market leaders, fell 6.5 percent, to £3.9 billion.

"Germany experienced a sharp slowdown in revenue momentum as well as pressure on margins," Jerry Dellis, an analyst in London at Jefferies International, a securities and investment bank, wrote in a note to clients.

Huge write-downs are not unknown at Vodafone, which rose to global prominence in the late 1990s through a series of aggressive mergers and acquisitions in Europe and Asia, and the purchase of a 45 percent stake in Verizon Wireless, the largest U.S. wireless carrier.

But the company has periodically overreached during its evolution, and economic downturns set off large accounting corrections to the value of its business. Twelve years ago, Vodafone wrote down the value of its business by the equivalent of $6.5 billion.

Mr. Colao, the son of an Italian carabinieri officer who took over as chief executive in 2008, has streamlined the company, selling stakes in operators in France, Poland, Japan, Sweden and China. In January, he was able to coax from Verizon the first dividend payment for the Verizon Wireless venture since 2005, a windfall worth £2.9 billion to Vodafone.

On Tuesday, Mr. Colao said Vodafone would receive an additional £2.4 billion dividend from Verizon Wireless before the end of this year.

Philip Kendall, an analyst at Strategy Analytics in London, said Vodafone was faring no worse than other operators in weathering the downturn of Southern Europe.

"As the No.2 player in Spain and Italy, we feel Vodafone is holding its own quite well," Mr. Kendall said. "I'm not suggesting all is good at those operations, just that most operators in those markets are hurting and it would be a little short-termist to get out now."

Vodafone has explored opportunities to consolidate its operations in the region, and in February called off a merger of its Greek carrier with that of a rival, Wind Hellas. But the company is unlikely to leave the region, Mr. Kendall said.

"We wouldn't expect major changes at Vodafone," he said. "They'll be exploring opportunities for consolidation and options for cutting costs, but are unlikely to be considering an exit."

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This article originally appeared in The New York Times.


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