What's going on?
On Friday, Vodafone, the world’s second-largest telecoms company, reported sales that fell short of expectations – and its shares fell too, by 5%.
What does this mean?
Analysts had expected Vodafone’s revenue in the fourth quarter to grow, but it actually fell. The company was embroiled in a series of price wars in countries with gloomy economic outlooks. In Italy, Vodafone competes with Iliad – which arrived last May and disrupted the market with uber-low-cost subscriptions. Meanwhile, Vodafone’s South African business, Vodacom, slashed data prices to retain customers as they moved from traditional text messaging over to services like WhatsApp and Facebook Messenger.
Both Italy and South Africa have economic growth challenges to overcome this year, so Vodafone’s battles to win what money is going around could get bloodier before improving.
Why should I care?
For markets: With global opportunity comes global risk.
Much of Vodafone’s success comes from tackling old telecoms monopolies and unleashing competition onto the market (ironically, much like rival Iliad’s doing), which has driven better services and lower prices. Vodafone is present in 26 markets, making money in several different currencies – which carries the risk that when its cash is converted, the exchange rate will be unfavorable and strong local sales won’t mean much in its native euros. Vodacom’s sales outside of South Africa suffered from just that – as did Vodafone Egypt.
The bigger picture: Another pause for thought at Huawei.
Vodafone’s CEO said the company would pause further deployment of Huawei’s equipment in its network after discussions with some governments and agencies (Vodafone buys equipment from companies like Huawei to ensure that you can surf the web and make calls). Vodafone’s decision to stop using the Chinese company’s gear wasn’t a condemnation or validation of recent spying allegations – but it could increase Vodafone’s costs, as other supplies can be more expensive, and it’ll likely have to increase prices to recoup some of that.