“Over the weekend we had rumours, followed by press reports, followed by press reports about the press reports, all pointing in the same chilling direction. "Vodafone, arguably the most important global bellwether of the global telecoms services industry, is about to issue a profits warning." Brrr.
It turns out not to be as bad as that - at least, not yet. Instead, Vodafone is warning that its full-year underlying revenues are expected to be about a billion pounds lower than was expected three months ago. Alongside that announcement, new CEO Vittorio Colao promises new cost savings of - what a coincidence - one billion pounds on average per year, over three years, and reiterates Vodafone's profit forecast of GBP 11.0-11.5 billion. Sigh of relief.
So, it could have been worse. But a fall of about 2.5% in the revenue forecast is still pretty worrying. (And we'd have been more worried about it today, had it not been for that profits scare.) It's one of the biggest indications so far that, contrary to the prevailing consensus, telecoms is not immune to damage from the consumer downturn.
We think spending on telecoms services could be hit soon, and hit hard. The main reason is: prepaid. In the last consumer downturn, you couldn't reduce your spend on telecoms much, before having to deprive yourself of it altogether. This time, if you have a prepaid SIM, you can reduce spend as much you need to. In Europe, and other markets where the calling party pays all, you can actually reduce your spend to ZERO without depriving yourself of telecoms. Your phone can still receive incoming calls.
Today's news from Vodafone is not as bad as we feared. But it's still a chilly breeze; and the wind is starting to pick up speed.”