A customer tests a smartphone as a logo hangs inside a Vodafone Group Plc retail store in London, U.K. (Photographer: Chris Ratcliffe/Bloomberg)

Vodafone Boosts Outlook as Data-Hungry Users Ditch Wi-Fi

(Bloomberg) -- Vodafone Group Plc reaped a payoff from its network build-out in Europe, taking the rare step of raising its profit forecast as customers choose costlier data plans.

The shares rose after the carrier almost doubled its outlook for earnings growth and reported second-quarter results that beat expectations on strength in most markets. Vodafone is benefiting as consumers opt for its mobile networks instead of Wi-Fi, from expansions in its fixed broadband and enterprise businesses as well as cost cuts, executives said Tuesday.

Vodafone now expects earnings before interest, taxes, depreciation and amortization to increase about 10 percent in its fiscal 2018 year, from 4 percent to 8 percent previously, the Newbury, England-based company said in a statement. The stock jumped as much as 5.3 percent, the most since May 2015, and was up 5 percent to 226.85 pence at 9:48 a.m. in London.

Shareholders have been seeking better prospects in Europe, where the carrier generates more than 70 percent of its revenue, and progress in India, where Vodafone is overhauling its money-losing business. At home in the U.K., Vodafone is introducing more flexible wireless packages to win new subscribers and is backing a fiber broadband roll-out to compete with BT Group Plc’s Openreach network and Liberty Global Plc’s Virgin Media.

“This is really robust underlying performance through the year,” Chief Executive Vittorio Colao said on a call with reporters.

Organic service revenue expanded 1.3 percent in the period ended Sept. 30, as a turnaround taking hold in the U.K. and gains across Europe helped offset the end of retail roaming charges. That compared with the 1.4 percent average of three analyst estimates compiled by Bloomberg, for the measure of sales from customer plans and network traffic, excluding handset sales. First-half Ebitda of 7.39 billion euros ($8.67 billion) beat analysts’ estimates for 7.09 billion euros.

“Vodafone is executing well on strategy, especially in terms of cutting costs, and revenue growth is recovering thanks to the potential in the broadband and enterprise markets,” Stephane Beyazian, an analyst at Raymond James in London, wrote in a note. Beyazian reiterated his view that Vodafone would be better off merging with Liberty Global, the subject of on-again, off-again talks between the companies for years.

Vodafone said that while competition remains intense in India, there are signs of positive developments, including the consolidation of smaller operators and recent price increases from the new entrant, Reliance Jio Infocomm Ltd. Service revenues from Vodafone’s India business were down 15.8 percent in the first half and adjusted Ebitda fell 39.2 percent.

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In India, Vodafone is merging its business with Idea Cellular Ltd. to form the largest telecom operator and selling infrastructure to bring down debt. The companies this week announced the sale of mobile-phone towers in the country to American Tower Corp. for 78.5 billion rupees ($1.2 billion).

©2017 Bloomberg L.P.