Vodafone continues to explore ‘consolidation opportunities’ in Italy – CEO

Vodafone Group CEO Margherita Della Valle said the operator is continuing to explore a range of options for its Italian business, which is the last of its three “challenging” markets in Europe.

During the Group’s earnings call for its fiscal first half to the end of September, Della Valle reiterated that Italy, Spain and the United Kingdom are the three markets in Europe where the “industry structure doesn’t allow us to have sustainable growth today.”

She pointed out that Vodafone has already taken action in both the U.K. and Spain, first announcing a proposed merger between Vodafone UK and Three UK and then agreeing to sell Vodafone Spain to Zegona.

In Italy, “we will continue to explore consolidation opportunities,” she said, although she stressed that Vodafone’s situation in Italy is “very different from its position in Spain,” which has been a challenging market for many years.

“We have a very strong company in Italy,” she said, claiming that Vodafone Italy has been outperforming the other established players in terms of quarterly service revenue growth for years.

However, “that doesn’t change the fact that it remains a very challenging market. None of the players in Italy delivers returns in excess of cost of capital. Prices are below cost. So no matter how many efficiencies we drive … the market itself needs action, which is why we will continue to review a range of options,” Della Valle said, without providing any further details.

The Iliad effect

Vodafone competes with Iliad Italia, Telecom Italia (TIM) and WindTre in Italy. Iliad Italia first entered the market in 2018 with a low-cost mobile offer, sparking a price war that continues to this day.

French billionaire Xavier Niel’s Iliad Group has previously expressed interest in buying Vodafone Italy, although Vodafone rejected an €11.25 billion (U.S. $12.2 billion) bid from Niel for its Italian business in early 2022.

However, Bloomberg reported in April 2023 that Iliad had restarted talks with Vodafone about a potential deal involving the latter’s European operations, with the Italian business said to be one of several possible assets on the table. Niel owns a 2.5% stake in Vodafone Group via investment vehicle Atlas Investissement.

Vodafone Italy accounts for 11% of overall Group revenue. In H1 FY24, the Italian business reported a 1.3% decline in service revenue to €2.1 billion ($2.27 billion), while total revenue dropped 2.4% to €2.3 billion ($2.5 billion). The operator blamed the decline on continued price pressure. Mobile service revenue fell by 5.1%.

Vodafone Group as a whole reported a 4.3% decline in H1 revenue to €21.9 billion ($23.7 billion), attributed to the disposal of Vantage Towers, Vodafone Hungary and Vodafone Ghana in the prior financial year. Service revenue rose 4.2%, boosted by growth in Europe and Africa.

Adjusted earnings before interest, taxes, depreciation, and amortization after leases (EBITDAaL) increased by 0.3% “despite a significant increase in energy costs.” The Group has maintained its guidance for the full year.

In terms of its plans for its two other challenging European markets, Vodafone said the sale of Vodafone Spain is expected to take place in the first half of 2024 while it expects the U.K. merger to close before the end of December 2024. Vodafone would then own 51% of the combined business, and CK Hutchison 49%.