Feb 7, 2015
Executives
Vittorio Colao - CEO Nick Read - CFO
Analysts
Akhil Dattani - JPMorgan Tim Boddy - Goldman Sachs Nick Delfas - Redburn Partners Mandeep Singh - Redburn Partners James Britton - Nomura Simon Weeden - Citi Justin Funnell - Credit Suisse Polo Tang - UBS John Karidis - Oriel Securities Andrew Beale - Arete Research David Wright - BofA Merrill Lynch Ottavio Adorisio - Société Générale James Ratzer - New Street Research LLP Robert Grindle - Deutsche Bank Maurice Patrick - Barclays Jerry Dellis - Jefferies
Vittorio Colao
Good morning, everybody. Welcome to our Q3 update.
I will take you through the financial highlights and update you on our strategic and commercial developments then Nick will update you on our financial performance and the trends in our six key markets. I will then close and move to Q&A, for which Nick and I will be joined by Philipp and Serpil is in the field today.
So, starting with Slide four, our highlights for the quarter, Group organic service revenue was down 0.4% compared to minus 1.5 in the previous quarter. We continue to see strong growth in our emerging markets, driven by continued customer growth and data usage.
Growth in AMAP was 5.9%. This growth rate was slightly down over the prior period, due to increased competition in South Africa.
In Europe, service revenue was down 2.7%, a further improvement in sequential trends, driven by the UK and Germany in particular. We are beginning to see encouraging signs of ARPU stabilization due to our investment in the network and the more stable pricing environment in some markets.
As a result, Europe service revenue improved 3.3 percentage points quarter over quarter. Data traffic growth accelerated again, to 67% year on year in Europe and 84% across the Group as we see increasing demand for rich content services from our customers.
Our Project Spring program continues at speed. We are now 50% through our mobile build.
Our European 4G coverage increased to 65%, doubling since September 2013. We have made further progress in our Unified Communications strategy across Europe.
We added 233,000 net broadband customers and we completed the deal with Hellas Online in Greece, which adds just about less than 500,000 broadband customers to our 10.5 million broadband European base. Free cash outflow was 11 million in the quarter.
This is 1.2 billion lower than last year as a result of Project Spring investment. We are also reconfirming today our guidance for the full year: EBITDA in the range of 11.6 to 11.9 billion.
Now, Nick will be talking about the performance of each of the main countries in more detail later, while I want to give you an overview of the broader business first. The chart on page five shows service revenue growth excluding termination rates, with AMAP countries in blue and Europe in red.
Excluding the impact of regulation, the Group as a whole returned to growth in Q3. In AMAP, our high-quality network and customer service continues to attract customers, with the base up 8% in the year, driving usage.
The number of data users increased by 24% to almost 109 million and data traffic more than doubled. Service revenue growth accelerated in India and remained healthy in Ghana, Turkey and Egypt.
In Europe, we see an improving trend in almost all of our markets. This is driven by a growing mobile contract customer base, mobile ARPU stabilization in some markets and strong fixed broadband growth.
I’d now like to turn to progress against three key initiatives: Spring, 4G and Unified Communications. We have made good progress on our Project Spring program and are around half the way through the mobile build element.
You can see we are very well advanced on our single RAN and high-capacity backhaul sites, almost 60% complete, which is paving the foundations of our 4G rollout. Twenty-five percent of our European base stations are today connected to fiber and we are confident to reach 30% by March 2016.
So what does this mean for improvement in actual customer experience? We have already improved dropped calls in Europe by a third, moving quickly towards a target of half a percentage point.
We have already reached our March 2016 target for call setup success rate in both Europe and AMAP and within the 5,000 new 4G base stations 4,700 were in Europe in the period. This is very important.
As a result of all of this, 87% of our data sessions in Europe are at HD video speed, just short now, already, of our March 2016 target and in AMAP we are close to achieving our March 2016 target already. So we are showing good progress in most of our metrics and we are just a little bit behind on our 4G rollout in the UK, but we are confident of catching up in the coming quarters.
So now, I'll move onto slide 7, 4G. We have updated a number of our usual charts, showing clear evidence of good progress in this area as well.
Starting from the top left, we have increased our 4G customer base, the red bars, to almost 14 million, as I said earlier. These are active customers with both a 4G device and a 4G plan.
The gap between customers and the 4G device but no 4G plan is closing, but, clearly, we still have a lot of opportunity to work on up-selling. Moving to the top right, we are delivering a better network experience.
As I said before, our 4G network now covers 65% of the population in Europe. 4G is now live in 18 markets, having launched in Lesotho, Hungary, and Kenya in this quarter.
Bottom left, we see that trying to do more data usage continues. Data usage in Europe continues to accelerate.
The growth was 53% in Q1; 64% in Q2; and now 67% in Q3. Data usage is driven by smartphone penetration, which is now 50% of our European customer base.
And the average smartphone usage has increased, now 700 MB in Europe; up 62% year on year. Also, 4G usage is still around twice the level of 3G and in some countries where we have attractive content, such as the UK, this ratio is over three times to around 2.6 GB per month.
As a result of this strong demand, 4G now accounts for 26% of data traffic on our European network, up from 17 just one year ago. Finally, if you look at the bottom right, this is why we are pushing on content combined with 4G.
We have now launched content in 10 markets. During the quarter we have launched NOW TV in the UK, Netflix in Germany and Italy, Spotify in Australia and Deezer in South Africa.
We are also well advanced on network enhancements, such as HD voice and 4G carrier aggregation, which gives higher speeds and more consistent coverage across the cell. Moving to the third update strategy, Unified Communications, on page eight, this is an area with strong commercial and strategic momentum for Vodafone.
Taking the left-hand side of our slide first, we continue our momentum on fixed broadband net ads with some 240,000 across the Group of which 233 were in Europe. This represents the fourth consecutive quarter of strong growth.
We now have 11.8 million fixed broadband users, including 2.5 KDG customers, 1.6 Ono customers and 05 Hellas Online customers. Looking at the progress in deploying services on the right-hand of the slide now, in Spain we have reached 900,000 million homes with our joint fibre partnership with Orange.
We are still on track to meet our 2 million homes target and we will discuss further optimization with Orange once they complete the Jazztel deal. Moving to Italy, our self-build fiber program to the cabinet -- fiber to the cabinet program is progressing well and we have built 1,800 cabinets.
We aim to reach 4,000 cabinets by the end of this financial year. In Portugal, we are close to reaching our 1.5 million target with the Spring investment.
Our own fiber deployment of 1.2 million gives us almost 30% population coverage; with an extra 200,000 homes through the PT fiber access we will get to 30% of coverage. In the Netherlands we have unbundled 300,000 households while as launching our broadband and TV proposition in October.
We have already signed up 10,000 customers and we aim to have 40,000 by the end of the financial year. Our recent acquisition of Hellas Online, which was completed at the end of December, gives us 78% population coverage with their ADSL assets, but also 38% coverage with BDSL.
And finally, in the UK we are on track to offer broadband services from the end of the spring of this year and TV will follow later. With that Nick, over to you for the markets.
Nick Read
Thank you, Vittorio, and good morning. Moving onto page 10, Vittorio has already taken you through the high level picture for the Group, so let’s move directly on to the individual markets, starting with Germany.
Service revenue declined 1%, which is a 2.4 percentage point’s improvement on Q2. This was driven by continued improvement in our commercial momentum, underpinned by a strong network performance.
Taking our commercial drivers, we continue to see good growth in the contract customer base, with 235,000 net additions in the quarter. Our contract churn is the best it’s been for two years, improving 1.6 percentage point’s year-over-year to 15%.
Fixed revenue, excluding KDG, has returned to growth after two years, up 0.5% in the quarter, though this was helped by a healthy performance from carrier services. On our network, as seen in the connect test, we made significant further improvements to our voice, 3G, and 4G networks to close the gap to our main competitor.
And importantly, we significantly widened the quality gap versus the other operators in the market. We added 522 4G sites to increase coverage to 73%, while our dropped call rates are the best we’ve seen in three years, improving to 0.66%.
KDG, who reported yesterday, showed continue momentum with revenue growth of 6.5%, compared to Q2 of 6%; and net broadband additions of 136,000, including 25,000 migrations from Vodafone DSL. As you know, we are almost a year into the integration program, and we remain on track with our plans.
We’ve already commenced the integration of KDG’s national and regional backbone, and are starting to use KDG’s network for mobile backhaul. Just a final point on the immediate outlook for Germany; while underlying performance continues to improve, the combination of volatility that is often experienced in carrier services, and a one-off benefit in Q4 last year, means that Q4 this year is likely to track back a little from a Q3 minus 1%.
Turning to UK on slide 11, the UK business has returned to growth; up 0.9%, a 3.9 percentage point improvement quarter on quarter. This improvement has been supported by stable mobile ARPU, and growth in both mobile, consumer, and enterprise, as well as the sharp recovery in fixed line, including carrier services.
Taking the mobile business first, contract service revenue grew 5.2%. Contract net additions of 98,000 have been supported this quarter by our first Black Friday sale and heightened demand for the iPhone 6 as well as their extended retail footprint.
With continued good traction of 4G bundled with content packages, we increased our 4G customers by 0.9 million in the quarter to a total of 2.2 million. We saw customer migrations from 3G to 4G and the increased take up of content drive the average data usage up 97% year-on-year, with the average 4G customer now using around 2.6 gig.
The fixed line business improved 8.6 percentage points quarter-on-quarter, declining 2% year-on-year. This improvement is due to a strong carrier service performance and a higher delivery of project work as we convert our strong sales pipeline.
Under Spring, our 4G network continues to be expanded, achieving 57% population coverage, up 22 percentage points from a year ago. 4G services are now available in 390 cities and towns across the UK.
The acceleration of our direct distribution strategy is moving at pace, with all the acquired Phones 4U stores rebranded over quarter three. Moving to Italy on page 12, our targeted prepaid price moves earlier in the year have enabled us to stabilize mobile ARPU and deliver a 2.3 percentage points improvement quarter-on-quarter.
However, competitors are still discounting headline prices using below the line offers to win customers and as a result the customer base trend remains under pressure. The continued commercial momentum in the enterprise segment has turned service revenue positive year-over-year for the first time in three years, driven by a combination of our successful zero tariff and a base growth of 152,000 year-on-year.
Fixed line revenue was up 5% year-on-year, though if we exclude carrier services, it grew 1.4%. The broadband customer base increased by a further 38,000 to 1.8 million.
Project Spring is progressing well, with 76% 4G outdoor coverage up from 18% a year ago and we now have over 1.2 million 4G customers. We’ve built fibre to the cabinet to 1,800 sites and anticipate reaching 4,000 by the end of this fiscal year.
Moving to India on page 13, service revenue growth improved again quarter-on-quarter to 15% year-on-year, driven by continued customer growth and higher data uptake. Mobile customers increased by 4.8 million during the quarter, giving a closing customer base of 179 million.
We now have 59 million data customers representing 33% of the customer base, which includes 17 million 3G customers. Average data usage across 2G and 3G has increased by 40% year-on-year, with the average 3G usage in line with European levels.
Data now accounts for 14% of service revenue, with mobile Internet revenue up 70% year-on-year driven by 3G revenue, up 143%. Voice yields remain stable.
However, our minutes of use per customer declined 6.6% as a result of increased competition driving greater dual SIM use in a smaller number of circles on top of the diluted impact of rural penetration. Our Spring program for India saw the deployment of over 5,500 new 3G sites, which takes us up to 90% coverage in our targeted urban areas plus, we continue to expand our M-PESA service, where we now have 85,000 sales agents across India and 2.5 million registered users of which over 300,000 are active.
It is worth noting that we anticipate the next spectrum auction to take place before the end of this fiscal year. Moving to page 14, Vodacom’s organic service revenue decreased 3.9% or 0.5% excluding MTRs.
In South Africa, organic service revenue decreased 5.8% year-on-year. This was driven by a 50% cut in MTRs, which led to a 4.2 percentage point negative impact on growth.
In addition, price competition in the prepaid segment in South Africa has intensified significantly, with effective prices down 21% year-on-year, though this has been partially offset by an increase in minutes of use, up 12% year-on-year due to our effective segmented offers. These segmented offers have helped stabilize our prepaid ARPU over the past two quarters, as demonstrated by the chart.
Whilst the prepaid segment is under pressure, we performed well in the contract segment by adding 93,000 customers to the base, which is up 3% year-on-year, benefiting from record low churn. We also continue to deliver strong growth in data revenues, up 19%, driven by the increased penetration of smartphones and tablets and the expansion of our coverage, with 4G to 34% and 3G to 98%.
We are now waiting on INCASA and the Competition Commission for final approval for the Neotel acquisition, which we hope to reach a conclusion before the end of this fiscal year. Vodacom’s mobile operations outside South Africa experienced a marked slowdown in service revenue growth, up 1.9% in Q3, reflecting the ongoing price competition and regulatory pressures in key markets such as the DRC and Tanzania.
M-PESA continued to perform well across all of the Vodacom international operations, with over five million customers actively using the service. In Tanzania alone, the service now accounts for 23.5% of revenue and around 55% of customers are active users.
Last but not least, Spain, on page 15. Ongoing convergent price pressures continue to impact our service revenue, which is only improving marginally quarter on quarter.
However, many areas of our commercial performance continue to improve. We had a second quarter of positive net additions to mobile contract customers, adding 28,000, and we are seeing continued take up of 4G, with 2.2 million customers.
In addition, we introduced a second brand in the quarter, called Lowi, to address the mobile entry-level segment. In contrast to mobile, our fixed business continues to show strong momentum, with revenue growth at 9.9% year on year, adding 40,000 new customers during the quarter.
With our Spring investment we have now reached 69% 4G coverage and at the end of December we had 0.9 million homes covered by our joint fiber build. Ono reported a decrease in service revenue of 1.3% excluding wholesale, which was consistent with the Q2 trend of flat year over year when you exclude the impact of fixed termination rates.
The integration plan is on track and we have already migrated 25,000 DSL broadband customers to our own network. Our cross-sell program is ahead of our original plans and we have now fully integrated the organization with the Ono team having completed their move to the Vodafone offices.
So, overall, on the big six countries, generally good to steady improvement on most key metrics, with the clear exception of South Africa prepaid and clearly Italy and Spain remain under price pressure. Though carrier services had a very strong performance in Q3, it should be noted that it’s prone to quarterly fluctuations.
So, given these factors, when you at Q4 you should expect only a moderate improvement in group service revenue quarter over quarter. On that, I will now hand back to Vittorio to summarize.
Vittorio Colao
Yes, good, Nick. The last slide summarizes the quarter.
We have made good progress in Europe with further signs of stabilization. UK and we also need to mention the Netherlands have returned to growth.
AMAP continues to grow. Data is only just starting to take off in India.
I am confident that Sunil Sood, who is Martin Pieters’ successor, will continue the great work that Martin has done in India. And South Africa and its international businesses are under competitive pressure but we are taking the right actions.
We are 50% complete in our Spring program, with some of our targets such as single RAN and high capacity backhaul deployment already almost 60% complete and we have more than another year to go. We continue to make good progress on our Unified Communications strategy, with new convergence launches in Germany and in the Netherlands in the quarter and the UK coming soon.
Finally, we confirm our full-year guidance outlook for ‘14/15. On that note, now we open to Q&A and Philipp will join us for that.
Operator
[Operator Instructions] We are now over to Akhil Dattani with JPMorgan. Please go ahead.
Your line is open.
Akhil Dattani
Just a couple of quick questions, please. Firstly, as you've highlighted, a number of these markets are improving quite steadily, the two exceptions being South Africa and Spain.
I just wondered, on those two specific markets, if you could give us some comments in terms of how you think about the outlook. And specifically, some of the things that we're picking up are that Cell C in South Africa does seem to put through some price increases earlier this year, and Telefonica maybe have done similar things as well in Spain.
So just really trying to understand how you think about those price moves; whether they're enough to give you some confidence that those two markets have an opportunity to improve from here. Second thing was just around pricing.
We've seen your Northern European markets, in particular, improving quite strongly this quarter. We've got UK and Holland growing, Germany clearly quite improved.
Anecdotally, we're seeing a couple of signs of some operators feeling confident enough to nudge up prices a little bit; notably, EE in the UK, talking about inflationary price increases for March. Just wondered if that's anything comparable to how you're thinking about what you could do.
And then very finally, just in terms of wholesale and content agreements, you obviously have a lot of agreements across Europe now. If you could just help us understand how you account for that.
Do you book that gross in terms of the content contribution? Or is it just net of the pay away to the content provider?
Thanks a lot.
Vittorio Colao
Thank you, Akhil. Why don’t we do this, I take Spain, Nick takes South Africa and the accounting question, if you don’t mind, and, Philipp, maybe you give a broader comment on the pricing trends and what you’re seeing across Europe in terms of nudging up prices.
So I’ll start with Spain. Spain, I think you are correct in saying that there has been a sign from Telefonica.
I think it’s a move in the setup charge for the call. Nonetheless Spain is a market where we have a lot of pressure on ARPU.
I think we are doing fine in Spain as Vodafone, both on mobile and particularly on fixed, as Nick has said, and clearly the Ono acquisition will help on that front. But the overall pricing of, let me say, Fusion and the bundling that Telefonica has triggered in the market is clearly a case of a non-accretive case of convergence, which is, I am very determined to say, not necessarily the case in every other market and it should not be necessarily the only recipe.
Having said that, with more consolidation in Spain, with more investment in 4G, with more homes reached by fiber from us and Orange, in theory, longer term even Spain could follow a more kind of healthy path. Nick, South Africa, Cell C and accounting.
Nick Read
Yeah. So, Akhil, in terms of South Africa, yes, Cell C has just put up pricing both in prepay in the month of January, I think it was, and contract in February.
I would say that the competitive pressure we have faced is largely MTN driven more than Cell C. You could argue that MTN were responding to Cell C, though, in themselves, I think they had a degree of underperformance in prepaid.
I would say I’ve seen some healthy moves in terms of them starting to reposition away from pure price into broader proposition-driven to get elasticity moving, a little bit like our strategy has been over the last 18 months. So I see MTN slowly moving back more in line with our approach to the marketplace, so may be a bit healthier in quarters to come.
In terms of the accounting, I mean, there are a number of rules and I think it would be a bit boring to go through all the different rules. I’d say largely we are net in our accounting on most of the agreements.
Philipp Humm
It’s Philipp, just to give a few comments on the price increases in the market or price moves in the market overall. I think we, as Vodafone, are taking a very disciplined and analytic approach to pricing.
So we have carried out quite a lot of price increases in the last times, be it in KD, on fixed line, in Spain, also in Italy or in the UK as well on the mobile side. So we’re trying to be as disciplined, as analytic as we can here and further continue to work on the pricing side.
I think most markets are now more disciplined. The issue is really more in Europe: still in Italy, we just had an announcement from Hutch of another unlimited, unlimited one-gig price point at €10, which has been advertised; and in Spain, as Vittorio mentioned; we still have the issue that the bundle price is very, very aggressive in the marketplace.
Akhil Dattani
Okay, thanks a lot.
Operator
We're now over to Tim Boddy at Goldman Sachs; please go ahead, your line is open.
Tim Boddy
I wanted to ask a little bit about Italy, where it seems that, after what looked like quite a strong sequential performance in Q2, obviously, a little weaker in Q3, although the year-on-year trend improved. Do you think you are losing market share in Italy, would be the first question?
And then what's your plan to deal with the customer base outflows? Typically, where we see negative KPIs there's normally some sort of price response that has to follow.
Secondly, I wanted to talk a bit about the EC. Clearly, we've got UK consolidation on the table, whether that's done at the UK, or EC level.
Are you hearing from the new regulators, whether on the competition or the new digital commissioner, any sign of change in attitude towards the sector in these early months? Thank you.
Vittorio Colao
Why don’t I take the second question and I leave Italy to Philipp? I have to say, based on my meetings and based on our exchanges with the new Commission, we are, so far, positive, I would say, on two fronts.
Positive on the fact that there is much more awareness than before that the industry needs return on investment and that fragmentation does not help that. I think it’s clear, it’s explicit and it’s there at all levels.
This is a positive indication for the future and especially for the possibility of creating a healthier environment across Europe and not just a few countries. Also, we sense that -- and this is again important for Vodafone that, this will not come with a regulation that will favor incumbents or dominant positions.
I think it was reiterated even recently and even publicly that competition and choice across the market should not be more limited as a result of competition. This is particularly important of consolidation -- This is particularly important on two issues: the access to NGA and the access to content, which of course see us very supportive on this position of the commission.
Philipp Humm
Tim let me address the question on market share. I mean obviously we don't have the numbers of our competitors yet as not yet published.
If you look at last quarter, last quarter we were able to increase our market share overall, but also in the sub-segments mobile and fixed. And if you look at our commercial performance, we were not able to get enterprise back to growth, prepaid ARPU is fairly stable, while we're still losing customers there, but on a stable ARPU and fixed broadband and one piece of voice is growing at 1.4%.
So I think overall, we have good growth drivers, which make me feel confident that we should not lose market share, but maybe win a bit.
Tim Boddy
Thanks very much. Maybe just to follow up briefly on that, I guess the key question is what would have to happen to see Italy stabilize, like the other markets in Europe?
Vittorio Colao
Yes let me then get back and also partially integrate what Philipp said. One clearly, there is one player to many in Italy or maybe two, but at least one.
And clearly, the competition between Hutch and Wind is not healthy for the sector. We have no idea of where they are in terms of potential discussions, probably not very close, if I judge from the movements in the market.
But clearly, that would be the important thing. Now of course, I'm getting back to your question before, of course if we stabilize our revenue market share, we will be happy.
But if we see that there is a leakage because we are too disciplined, too smart, we will have inevitably to get back into the market more aggressive ourselves.
Operator
We now have the line of Nick Delfas at Redburn Partners. Please go ahead, your line is open.
Nick Delfas
I'm afraid I'm going to ask about the UK, just a few questions. If 3 does buy 02, what do you think will be the status of the Cornerstone joint venture?
I know that 3 has been reportedly saying they might keep both joint ventures, but is there any change of control? Is it likely that they would leave Cornerstone?
Secondly, you seem to be outperforming EE in the UK. I wonder what you would like to say about that; if there's any particular reason for that.
And then just more generally on the UK, there's been a huge amount of movement. Where do you think that leaves you?
Vittorio Colao
Yes let me Nick tell you a couple of things on this. First of all, on the 3, 02 merge, 02 have contractual obligations with us.
If 3 buys 02 and it becomes 03, 03 will have to respect the same contractual obligation as 02. And you know that's it, so I assume the law is still the law.
And second, if the idea of keeping both to me sounds, but this is an opinion of course, not very regulator-friendly I would say, because it would create a concentration of power and traffic into BT EE, who have already an agreement, an MNVO agreement with Virgin. So in my view, between contractual obligations and the regulatory consequences or remedies, I think sooner or later we will receive a call from Canning.
Second, on outperforming EE, I don't know. You probably have more numbers or more insight than me.
I hope you are right and I would be pleased if you are right. It would mean that our policy of pricing 4G as a content-oriented pricing or product and trying to create value into the packages is being rewarded.
That's why we never went into this race of saying who has more 4G customers just because they have 4G phones. It's the usage that matters, it's the revenues that matters, but again I don't know, I'm commenting on your question, I'm not commenting on facts, and I hope facts will confirm my answer.
More in general, on the movement in the UK, the fact is that today the creation of a big Goliath has been announced. So UK is back to an operator with around 14 billion in domestic revenues.
The others are all around. We are four Davids around one Goliath.
It will be very important that the regulators take a look at the situation that appropriate remedies are put also in relation to the other deal on spectrum, on access to NGNs and on access to content. So that's the only comment I make.
Now having said that, the other four Goliath between us Sky, 03, and Virgin we are all between £4 billion and £5.5 billion of revenues each in the market, so we are not exactly Davids. But for sure, we will have to dance around the bigger boy.
Operator
We now over to Mandeep Singh at Redburn Partners. Please go ahead, your line is open.
Mandeep Singh
Thanks very much for taking the question. It was really around Project Spring and the departure of Steve Pusey, and just putting that into context.
Versus your original plans, how happy are you that Project Spring is going to deliver differentiation? It looks like Deutsche Telekom and Telecom Italia may ramp CapEx.
Clearly, as Nick eluded to a minute ago, big changes in the UK. Do you feel you're on track with where Project Spring was versus original expectations?
In the context of changes in the marketplace, potential CapEx hikes, how confident are you that Project Spring will deliver its original intentions?
Vittorio Colao
Let me pass this question to Nick after having quickly addressed the Steve Pusey reference. Steve is a great person, a great manager and he has achieved greatly with us.
He’s been with Vodafone more than eight years. He has done, with me, Europe, the centralization of purchasing, the spreading of 3G, then we worked on convergence, all the new things, then 4G, then Project Spring.
I think, you know, first of all, I am grateful to him for the support and the commitment he gave to Vodafone which, by the way, he will continue to give until July when Project Spring will be 75% or 80% done. I wouldn’t put, you know - I wouldn’t create a connection between Steve’s personal choices and great achievements and Project Spring.
On the progress instead, Nick.
Nick Read
I think if you stand back, I think there were a lot of people that questioned whether we would have the capability and capacity to execute this programme and I think you have to sit back and look at the operational and commercial performance and say we are tracking ahead of expectation of where we had hoped to be. I mean, the voice quality, as we’ve explained in slides, there is a dramatic improvement.
I mean, dropped call rates down 30% in Europe since the start of this programme, call setup success rate now above the target we had set ourselves, 4G coverage at 65%. So, we can point to a lot of things that say the quality of our network has dramatically improved and we show you the slides to back that.
But I also say, just in terms of our commercial performance, European mobile contract net adds now plus 0.5 million in the quarter, our fixed progress was very strong as well at 240,000 net adds. So, I think the progress on the network is starting to manifest itself in the commercial performance as well.
Mandeep Singh
Okay. Can I just quickly follow up, Nick, whilst I have you on the line?
In the first half, you absorbed the Spring OpEx-related costs through cost cutting. You mentioned in a couple of meetings, including with us and in other forums, about being brutal on costs.
Can you just give us an update on costs and the confidence in absorbing Spring OpEx through cost-cutting for the rest of the year, please?
Vittorio Colao
Yes. If you remember, in those sessions I also said that I think we did a very strong execution in the first half, but I said that of course Spring OpEx is ramping up all of the time in the fiscal year and that we would not be able to offset the full effect in the second half.
But of course we remain very diligent on our overall cost profile.
Operator
And now of the line of James Britton at Nomura. Please go ahead.
Your line is open.
James Britton
Just a follow up on the UK. Do you think you can enter the UK broadband market in a disciplined manner, which will not incite a negative response from the likes of TalkTalk and Sky stepping back into the mobile side?
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FEBRUARY 05, 2015 / 9:00AM, VOD.L - Vodafone Group PLC Interim Management Statement for the quarter ended 31 December 2014 Presentation And can you confirm the story earlier this week that you will opt for a cloud-based TV platform when you launch later in the year?
Vittorio Colao
So the answer to the second question is yes. It’s a simple answer.
I think my colleagues in the UK already commented it. And the answer to the first question is, at the end of the day, everything depends on each other’s behavior.
It seems to me that TalkTalk is already in the mobile space. It seems to me that Sky is more or less determined to get more into the mobile space.
We get into the broadband and TV space and then the market trends will be determined by the collective behavior. So Vodafone will be one of the players in that space, but of course it will depend also on what the others do.
Clearly, like in Portugal or like in Spain, the more aggressive the non-mobile people are in mobile, the more aggressive will become on TV and on broadband. I mean, this is of course a normal situation.
What the endpoint is will be determined by the dynamic forces of the market.
James Britton
From your perspective, is it possible to predict whether competition in mobile steps up, or reduces? Obviously, there's a lot of conflicting forces.
Vittorio Colao
I hope that the whole convergence bundling game turns out to be an accretive, positive, more usage, richer services type of environment, but of course it can also go the other way, which can be less ARPU, more competition and more push down. But if there is a push it will be across the piece, it will not be just on mobile.
It will be on mobile, on fixed, on TV, on everything. So, where we end up depends a lot on how all will behave, not just Vodafone.
Operator
We now go to Simon Weeden at Citigroup. Please go ahead.
Your line is open.
Simon Weeden
A couple of my questions have been answered. That just leaves one, which was I just wondered if you could elaborate a bit more on how you are getting on with M-Pesa in India.
You mentioned having nationwide Asian coverage with 85,000 agents, but you've got quite a few more than that in Kenya, so I wondered quite what you meant by nationwide coverage. And, I guess, that it would be useful to know what you think the taking of a payment bank license would give you over and above what you're able to do today.
Nick Read
Hi, Simon, it’s Nick. So, nationwide coverage really means that we have deployed in all circles within India.
So, I mean, we have a footprint that goes through the country. Of course you constantly add agents all the time.
I think it’s very important, though, to concentrate on corridors of flow and one of the key elements on the current system is we’ve got something called a ‘semi-closed system. So, we can pay money in, we can transfer, but you have to basically go to a bank to take the cash out, so the agent is not allowed to do a cash out.
That is a key constraint because, Simon, you know our executions in Africa well. That is obviously a key constraint in terms of the network effect.
The new license that we’re applying for now allows us to do that cash out. So, to me, it is strategically important and will open up a more network effect, and then we can start to focus on corridors and then expand from there.
Operator
We’ll now go to Justin Funnell of Credit Suisse. Please go ahead.
Your line is open.
Justin Funnell
Two, or three, questions, please. We've seen in the States, obviously, record-breaking payments made to spectrum, which seems to be the result of them having huge data growth and then starting to run into capacity issues.
Just wondering where you feel you stand as an organization on capacity. How much can you keep growing at this rate of data volume before you would hit a similar issue, and if you think about, let's say, Germany, the UK, and then perhaps a market like India as well?
Secondly, on your 4G customers, there, just looking at the slide, slide 7, they grew by 4 million in Q3, by 3 million in Q2, so an acceleration in customers. But the underlying improvement in service revenues was a bit of a slowdown, obviously, with quite a few noise factors here and there.
Is -- can you explain that? Are we looking at, perhaps, a pickup again in Q4, because a lot of those 4G customers added were essentially opening up their box at the end of the quarter?
Or is it something else going on? Really, can we see a correlation between service revenue growth and 4G customers?
And then finally, the data usage in the UK, 2.5 -- or 2.8 gigabytes a month, which is a stellar number versus the rest of Vodafone, but also actually against the rest of the industry, what's going on there? Can that read across to your other operations over time?
Thank you.
Vittorio Colao
Let me take the last one, while Nick keeps scribbling and thinking about the first one. The usage UK, I really think it is very kind of 80% driven by content; and a little bit driven by the fact that the UK is a more online and more advanced society from the digital infrastructure point of view, in the sense that the Brits use more online and mobile for everything.
But the real driver, let's face it, it's content, we have been right, probably, in thinking that if we offered more content at a small ARPU increase customers would use it. And the other side of the story is 4G is pretty good.
Our 4G in the UK is pretty good. While I am not completely happy with the performance of our older networks, the 4G one is proving to be pretty good.
And we are starting to have a clear edge in London; things have improved a lot. And so, that's the answer.
Now, if that's an indicator for the rest of Europe, clearly, we are trying to replicate the same strategy everywhere. We are doing content deals everywhere.
It's interesting to see that Europe is still very different countries, so what works very well in the UK not necessarily works exactly the same way outside. We are doing more bundling of content, and more generous data allowances everywhere.
We will turn the sales processes in the other markets in the coming months exactly in the same way as the UK. So, is it an exception, I think it is a leading case more than an exception.
Nick, [multiple speakers] accurate correlation?
Nick Read
Correlation of 4G to our service revenues, one thing I would just point out in terms of the charts on page 7, top left, which is where you were saying about 4 million incremental, so an acceleration, on a like-for-like smartphone basis that was 3 million. We included tablets in the quarter 3 number.
So I think it's just in terms of progression of trend, more similar performance. Of course, Lesotho really kicked in big time for us on 4G.
But what I would say is just, if you remember, I said three months ago that we have two effects going on. We have the price table effects impacting in individual countries, so, for instance, the UK price table broadly stable; Spain price still dropping.
And then you have the positive effects of 4G and data monetization, of which when you have a flat price table, like in the UK, you start to see the positive effect, whereas that price table still dropping in Spain is overwhelming the positive effects of migrations to 4G. So, what I’d say is you can’t just naturally assume that because 4G goes up you can immediately see a correlation; it depends on what’s happening on the overall pricing environment.
Vittorio Colao
Yes, the excellent [paradigm] reminds me that I have not answered the question on spectrum. And it was not an attempt; it was simply that I forgot, and I didn’t write down the name.
First of all, I saw, of course, the U.S. things.
There is a couple of differences. Our average utilization in Europe is gently going up.
When I say gently, that means that year-over-year we were 35% utilization on December ‘13; we got 36%, which is basically flat, in ‘14. We have a little bit more second carriers and third carriers activated.
We have two percentage points more sites, 3G sites, at 90% utilization. But in the meantime, we are adding a lot of 4G sites.
So my sense is that we are coming from a very different situation. While few customers use 2 gig, 3 gig each, the average is still at 700.
So, we have much more room to go, and much more capacity installed versus the American case.
Operator
We’ll now go over to the line of Polo Tang at UBS. Please go ahead.
Your line is open.
Polo Tang
I just have two questions. The first one is just on Germany.
Historically, it’s been one of the least converged markets, but now you and DT are rolling out converged bundles. So I just wanted some color in terms of what the take up has been like for your converged offering.
Are you seeing any impact from DT’s MagentaEINS bundles? And then, if we look forward in Germany, do you expect the market to be heavily converged?
The second question was really just about the Netherlands, because the turnaround there was quite encouraging. So can you talk about what’s been driving that?
Then, what’s the take up been like for your new fixed line offer? And then just a follow on, which is [Tele2] Netherlands.
Potentially, they’re going to be launching their 4G offer soon, so what do you think the impact of that will be? Thanks.
Vittorio Colao
Philipp?
Philipp Humm
Yes, let me first address the question on Germany. I think as you know, we launched together with Deutsche, a converged offer in the market, which I would still consider, let’s say, to be a fairly moderate offer, so not anything comparable to discount levels you have in Spain, or in Portugal.
The uptake we see in the market overall is still fairly limited. And we don’t foresee that convergence will have such a strong uptake as what we have seen in the Southern European parts of the market also going forward.
On second question on the Netherlands, I think on the Netherlands the key driver for our improvements is, in particular, our success in mobile fixed still being fairly small overall. And there, it’s really mainly driven by having a very strong 4G proposition, and a very segmented proposition, on the enterprise side.
So, we have been very successful in driving up our data consumption in the Netherlands, and continuing to grow net ads, both on our Vodafone core brand and our hollandsnieuwe core brand. And so that’s probably a model also we will see in other markets as we are rolling that out.
Polo Tang
And then KPN -- sorry, not KPN, Tele2 in terms of the impact from their launch?
Philipp Humm
We haven’t noticed anything so far. I think you saw the relative performance we have had relative to KPN, which was encouraging, I think, for us.
We don’t expect Tele2 to be a major disrupter really in the marketplace as it took them very, very long to get ready, and the proposition still has to be proven.
Polo Tang
Thanks.
Operator
We’re now going to line of John Karidis at Oriel Securities. Please go ahead.
Your line is open.
John Karidis
I'm sorry, I need to go back to the UK, please, Vittorio. Firstly, I'd really like some detail on what you mean by looking to the regulators to get access to content.
Do you want access to BT Sport at the regulated price? Are you not happy with the access that you have to Sky Sports today?
Some more detail there would be useful, please. Then secondly, if I look at the total mobile market in the UK, what would you say would be the split between the business mobile market and the residential mobile market?
And how do the Vodafone UK market shares compare between the two?
Vittorio Colao
Yes, sure, John. Let me get the first while I’m pulling out my papers on UK enterprise and everything else.
So, BT/EE is clearly creating a very big -- in a way, it’s recreating the old dominant player. You have a player who has 14 billion or something like that of revenues in the domestic market against people as I said who have 5 to 6.
It is essential that the regulators have a look at what they do. Of course, a structural separation of Openreach would be optimal in theory and that would be clearly a way to ensure that there is no exploitment of an advantage over NGN.
But if that’s not going to be the case that the regulators decide, clearly strong provisions anti-margin squeeze and anti-obstruction or discrimination in accessing the NGN will be very important. So, first point, there is a network NGN access Openreach point that clearly regulators have to put an eye on.
Second, my comments on the access of content is the more you see quadruple play taking up in Europe, the more, again, similar to the previous point, I think regulators will need to make sure that content is not used in conjunction with a strong customer base and a strong network to essentially reduce competition. So again avoidance of price-squeezing and margin-squeezing policies on content is very important.
It’s not a matter of can I get BT sport or can I get Sky. The matter is especially on the BT case Sky is a bit of a different story, avoiding the temptation to use content or network to de facto reduce competition.
On the second point share in Enterprise, there’s clearly a different game in enterprise versus consumer or residential. In enterprise, the situation after the mergers doesn’t really change too much.
BT was already big it becomes bigger, of course, with EE. And therefore we’ll have a more intense competition but at the end of the day I would say the hierarchy and the relative size of players doesn’t change: BT is still the first we are still the second and O3 continues to inherit the O2 business in enterprise.
So, I don’t see a big change there. The real change is more on Consumer where clearly -- and I go back to my previous point, there is the creation of a big player and that big player has to guarantee good fair competition in the continuation of the market.
Philipp wants to add something, so…
Philipp Humm
Yes, to answer your more specific question on the split so we have roughly, let’s say, 60% consumer, 40% enterprise in mobile, and our market share is a bit below 20% on the consumer side and a bit above 30 on the enterprise side, so we’re averaging somewhere in the 24-25%.
John Karidis
If I may, is the relative size of the business specifically mobile market, is that sort of comparable to the residential mobile market?
Vittorio Colao
I’m not sure what you really mean. What do you want to know, I mean, numbers or comments?
John Karidis
So, if the service revenues for the whole market are 15 billion per annum, how much of that is generated by residential customers and how much of that is generated by business customers?
Vittorio Colao
In mobile only?
John Karidis
Mobile only, yes.
Philipp Humm
So roughly 60/40, 60 consumer or residential market, and 40% is enterprise market, roughly.
Operator
We now go to the line of Andrew Beale at Arete Research. Please go ahead your line is open.
Andrew Beale
I’m just wondering if you could develop some of your earlier comments on how data is driving -- content is driving data usage, but this time looking outside of the UK. I guess I’m looking for some thoughts on what’s working where and what’s not working.
And perhaps you can give us a bit of color on Germany in particular, since the stats I’ve seen certainly seem to suggest that smartphone data usage is still lagging the network-speed improvements there. Secondly, just wondering if you can give us some color on your bonded LTE DSL service in Germany and the trials that you’re running in Italy, and what you’ve learned from those in terms of applicability to other markets and more generally the attitude to using LTE to boost a DSL consumer fixed-broadband proposition versus what might be a better return on capital on smartphone ARPU?
Thanks.
Vittorio Colao
Andrew, I’ll give a generic answer to the first question and maybe, Philipp, you can integrate. I’m not sure anybody has much more on DSL LTE bonding, other than we are trailing it works.
It works it’s good. We are trialing it and we will use it.
But I don’t know. Guys, if you have anything more, please jump in.
Nick Read
On the data content, as always you have immediately identified the two extremes. You have the UK, which is a clear case of content consumption and enthusiasm in subscribing to content packages, even if they are a little bit more expensive than the normal ones but, of course, they give access to much more.
And Germany, where, instead, the take-up of content packages and, in general, the usage of smartphone is lower even than even Italy or other markets which are more intermediate. Clearly, we are trialing.
We’re trialing with different types of content and not necessarily the internationally successful one, which is part of it. My sense is that there is simply an issue of timing.
Germany has always been a lower consumption of minutes, consumption of SMS market in anything. There is more traditional kind of fixed-telephony usage and there’s more traditional in-house usage.
Other markets are more aggressive there, but I don’t know. Philipp, do you have more color there?
Vittorio Colao
Maybe commenting a bit on Germany more, I think on the positive side, we added a significant amount of 4G customers now also in Germany, so nearly 800,000, so we are really making it a core of our commercial approach to do that. As Vittorio said, in Germany content is received less enthusiastically as in the UK, and we have seen that for quite some time, so we still have a hard time to find the exact commercial approach here to really drive strong content user ship.
In Germany also, we still run on two rate plans. We have a 3G rate plan, which is our smart, and we have a 4G rate plan, which is basically our normal Vodafone Red plan.
So, we are still on two legs here, which is a bit different from the UK, where we really focus now on 4G pretty much exclusively. In the other markets, if you look at Italy, which is mainly a prepaid market, we see a very, very strong uptake of 4G and a very strong also usage of 4G, and we also start to see that materializing in ARPU uptakes of customers opting in for 4G add-ons.
In Spain, which is the fourth and a bit different market, overall the market is a 4G market, so there is no more a possibility to differentiate between the different players and between the different offers, but everybody is in 4G and, there, we are using right now converged, quite successfully, to drive our post-paid customers up in richer red plans by including here content, and that works quite well.
Andrew Beale
Thanks, that’s very helpful. Can I just come back to the bonded LTE DSL?
Where you don’t have cable and you don’t have fiber, is it something that you’re willing to push over regular DSL to improve the consumer broadband experience, or do you worry about that from a return on capital perspective?
Philipp Humm
No, it is something we would push, in particular in footprint, where we do not have an own-cable network, so there it can make sense simply to offload some of the capacity, if needed, and achieve then higher average speed.
Operator
We now over to line of David Wright of Bank of America Merrill Lynch. Please go ahead.
Your line is open.
David Wright
Thank you for taking the questions. A couple of questions on M&A from me please.
Obviously, Italy, you’ve commented that it is a little over-competed, with the two smaller guys, and perhaps there is a little bit more disruption on the horizon. One of the obvious approaches is to protect your customer base and, indeed, attract the higher-value a customer is to pursue the convergent theme that has been a little slow to develop in Italy.
Could you comment on whether you might consider accelerating that with any kind of inorganic means; for instance, the Metro web stories and even Fast web stories? Just on the whole stories theme, if I may, this is the first time, I think, we’ve had you commenting on results since we had some quite strong rumors about a Liberty… approach is probably the wrong word but you were considering a Liberty deal back in December.
I think you did deny that at the time, but could you just give us your thoughts on Liberty whether you think it makes strategic sense if not necessarily financial sense right now? Thanks.
Vittorio Colao
Yes, David. Thank you for the questions.
On Italy, I think it’s one of the worst-kept secrets that we, yes, are interested in extending also inorganically, if necessary, our converged capability. Things happen when they happen and at the pace at which they happen.
The Metro web saga is continuously in the press in Italy. I’ve not followed the latest things but, if and when, of course, we are willing to put our own piece of investment into that part of the equation.
Fastweb, I cannot comment. It depends on their intentions for Italy.
It depends on Swisscom, so it’s a question more for them. But in the meantime, we continue our organic plan.
We will go to 400,000 cabinets ready by the end of this year and, if you put together the whole coverage that we have in Italy between the FTTH, the FTTC, the VULA offer that we have from Telecom Italia, we will get to in excess of 4 million homes, 4.2 million homes reachable, putting all together so, FTTH, FTTC and VULA - of NGN access for our company. So, yes, we are following M&A and the inorganic, but we are also working on organic and we don’t depend exclusively on inorganic to reach the best part of the Italian market.
On the Liberty things, honestly there’s not much to say. I think your question is a bit difficult to answer because you say, ‘Does it make strategic sense to consider cable assets?
You’re asking it to a company who has bought two cable assets recently, so it would be strange for me to say, No, it’s completely illogical and on the other hand, there’s nothing I can comment about and therefore, I don’t think I have ever been reluctant to say, strategically, of course, cable assets make sense. Financially, each country and each asset must have its own merit.
David Wright
If I could just follow up, if it does make strategic sense and I think your comment is clearly leading us to think that, is this purely a case of price right now, that Liberty is just too expensive?
Vittorio Colao
I think I said many, many times that companies have strategies and trajectories, and that Liberty comes from the cable angle and they have an MVNO approach to mobile. We come from the mobile angle and we are becoming, organically and inorganically, more converged.
I almost see two lines that tend to go to the same point in the future, so they’re not parallel, but when will these lines cross it depends on the evolution of the company and the corporate strategies of two different entities. So, I cannot say when and what will determine the crossing.
Operator
We're now over to the line of Ottavio Adorisio of Société Générale. Please go ahead, your line is open.
Ottavio Adorisio
Good morning, gentlemen. I have a couple of questions and a follow-up from a previous one.
The first is on the India auctions. I was just wondering how important it is for you to buy back the current legacy spectrum, and what will be the plan B in case, in some regions, you don’t?
The second is to Philipp: assume Ono, as of the nine months, with an EBITDA of 7.4% down, and I was wondering, you were guiding for a stabilization for this year. Now, you comment a lot about what’s happened in the mobile market.
If you can just tell what’s happened also on the Ono side. And third is a follow-up on the UK, and this is to Vittorio.
You comment about the take-up of mobile data for UK customers, and the emphasis on a different sort of habit, but when you look at the pricing it looks that the UK is between 35 and 45 percent below for 2.5 to 3 GB, when I compare to price in Spain, Germany and in Italy. So, I was wondering: do we have to see a similar sort of decrease in pricing for SIM-only packages I'm not referring to the rate in this market to see the same take-up, or there will be a different sort of driver?
Thanks.
Vittorio Colao
So, why don’t I give the India question to the best specialist of India auctions that we have in the company, Nick Read, who has been living through them in his previous role? Ono, Philipp, and then I will take the UK question with some help from Philipp.
Nick Read
To be honest, I think we need to be quite sure on the India auction, because it’s coming up in March. We’re well prepared.
I think we have demonstrated in the past two or three auctions, a great deal of targeting and discipline in the way we approach the auction. Clearly, we have good contingency plans in place circle by circle, so we don’t take a broad approach; we take a very targeted approach by circle to develop our strategy.
So, at this point, I think that’s about all we should be saying about an auction that’s about to start.
Philipp Humm
On Ono, so I think Ono, overall, from a service revenue ex wholesale, we were at minus 1.7%, which is another stabilization. The drivers, let’s say, on the commercial side, which were quite positive, as we had another 54,000 net adds on broadband, which you need to add to the 16,000 we had on the Vodafone side.
So, I think, overall, that was good. We had another 50,000 net adds on mobile, which you have to add to the 28 on the mobile side Vodafone as well.
And so also that is a very strong improvement year-over-year. In last year we were at minus 38, this year at plus 78.
Third we confirmed the synergies, so the teams went through a very-very detailed work and confirmed basically the synergies as we had laid out originally in our acquisition case. And lastly we were able to pull forward the integration, so we now have an integrated company from an organization point of view and we are preparing some integrated offers -- fully integrated offers now for early in this year, but customers both Ono customers and Vodafone customers today get already harmonized offer at a discount on both sides.
So I think from that point of view, I am very pleased the way the integration has gone forward and I’m pleased with the commercial side of Ono, I’m not so pleased at this point in time with the ARPU performance. And on the ARPU side, there was a comment Vittorio had mentioned earlier.
We are still faced with a very aggressive price in bundle proposition in Spain and as long as this is the case, it’s very hard for us to raise prices as TV has been right now given for free in the big bundles from Telefónica. So as these things maybe change over time, we should be able to increase prices and then we are then in a very good position again here with Ono.
Vittorio Colao
Yes, on the last question, the differential of ARPU and behavior, I mean broadly speaking I’m not so sure that what you say is right. If you put -- if you compare the Netherlands and the UK, we are more or less at the same price points, I mean once you take into account the exchange rate.
Italy and Germany are a little bit higher in terms of SIM-only price, but they have very different behaviors, so Italy, you have more usage than Germany in a substantial matter. So there could be a little bit of price effect, but my sense is the most important thing is habits and the attitude towards content and quite frankly also the availability of good over-the-top content, so it’s not just the content we put ourselves on the phone, but it’s also the ability to reach other over-the-top content.
So, there could be a little bit of price, but most importantly there is a behavior and a consumer-attitude thing.
Ottavio Adorisio
And if I may, just a very quick follow-up on the Spanish, because my question was on your comment on revenues during the presentation, but you did leave the EBITDA out because Ono’s disclosed EBITDA is the one only subsidiary within your group and it’s close to 7.4% decline. And less than nine months ago, Philipp clearly said that he was aiming for stabilization.
I was aiming from Philipp, if he can explain what’s happened there that is basically for the moment for the nine months, I believe that it would be pretty difficult to see a full quarter to actually get back to stabilization. It’s all down to ARPU or if there also significant aggression also on some subsidies?
Philipp Humm
No, it has nothing to do if you want on additional aggression on the subsidies side. We have on the one hand an effect obviously from the revenue side, but then don’t forget we have integration costs and other things you need to factor into the Ono EBITDA, so it’s quite a lot of integration and one-off which are coming into it in this quarter.
Operator
We now go to line of James Ratzer at New Street Research. Please go ahead, your line is open.
James Ratzer
I had two questions, please. The first one’s just going back to Germany, the very strong number on contract net adds.
I assume there are probably going to three drivers for that, maybe higher A&R spending, some of the benefits from Project Spring and also potentially reduced competition from E+. Firstly, I mean would you agree with that statement and secondly if you did, what would be the mix between those three drivers as it is helping to boost performance?
In particular, how much do you think comes from reduced competition coming from the new Telefónica Deutschland? And the second question I had was regarding India, going back to a question on the upcoming auction.
I don’t know if you can comment on this but, in the past you have had some very strong words when the reserve prices, you felt have been set at too higher level. What do you feel about the current reserve prices in particular the 2100 megahertz band, where the reserve prices do seem to be very high?
Thank you.
Vittorio Colao
No, let me take the India one and then I’ll pass to Philipp on the Germany question. I don’t know if you follow the Indian press.
I was reported everywhere including pictures and videos sitting with government and discussing this topic and as you can imagine, our opinion is of course, that this price is set too high and of course that the quantity of spectrum that is made available is also too limited, and the two things together are not what I would consider a good policy for a government that wants to digitize the whole country. Having said that, we are where are.
I think other operators have expressed the same concerns but the government has decided to go ahead at this level, so we will handle the way Nick described before. But we have not been inactive, neither us nor other operators who feel the same.
Nick Read
Just to build on Vittorio’s comment, I think it just demonstrates that we were right to secure 3G spectrum over the major circles that represented just under 70% of our revenue.
Vittorio Colao
James, commenting Germany, I think less competition would be a bit too optimistic a statement. I would simply say intense competition continues, which is why we’re also not in a position to really take out A&R in that quarter.
We’re obviously trying whatever we can also going forward to be able to take out a bit more A&R in the market. The drivers for our strong performance overall was, on one hand, obviously, the enterprise side, which has continued now to perform well.
As you know, we have re-launched, in the beginning of the year, our second brand, Otelo, as a counter brand to Congstar, which is doing quite well. And we have also been, this time, quite successful on the branded side and, on branded, one of the drivers was we were very successful also in cross-selling data plans into our customer base, so that was another very positive driver here.
And we continued to be strong with service providers in the German market as well.
Operator
We now go to the line of Robert Grindle at Deutsche Bank. Please go ahead.
Your line is open.
Robert Grindle
Good morning. Two questions.
Please could you provide some color as to why Carrier Services had such a good quarter in the UK and Germany in Q3? Is this low-margin transit traffic type business or is it something higher quality and more sustainable in nature, which will continue into future quarters?
And then separately, back to the UK, why do you think Sky went with O2 for its MVNO? You guys have had a pretty healthier relationship in the past.
Is it just the case of another infrastructure operator keener to give away value than yourselves? Thanks.
Vittorio Colao
Let me get the second one, which has an easier answer, and the answer is probably yes, so we are disciplined in our MVNO deals. As I said many times, MVNO per se is not bad.
MVNO becomes bad when you give bulk quantities and when you are not smart in setting up a positive relationship for both, creating values on both sides. And the reasons why O2 decided to go with somebody else, you should ask them but I can guarantee to you that our offers are good in most parts of the world, they create value for both parties and they are healthy for the industry.
Whether my competitors are offering something which is less in that direction or not, I don’t know. You should ask them.
Nick Read
Just in terms of Carrier Services, so obviously, when we bought Cable & Wireless, we bought an international fibre network and, obviously, that was very complementary to our very large footprint. So, it gave us the opportunity to actually establish a global Carrier Services business, utilizing the spare capacity within our overall network.
So, Carrier Services does not drive our CapEx in any way; it’s just the surplus capacity. It has total of three aspects to it; one is international voice, which is high volume, low-margin, can be volatile; the second is access circuits, which tends to be contracted and good margins and the third is long-term fibre lease contracts, sort of IRUs, which is probably stable and return on capital type targets.
So, overall I think it’s having that dedicated focus that they are able to drive the business, and it had a sort of positive impact on Germany of about 50 basis points quarter-over-quarter, the 2.4 percentage points improvement quarter-over-quarter and the UK, 120 basis points of the 3.9% quarter-over-quarter improvement.
Robert Grindle
If I could come back, is it any particular part of assets those revenue streams you just described that provided the boost, and are they, if you’ve got spare capacity, is it sustainable or is just a bump in the quarter?
Vittorio Colao
So, what I would say is that this is still good business; it’s just low margin business. And so, it was predominantly international voice, which is pretty low margin business.
So, therefore, we will sustain this in terms of going forward. It’s a business unit of our company utilizing our core capacity.
Operator
We now go to the line of Maurice Patrick of Barclays Capital. Please go ahead.
Your line is open.
Maurice Patrick
So, just a quick one on India. You’ve shown strong revenue growth in the marketplace, driven by data, but MoU I think was down 6%, 7%.
You cited the dual SIM impact and said it was in some circles. So, perhaps a few more comments on that; to what extent is it just emerging now, this trend?
Is it accelerating? Do you see it as structural or temporary and why only some circles?
And is it also happening in other AMAP markets? Thank you very much.
Vittorio Colao
So, this is a very much an India phenomenon. So, over the last 18 months, we’ve been constantly referring to the fact that, of the incremental revenue in the market, about 90% of that incremental revenue was flowing to the top three players, and we are taking our fair share of that increment, so we’ve had good momentum off the back of it.
However, and obviously, a number of the sort of smaller players have been exiting circles. What I would say is some of those players Uninor, Aircel have now stabilised the position in a small number of circles and therefore, are reasonable competition at the value end of the marketplace.
And they depending on promotions, take, if you like, incremental minutes away from us, depending on the promotion of the day and we’ve just seen a little bit more intensity in a few circles.
Operator
We now go over to Jerry Dellis at Jefferies. Please go ahead.
Your line is open.
Jerry Dellis
Good morning. Thank you for taking my questions.
I have a couple of questions on the UK, please. Just in terms of your fixed broadband intentions in the UK, in November you talked in sort of quite aggressive terms; now it seems to be a little more sort of wait and see.
Sky, TalkTalk and BT have all basically indicated an intent to push mobile aggressively. So, is there a way in which you could respond to that in a way that wouldn’t involve discounting fixed broadband and line rental?
I suppose, in a nutshell, will the mobile network be sort of sufficiently differentiated by 2016 to allow that to be a sticky enough product on its own? And then a second question just around the UK, just to kind of clarify that at launch in the spring, you’ll have sort of VDSL coverage which will be comparable to what sort of Openreach has such that going forward, leveraging the Cable & Wireless network will be a sufficient platform for you.
So, M&A in the UK might not be on the agenda at present? And then just finally if I may, the nature sort of the quad-play trials that you were doing with Sky in the autumn, should we assume that that’s not going to lead to any form of commercial launch?
Thank you.
Vittorio Colao
Yes, a little bit of a long set of questions. Let me try to answer with a single speech.
First, the aggressiveness, the non-aggressiveness, I don’t know where you get that from. We are exactly in that space - in the same space.
We are going to be in the market. We’ll be competitive in the market.
If the market turns, as I said in my earlier answer, turns to be irrational kind of accretive market, good; if the market sees players discounting mobile aggressively, we will discount fixed aggressively, which is exactly what happens in every other place. So, as I said before, now the players are fewer, so it will be easier to detect who does what and we will have to respond, but it’s not just Vodafone it’s everybody else.
The answer is exactly the same this time as last time, we will do what it takes, and we will do whatever it takes to be competitive in a quad-play market. And every market has its own dynamics.
On the launch, we will launch with a combination of access to the Openreach fibre and our own 60%, around coverage through the Cable & Wireless old exchanges, and we will follow the development of Openreach. So from that point of view, we’ll not have a gap or a disadvantage versus the BT footprint of course and here I have to reiterate my earlier point, of course assuming Openreach plays a decent and open game and assuming that the regulator watches them and checks that we are not margin squeeze out of the market, in which case then aggressive remedies should be contemplated.
On M&A, I will not comment, because I never comment on M&A unless there is something material to comment about. And on Sky, I am not sure what you’re referring to.
We clearly are still interested in having NOW TV as an important component of our package, but we will offer our own service differentiation on our own network. And again, if anything, also with reference to the previous answer, if anything, having other players on other mobile networks is a better guarantee that we can differentiate a Vodafone proposition than having MVNOs on our own.
Philipp, do you want to add something?
Nick Read
Yes, I mean you referred specifically to the quad-play trials. I think they were interesting trials and interesting learning on both sides.
We get a bit of the sense for the market. They will, obviously, not be continued in the current constellation of the MVNO deal, but we continue to have a very strong and good relationship on the content side with Sky, as we are now more and more offering content to our customers on mobile, and we plan to do so on fixed as well.
Operator
Gentlemen, as there are no further questions in the queue, I just pass the call back to you to close.
Vittorio Colao
Thank you very much. Thank you all for the excellent set of questions that has covered, really, everything.
I will not go through a long summary; I will just remind the key three or four titles. One is steady recovery in Europe with not just the UK, but also Netherlands back to growth.
Good momentum in AMAP; and some voice pressures in Africa, which we’re handling. Good continuation of Spring.
We are already between 50% and 60%, 70% complete, depending on the type of equipment you are talking about. Good coverage of 4G, 65% in Europe and take-up of data very good, both on the mobile front with content and on the fixed con side, with positive trends in connections.
And finally, of course, confirmed the guidance for the year. Thank you very much.
And I look forward to meeting you individually, soon. Thank you, operator.