Vodafone is transforming itself into a multimedia powerhouse in a bid to offset slower growth in voice and texting in key European markets.
The mobile phones group plans to offer its customers an increasing array of internet services over mobile devices – especially smartphones.
The multimedia offensive, led by chief executive Vittorio Colao, will focus on Europe, where Vodafone generates 60% of global income.
Vodafone today unveiled a huge increase in interim profit, swollen by £2.4bn from selling its 2.3% stake in China Mobile. The figures were also flattered because Vodafone decided not to set aside a provision for a disputed £1.6bn tax bill in India.
Exceptional gains by the company meant that after-tax profit in the first half rocketed 56% to £7.5bn, giving Vodafone one of its best ever financial performances.
There was more good news as the group announced it was collecting £3.1bn by cashing out of Japanese carrier Softbank earlier than expected. Vodafone had owned a stake in Softbank linked to the sale of Vodafone Japan to the Japanese group in 2006.
Colao stressed the "underlying theme to the Vodafone story" was that data services were "taking off, with huge potential in emerging markets such as India".
Data accounts for around £5bn of revenue annually, up 90% over two years; data and fixed line services, primarily broadband, now contribute nearly 20% of Vodafone's annual revenues of £44bn. Sales of Vodafone smartphones rose 16% in the last three months.
But not everything is rosy: some of the company's European markets remain tough with sales falling 18% and 8% respectively in Greece and Spain. Vodafone wrote down the value of its Greek operations by £800m, which hit operating profit. Service income from Europe, which excludes revenue from handset sales, fell 4.3%.
Colao said northern and southern Europe were "decoupling" with countries such as Portugal, Spain, Italy and Greece posting a weaker performance that their northern neighbours.
He expects public sector cuts in the UK to have a small impact on a limited area of its "resilient" British business.
Colao has made it clear that Vodafone's minority holdings in nearly half a dozen international companies are no longer central to the group's long-term plans. Speculation has swirled over the British firm's 45% stake in America's Verizon Wireless, which analysts believe Colao will sell to partner Verizon Communications for £33bn.
Today, Colao said he expected Verizon to start paying Vodafone dividends again in 2012. The US group had suspended them in 2005 as part of a manoeuvre to force the British to sell out at a discount.
Verizon is expected to pay a £3.5bn dividend to Vodafone in two years, according to broker Sanford Bernstein. Asked what the UK company would do with the money, Colao joked he would "call a board meeting and take it from there".
Analysts say once dividends are resumed, a deal could be struck that would resolve, once and for all, the "messy" joint ownership of the US mobile group.
Vodafone recently announced a shake-up to place its stake in Verizon, as well as other minority interests in foreign operators, into a special "value-creation unit". The new division includes holdings in French mobile operator SFR, Poland's Polkomtel and India's Bharti.
Mark James at Liberum Capital is advising clients to take profits after a strong run-up in Vodafone shares in the past three months. He said: "There is nothing much over and above these results than what we anticipated."
Emeka Obiodu, telecoms analyst at Ovum, said: "Growth will need to come from a leaner, more efficient organisation."
