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Vodafone Launches Nearly New

CHL VOD

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Vodafone Group PLC (VOD - Analyst Report) has forayed into the second hand handset market with its Nearly New program. The new program targets customers willing to buy smartphones that are barely used and available at discounted prices. This initiative is likely to enhance its smartphone penetration and in turn result in higher data revenues.

Currently, Vodafone remains focused on increasing its smartphone penetration, which represents nearly 80% of all sales, and comprises 53% of the customer base. Besides Nearly New, the company has come up with plans like Vodafone Red, which incorporates unlimited voice and SMS, increased roaming services, shared plans, early upgrades, cloud and other value added services.

By introducing such plans, the company expects to mitigate competitive threats from big players that are winning over data services. The company launched these plans in Italy, the UK and Spain and targets further expansion in other European countries alongside emerging markets.

We believe the prospect of mobile data is better in emerging markets where Vodafone is expanding its presence through partner-market agreements. In September 2012, Vodafone and Zain Group (Kuwait-based telecom company with businesses across the Middle East and North Africa) entered into a multi-country partner market agreement. The deal would enable Vodafone to expand its presence in the Middle East.

Apart from spreading wings in the smartphone market, the company is also ahead of it competitors in upgrading 3G and HSPA+ networks. Further, the company is accelerating its 4G expansion and focusing on South Africa and European expansion with coverage in Germany, Rome and Italy. Vodafone expects to roll out LTE in Australia in 2013.

We believe, the ongoing efforts to upgrade the existing network infrastructure should result in higher network efficiency and increased mobile data capacity. The company is also working on spectrum acquisitions and recently secured spectrum licensing in the Netherlands, Ireland and India. The company is looking forward to the UK 4G spectrum auction in the 800MHz and 2.6GHz ranges worth over £1.3 billion ($2 billion). The spectrum auction is expected to be over by April 2013.

However, despite the new growth strategies, Vodafone’s profitability remains restricted due to persistent revenue erosion in Italy and Spain, regulatory and competitive pressure, and reduced interconnection charges.

Based in Newbury, United Kingdom, Vodafone Group is the world’s largest revenue generating wireless communications operator and the second largest carrier after China Mobile Limited (CHL - Snapshot Report) based on subscription.

For the short term (1–3 months), Vodafone has a Zacks #2 Rank, implying a Buy rating. For the long term, we have a Neutral recommendation on the stock.

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