• Vodafone Germany has been a problem market for its parent for some time
• There are now signs that turnaround efforts are taking effect
• Vodafone has reiterated group guidance for the full fiscal year

Germany has been a persistent thorn in the side of Vodafone Group CEO Margherita Della Valle, who has otherwise achieved a number of her stated aims since she took the helm more than two years ago, including the sale of Vodafone’s operations in Italy and Spain and the completion of a merger in the UK. But there could be light at the end of the tunnel in the telco’s single biggest market, with signs that the much longed-for turnaround may actually be within its grasp.

During Vodafone’s trading update call for its fiscal first quarter to the end of June (Q1 FY26), Della Valle remarked that while Germany remains a competitive market, particularly in mobile, “we have seen tangible results from the actions we have taken”, including efforts to improve customer experience and simplify the unit’s organisational structure. She also pointed out that the rate of churn for branded mobile contract services is “now single digit, the lowest it’s been for the last four years”. 

At first glance, Germany’s figures for the fiscal first quarter appear underwhelming, with a 3.7% decline in revenue to €2.97bn and a drop in headline net customer additions. For instance, Vodafone Germany lost 36,000 mobile and 23,000 broadband customers during the quarter, although it did raise its pay-TV customer base by 28,000.

However, the 3.2% drop in service revenue is an improvement on the 6% decline in the fourth quarter of the previous fiscal year. Moreover, if the impact of new regulations (in effect since July 2024) related to TV service provision in multi-dwelling units (MDUs) is taken into account, service revenue was broadly stable, with a decline of 0.3% in the fiscal first quarter.

Vodafone Group chief financial officer Luka Mucic, who is set to leave the operator at the end of November, said Vodafone is “obviously feeling good about the trajectory that we are on in Germany. As we had said at the full-year results, we fully expect Germany to be back in service revenue growth territory during the year. So it will come in the coming quarters”.

He also noted that the German operation will “finally lose the MDU impact” in the fiscal second quarter and will continue to benefit from the “ramp up of the 1&1 agreement to full scale that we expect to reach in the second half of the year”. Here, he is referring to the long-term national roaming agreement (NRA) between the market challenger and Vodafone Germany that was signed in 2023, to the detriment of Telefónica’s O2 unit.

Although challenges remain, such as the competitive environment in the mobile market and the “long-term trend of TV headwinds”, Mucic said the momentum “is clearly so strong that it will carry us back to growth during the year, while we also expect to see a gradually improving trend on the profitability front in Germany”.

Meanwhile, the topic of potential consolidation in Germany also cropped up during the earnings call. Della Valle said Vodafone’s focus in Germany is on completing the turnaround for now. However, she could not resist the opportunity to flag the ongoing efforts by telcos to “push regulators for a change in the merger guidelines” in Europe, citing Vodafone’s recently completed merger with Three in the UK as a shining example of how this could be achieved. 

Staying on track

Overall, total group revenue increased by 3.9% to €9.4bn in the fiscal first quarter, with a 5.3% rise in service revenue. Group adjusted earnings before interest, taxes, depreciation and amortisation after leases (EBITDAaL) increased by 4.9% on an organic basis to €2.7bn. 

Elsewhere, Della Valle said growth had slowed in “other” European markets owing to competitive pressure in Portugal, but the telco sees a “good performance continuing across the region”. In the UK, network integration efforts are now underway following the creation of VodafoneThree at the beginning of June, although the process will take some years to complete. 

The CEO also noted that the emerging markets portfolio “has delivered strong growth in euro terms. Turkey continues to perform very well, and in Africa, we have further accelerated our growth across the footprint”. 

Taking all these developments into account, the group is confident enough to at least reiterate its full-year guidance of growth in revenue, profit and cash flow.

“Our growth trajectory in the UK, combined with strong positions in growing markets across Europe, Africa and Turkey, as well as improving trends in Germany, give me confidence that we now have the right mix of markets, capabilities, and financial capacity to drive good growth over the medium term. Of course, we still have more to do, and our focus will be on continuing to improve our customer experience across Europe and Africa, and further simplifying our internal operations,” Della Valle concluded.

- Anne Morris, Contributing Editor, TelecomTV