Vodafone hit by partial TV blackout in Germany

• Vodafone Group shoulders heavy Q2 FY25 losses in Germany as new TV law comes into effect
• Loses more than half of its eight million TV subscriptions as tenants of multi-dwelling units now able to choose other providers apart from Vodafone Germany
• Vodafone Group CEO Margherita Della Valle confident Germany will return to growth in Q4 FY25, early FY26
• Thanks to strong performances in Turkey and Africa, Group is able to weather losses in Germany
• Della Valle places high importance on growing digital services in business segment

Vodafone Group, despite taking a financial beating in its largest market Germany, insisted that overall results for the six months of its fiscal year 2025 (ended 30 September 2024) were “in line with expectations” and baked in to earlier FY25 guidance that it’s still sticking with.

Because of a long-trailered law change in Germany that allows tenants of multi-dwelling units (MDUs) to choose their own TV provider, which came into effect on 1 July 2024, Vodafone has had to spend heavily on a marketing campaign to try to prevent as many of the 8.5 million customers signed up to its TV service – previously (and now illegally) bundled in by landlords in tenants’ rental agreements – from signing up with another provider.

Vodafone, broadly in line with its target, has managed to switch four million MDU customers onto new TV contracts, but it’s come at a heavy price in terms of lost service revenue and higher operational costs. For Q2 FY25, Vodafone Germany suffered a 6.2% year-on-year decline in service revenue. But even if you strip away the impact of the MDU TV law change, Q2 service revenue would still have slipped by 2.4% year on year, owing to a lower fixed broadband customer base following price increases in the previous fiscal year.  

For H1 FY25, Vodafone Germany registered a 9.3% year-on-year plunge in adjusted EBITDAal (earnings before interest, taxes, depreciation and amortisation after leases) to €2.29bn, primarily due to an 8.2 percentage point impact related to the MDU transition. Service revenue for the period was down 3.9% to €5.5bn.

Vodafone CEO Margherita Della Valle, in her Q&A session with analysts and financial investors on Tuesday morning, nonetheless saw Germany now at the bottom of a ‘U’-like growth curve, which is likely to remain throughout the next quarter, but pick up in Q4 and early FY26 and then back to EBITDA growth. Her optimism was mainly based on the MDU effect fading and revenue from a wholesale deal with 1&1 beginning to kick in.

She was also confident in the abilities of a newly appointed management team in Germany to turn things round, with separate exec posts allocated for consumer, business and IT. “Germany is our main area of operational focus this year,” asserted Della Valle.

Bright spots outside Germany

Because of a strong showing in Africa and its ‘other Europe’ segment, as well as a stellar performance at Vodafone Turkey, which earned the operator’s management team a “shout out” from Della Valle at the Q&A session, the group was largely able to weather setbacks in Germany.

H1 FY25 group service revenue on a reported basis grew by 1.7% to €15.1bn, while organic adjusted EBITDAaL grew 3.8% to €5.4bn.

Della Valle paid special attention to developing business-to-business (B2B) services and digital offerings going forward. Although the group doesn’t break out Vodafone Business revenue – it resides with the “common functions” segment, which drummed up €322m in service revenue during H1 FY25, an increase of €40m compared with H1 FY24 – there was an overall 4% year-on-year growth in business service revenue driven by a 17.9% year-on leap in sales of digital services. Vodafone’s cloud portfolio, driven by continued strong demand for software-as-a-service, enjoyed a 31% revenue spurt.

In her relatively short stint at the Vodafone helm, Della Valle has overseen the sale of Vodafone Spain and appears to be nearing the completion of selling Vodafone Italy to Swisscom, along with the increasingly likely merger of its UK business with Three. “We’re on the home stretch of reshaping Vodafone in Europe,” she said.

- Ken Wieland, Contributing Editor, TelecomTV