Vodafone has inked a deal with Asda, one of Britain’s leading supermarket chains, to sell branded mobiles to shoppers.

Asda, which is owned by American firm Wal-Mart, will rent airtime from Vodafone in a similar arrangement to that which exists between Tesco and O2 which has over 1 million customers.

Announcing the deal at a pre-briefing for analysts, Vodafone said that intense competition and regulatory pressure will force it to keep costs down over the coming year.

Vodafone warned that its two biggest markets, Germany and the UK, were proving tough as competition increases and regulatory pressures bite in.

The company said: “Vodafone is addressing the continuing challenge of declining prices from intense competition and regulatory pressure on incoming call rates and roaming in Europe.”

The firm said it had seen an improvement in the service revenue growth in the UK in the first two months of the year, helped by strong customer and usage growth.

In a statement Vodafine added: “In the quarter ended December 2006, programmes to stimulate usage have resulted in outgoing voice usage 22 per cent higher year on year on an organic basis. In addition, there has been continued strong growth in data revenue primarily from business services and the increasing penetration of 3G devices, with underlying organic growth of over 40 per cent year-on-year.

“Overall these drivers have compensated for the regulatory and pricing pressures in Europe resulting in organic service revenue growth of 2.1 per cent year-on-year for the quarter ended December 2006. In the year ahead, the competitive and regulatory trends are expected to continue in the Europe region.”

At the pre-briefing, Vodafone also announced a deal with DSG international to provide mobility solutions to small business customers.

The partnership will initially see 30 Vodafone Connectivity Centres integrated into the UK’s computer giant, PC World, with the intention to roll out to further stores. Under the agreement, Vodafone UK will sell its range of mobile and voice and data services through the Vodafone Connectivity Centres in PC World stores, the company said.