Operator group Vodafone has announced a two per cent year on year drop in revenue for the final quarter of 2012. The group generated £11.39bn over the quarter. Improvements to its operations in some markets in Northern Europe, where the firm generated 5.9 per cent more revenue than in 4Q11, were more than offset by a 17 per cent reduction in revenue from Southern Europe.

Vodafone saw a 0.2 per cent reduction in revenue in Germany, 5.2 per cent in the UK, 13.8 per cent in Italy and 11.3 per cent in Spain. Operations in emerging markets fared better, however, and Vodafone saw a nine per cent increase in revenue from India and an 18.4 per cent increase in Turkey.

Group data revenue grew by 12.8 per cent, which the group said reflected an increase in its European smartphone penetration to 33.4 per cent. During the quarter, LTE services were launched in Italy, South Africa, Greece and Romania, and Vodafone has now launched LTE services in six markets worldwide.

“Our results continue to reflect very difficult market conditions in Europe,” admitted Vittorio Colao, Vodafone CEO. “We are addressing this through firm actions on cost efficiency, and continuing to invest in areas of growth potential.”

According to Emeka Obiodu, principal analyst at research firm Ovum, Vodafone’s poor results had been expected. “Ovum’s research has shown that telecoms is a lagging indicator to the economy,” he said. “Accordingly, given Europe’s economic woes in 2012, we expect telcos that rely on Europe for the majority of their revenues to struggle. Customers feel the pinch in their pockets before they reduce their telecoms spend.”

He added that the challenge for Vodafone and other European operators is to stabilise their performance and ensure that their share of the customer’s wallet holds firm.

“For Vodafone in particular, Ovum warned in 2009 that its emerging market operations must not be relied on to perpetually offset poor performance at home,” added Obiodu. “This has proved to be a prescient warning. Growth in its emerging markets operations has slowed and Vodafone is now relying on Verizon Wireless. It is to Vodafone’s credit that its management fended off pressure to sell the Verizon stake in the past.”

There is hope for Vodafone though. According to Ovum, opportunities exist for telcos to play a bigger role in the “connected future”. Better pricing design can also unlock additional value, and telcos should look to become active enablers of the digital society.

“In doing this, Vodafone must get the balance right between investment and profitability,” said Obiodu. “And this is where European regulatory authorities should help by not imposing huge burdens on them.”