Germany drags down Vodafone's quarterlies as UK merger loomsGermany drags down Vodafone's quarterlies as UK merger looms

The telco group posted 5.6% year-on-year service revenue growth to €7.9 billion in the three months to the end of calendar 2024, or 5.2% hike on an organic basis. The growth was driven by broadband expansion, aside from in Germany. Those growth figures represent an acceleration compared with previous quarters thanks to strength at the telco's UK and African operations.

All will change in the UK in the coming months, when Vodafone and Three UK formally close their merger, around two years after they first announced it. Vodafone did not have anything new to offer on that score, other than a hint that all is going to plan.

"When the UK merger completes in the next few months, we will have fully executed Vodafone's reshaping for growth," group CEO Margherita Della Valle said, alongside the numbers. "We are on track to grow in line with our full year guidance for this year, which we reiterate today, and are looking forward to a stronger Vodafone in the years ahead."

Indeed, in addition to the merger green light in the UK, the third quarter also brought the completion of the sale of Vodafone Italia, via an €8 billion deal with Swisscom; the firm's announced that the deal was done at the start of January.

Vodafone is in the process of hammering out a deal that could see it bulk up in Romania. Talks are now at an advanced stage and the regulatory process is underway, it said, which suggests there could be an announcement sooner rather than later.

That said, the big deals are either done or almost there, which means Vodafone can turn its attention to its core businesses. And the one that needs the most attention is Germany.

Germany it is still Vodafone's biggest single market by some margin, although the UK has closed the gap in recent quarters. Service revenue slid by 6.4% in Germany in Q3 to €2.7 billion, a greater decline than that posted in the previous quarter.

As in Q2, Vodafone attributed much of the decline – specifically, a 3.8 percentage point fall – to a new law that came into force in July bringing about an end to bulk TV contracting in multi-dwelling units (MDUs). But there were other issues too, chief among which were a lower broadband customer base and a decline in mobile ARPU.

Vodafone Germany's broadband customer base dropped by 7,000 in Q3, although that was an improvement on its 33,000 customer losses the previous quarter, and the telco was keen to point out that its gigabit-capable customer base increased by 1,000, versus a 9,000 decline in Q2.

On the mobile side, service revenue was down by 1% on-year in Q3 on the back of ARPU pressure driven by market competition and lower mobile termination rates.

Vodafone and 1&1 launched a national roaming partnership in Germany in August and 1&1 customers began moving on to the Vodafone network in Q3. However, thus far the migration has happened at a slower rate than Vodafone expected, which also had an impact on its numbers. Nonetheless, it expects a ramp-up in the coming quarters, to reach full run rate during the first half of financial 2026.

Clearly, there are still issues at Vodafone Germany, but there are also some encouraging signs. The operating unit has a new management team in place and is halfway through a 3,100 headcount reduction. However, earnings will be affected in the second half of this year.

"The continued investment in the turnaround, together with more challenging mobile market conditions and one-off items will result in Germany Adjusted EBITDAaL being lower in the second half of FY25 compared to the first half of FY25," Vodafone confirmed.

It is due to present its full-year numbers in May. While a huge turnaround in Germany will not be evident by then, we should have some indication of how the next financial year will pan out.