Vodafone depends heavily on lifelines

LOSSES at Vodafone Australia have deepened but the wireless carrier continues to operate thanks to loans from its main shareholders, the global Vodafone Group and a Hong Kong businessman, Li Ka-shing.

LOSSES at Vodafone Australia have deepened but the wireless carrier continues to operate thanks to loans from its main shareholders, the global Vodafone Group and a Hong Kong businessman, Li Ka-shing.

On Tuesday Sir Li's Australian subsidiary, Hutchison Telecommunications, reported a $394 million loss for the 2012 calendar year, following a $168 million loss in 2011.

As the joint owner of VHA, the venture that trades in Australia as Vodafone, Hutchison's accounts give some insight into the financial health of Vodafone. Hutchison said Vodafone's revenue was about $4.1 billion in 2012, down from $4.6 billion in 2011, and earnings fell 43 per cent to $355 million. HTA does not report Vodafone's expenses or operating costs.

However, it is known that Vodafone has spent more than $1 billion on infrastructure in its mobile network to improve performance.

The accounts showed 443,000 customer accounts were lost over the past year. Vodafone now has about 6.6 million active accounts on its network, down from a peak of 7.4 million in mid-2010.

The accounts also show Vodafone continued to borrow funds during the year. The financial reports show Hong Kong-based Hutchison Whampoa Ltd, of which Sir Li is the chairman, extended an interest-free $583 million loan to Vodafone Australia during the year. Vodafone is also in discussions with financiers about a $1.6 billion payment due in June after it borrowed $3 billion in 2010 from an international consortium of 12 banks.

A Deutsche Bank analyst, Vikas Gour, estimates that Vodafone Australia now has a 22 per cent market share, compared with Optus's 31 per cent and Telstra's 47 per cent. In 2010 these figures were 28 per cent, 32 per cent and 40 per cent respectively.

"In our view, the key drivers of revenue decline include ongoing impacts from network brand damage, slowing market growth, continuing competition intensity and mobile terminating rate reduction," he wrote in a note to clients.

Mobile terminating rates are wholesale fees paid by one mobile carrier to another whenever customers call another mobile network. Telstra is a net payer of these rates to Vodafone and Optus, because it has a higher market share. Last year the competition regulator reduced terminating rates from 9¢ a minute to 6¢ a minute , which reduced the revenue Optus and Vodafone received from Telstra.

Hutchison shares were trading at 2.8¢ on Tuesday, down from a closing price of 2.9¢ on Monday.

Shares traded as high as 13.5¢ in late 2010, before the network suffered from overloading and slow speeds.

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