Vodafone left on hold despite losses

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 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, after 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 reported that Vodafone's revenue was about $4.1 billion in 2012, down from $4.6 billion in 2011, and earnings dropped 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.

It was revealed some 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, of which Sir Ka-shing is 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 a consortium of 12 banks.

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

■ A report on telecommunications found that in 2011-12, more call minutes were made from mobile phones than fixed lines. But 94 per cent of downloading is done over fixed-line connections. The cost of telecommunications fell 2.2 per cent, particularly calls from fixed to mobile, but wireless internet costs increased 1.7 per cent, according to the Australian Competition and Consumer Commission.