Vodafone 'playing hardball' in bid to slash rental costs

Vodafone is pleading with retail landlords around Australia to cut the rent on its stores as the telco struggles to contain more than $1.3 billion in recent financial losses.

Fairfax Media understands the bid to slash costs has included Vodafone Hutchison Australia abandoning outlets where property owners have refused to negotiate, in tactics a source has blasted as "cowboy behaviour".

The cost-cutting move was announced in a frankly worded letter sent to landlords in November by the telco's national retail property manager.

"This request is on the back of numerous store closures that have been performed in the last two years due to the significant losses that have been incurred from the impact of customers leaving. In conjunction with the above customer base loss there have been considerable revenue losses," the letter said. "It is hoped that these rental reductions are a final step in the recovery for 2014 and the near future."

It is understood the letter was sent with the permission of Vodafone's head of property.

But the company has now moved to distance itself from the missive. "The letter should have been signed off by senior management and wasn't. We will review our processes to avoid this happening again," a spokeswoman said.

Vodafone has declined to comment on how many outlets have been closed or whether it has stopped operating stores where rent cuts have been refused.

But one industry source said a Melbourne outlet was shuttered recently with several years left to run on its lease.

"[They] verbally are refusing to pay the rent. For an enterprise of the calibre of Vodafone, this is cowboy behaviour, considering all the bad press Vodafone have had," the source said. "They are playing hardball."

The country's third-largest mobile provider has been plagued by customer desertions and financial losses in the wake of persistent technical and service problems.

About 584,000 customers left Vodafone in the six months to September. The company claims the bulk of the departures were the deletion of inactive accounts.

It follows the company posting a loss of $444.7 million in 2011 and $899.3 million in 2012.

Earlier this year, Vodafone nearly breached covenants on a $3 billion loan it owed to a consortium of banks, but was saved by the intervention of the parent companies - the British-based Vodafone Group and Hong-Kong based Hutchison Whampoa. A Vodafone spokeswoman said the company was in the first year of a three-year "turnaround" plan.

"There are now strong signs that our turnaround is beginning to bear fruit. Our parent companies . . . are both pleased with the progress Vodafone is making in Australia."