Vodafone Group plc (NYSE: VOD) has reported preliminary annual results for the financial year ended March 31, 2007, which means it's time for Unstrung to grade the mobile giant on its performance. (See Vodafone Reports Annual Results and Vodafone Forecast Sends Stock Soaring.)Vodafone reported annual revenues of £31.1 billion (US$61.3 billion) in its 2007 fiscal year, which is a 6 percent increase from the previous year, and cut its operating loss to £1.6 billion ($3.2 billion) from £14.1 billion ($27.8 billion) in 2006. (See Table 1.)

{Table 1}

Vodafone did well to increase data revenue by 30.1 percent from £1.2 billion ($2.4 billion) in the previous year to £1.4 billion ($2.8 billion). Messaging revenue was £3.6 billion ($7.1 billion), compared to £3.3 billion ($6.5 billion) last year. Vodafone also shows that data service revenues are increasing in the mix of all mobile service revenues. Non-voice service revenues as a percentage of mobile services increased from 17 percent in 2006 to 18.3 percent in 2007.

The 3G business is growing in leaps and bounds. The operator had 15.9 million registered 3G devices as of the end of March, which is a 101.3 percent increase from 7.9 million 3G devices in the previous year. Vodafone also had 1.4 million registered Vodafone Mobile Connect data card devices, which is a 100 percent increase from 700,000 data cards in the previous year.

Like its multinational mobile operator peers, emerging markets are driving growth. Operations in Vodafone's emerging markets increased revenues by 14.9 percent. And revenue from Verizon Wireless, in which Vodafone has a 45 percent stake, grew by 17 percent.

But in Western Europe, all of that strong data growth is not enough to compensate for falling prices. Europe is Vodafone's biggest laggard region due to competitive and regulatory pressures. Revenues and ARPU are declining in some of these saturated markets. Vodafone says that double-digit revenue growth in Spain, for example, was offset by year-on-year declines in Germany and Italy. (See Table 2.)

{Table 2}

International roaming revenues and voice revenues from users roaming on Vodafone's network were £1.8 billion for the year. But Vodafone expects these revenues to be about £250 million less in fiscal 2008 thanks to the European Commission 's new roaming regulation and self-imposed price decreases. By April 2007, Vodafone says it had cut retail roaming prices by 40 percent. (See V'fone Comments on Roaming.)

To drive mobile data growth, Vodafone has been busy partnering with big Internet brands, including Google (Nasdaq: GOOG), eBay Inc. (Nasdaq: EBAY), MySpace , Yahoo Inc. (Nasdaq: YHOO), and YouTube Inc. The operator has already launched mobile versions for MySpace and YouTube, and plans to bring more of the Internet experience to the mobile phone, particularly through new flat-rate pricing tariffs. In the U.K., Vodafone launched the flat-rate data package of £7.50 ($14.80) per month for up to 120 Mbytes of data. (See Vodafone Opens the Internet, Vodafone, MySpace Partner, Vodafone Takes MySpace Mobile, Vodafone Takes EBay Mobile , Vodafone Offers YouTube, and Vodafone, Google Partner.)

Vodafone is also looking to advertising as a potential new revenue stream and has partnered with Yahoo in the U.K. and advertising firm Gruner & Jahr in Germany. (See Yahoo Moves on Mobile Ads and V'fone, Yahoo Extend Partnership.)On the fixed/mobile substitution (FMS) front, Vodafone has more than 3 million Vodafone at Home customers. This is a "home zone" service where subscribers are charged fixed-line rates when using their mobile phones while at home or in a specified zone.

Vodafone also now offers DSL services in five markets, including Germany, Italy, Portugal, and the U.K. The mobile operator says that in some markets it might consider shifting from its preferred resale DSL business model to wholesale or even building its own infrastructure to provide fixed broadband services. The operator will soon launch local loop unbundling in Portugal, for example.

While Vodafone's overall ARPU is down nearly 12 percent, the operator is making positive moves to stimulate data services growth through new mobile Internet services and pricing. Furthermore, it is positioning itself for stronger growth in emerging markets, particularly in India with the Hutchison Essar acquisition. (See Vodafone Completes Buy.)

Taking all that into account, we give Vodafone a grade of B+.

— Michelle Donegan, European Editor, Unstrung