Vodafone 2007 Annual Report Download - page 50

wireless push e-mail devices contributed to data revenue increasing by
62.6%.
In Other Europe, data revenue increased by 42.9% mainly as a result of
increased penetration of data services in Greece, Ireland, the Netherlands
and Portugal.
Adjusted operating profit
Adjusted operating profit in the Europe region increased by 2.7%, or by 3.5%
on an organic basis, with the disposal of Sweden and foreign exchange
movements being the primary differences.
In Germany, overall cost efficiencies, counteracted by investments in
customer acquisition and retention and an increase in Group charges for the
use of the brand and related trademarks, led to an increase in adjusted
operating profit of 1.3% in local currency. Acquisition costs increased by
3.4% due to increased total gross additions and the growth in 3G customers.
Interconnect costs decreased by 0.3%, as the termination rate cuts in the
2006 and 2005 financial years more than offset the effect of higher voice
usage. An increase in the number of customer upgrades resulted in a 6.3%
increase in retention costs. Adjusted operating profit was further impacted
by additional depreciation charges from continued 3G network deployment.
In Italy, adjusted operating profit fell by 1.3% in local currency due to the
impact of an increase in Group charges for the use of brand and related
trademarks, investment in customer acquisition and retention and higher
marketing spend in response to the competitive pressures, along with the
increased costs from the continued roll out of the 3G network. Strong
upgrade activities and a focus on high value customers in response to
aggressive competition led to the rise in retention costs, whilst handset
promotions adversely impacted acquisition costs, especially in the first half
of the 2006 financial year. Interconnect costs fell due to the cut in
termination rates combined with promotions focusing on calls to other
Vodafone and fixed-line numbers, which incurred lower interconnect costs,
especially in the second half of the 2006 financial year. Other direct costs
increased 3.8%, primarily as a result of an increase in content provision
costs arising from the increase in data service usage.
48 Vodafone Group Plc Annual Report 2007
Operating Results
continued
In Spain, adjusted operating profit increased as a percentage of service
revenue, as cost reductions were only partially offset by the impact of the
increased Group charge for use of the brand and related trademarks.
Interconnect costs fell as a proportion of service revenue, due to
promotions which encouraged calls to be made to Vodafone and fixed-line
numbers, which incur lower interconnect costs, and the cut in termination
rates. A higher proportion of prepaid gross customer additions, which had a
lower per unit acquisition cost, particularly in the first half of the 2006
financial year, led to acquisition costs falling as a proportion of service
revenue compared to the 2005 financial year. These relative cost reductions
were offset by the cost of upgrading customers to 3G handsets, migrating
prepaid customers to contract tariffs and a larger customer base, reflected
in a 43.8% increase in retention costs. Other direct costs increased, mainly
due to increased content provision costs resulting from higher usage of the
expanded offering on the Vodafone live! platform.
In the UK, the rise in interconnect costs and the cost of one-off call centre
closures, as well as an increase in Group charges for use of the brand and
related trademarks, were partially offset by efficiencies in overheads and
acquisition and retention costs, leading to a fall in adjusted operating profit
of 10.4%. Interconnect costs increased by 11.8%, following an increase in
total usage, combined with an increase in the proportion of voice calls
made to customers of other mobile network operators, as customers
optimise cross-network bundled tariffs, partially offset by the termination
rate cut. Despite higher gross additions and upgrades, especially in the first
half of the 2006 financial year, and a higher proportion of 3G connections,
acquisition costs decreased by 6.3% and retention costs were kept stable
with the 2005 financial year, mainly due to an increase in direct sales
activity, SIM only promotions and a higher proportion of prepaid additions
with lower subsidies. Operating expenses were lower than the 2005
financial year, excluding one-off call centre closures and the increase in
Group charges for use of the brand and related trademarks, driven by the
continued benefits of a structured cost reduction plan.
In Other Europe, adjusted operating profit decreased by 3.0%, driven by a
decline of 4.1% due to the disposal of the Group’s operations in Sweden,
partially offset by a 0.4% favourable movement in exchange rates, and a
0.7% increase in organic adjusted operating profit.