Vodafone 'faces Oftel price cap'

Gent: denies Vodafone has had an unfair advantage

The announcement of record profits by mobile phone giant Vodafone has increased the likelihood of Oftel putting a cap on its charges, it has emerged.

We have had no unfair advantage; it has all been fought for

Chris Gent, Vodafone chief executive

The regulator is understood to be within five weeks of publishing a review into competition in the UK mobile phone market.

The review was prompted by claims that Vodafone makes "excessive profits".

However, the company's chief executive, Chris Gent, said Oftel's research had been of "abysmally low quality".

He said it was out of date and did not reflect investments in third-generation licences.

"Persistently high profits"

Vodafone's full year figures show that the company nearly doubled pre-tax profits to £4bn before goodwill and exceptionals, on underlying turnover of £21.4bn.

Oftel said in February that Vodafone had enjoyed "persistently high profits" which had not been eroded by meaningful competition.

On Tuesday, Oftel renewed its threat to introduce price controls if it found Vodafone was making more profit than it would in a fully competitive market.

Mr Gent denied that Vodafone, which is the world's biggest mobile telecoms company, had an unfair advantage.

He told the Financial Times newspaper: "We have had no unfair advantage; it has all been fought for."

Any move to cap Vodafone's charges could jeopardise its decision to take a break from foreign acquisitions to concentrate on its core business.

More customers

Vodafone's results were slightly better than industry analysts had expected, as the company managed to avoid the slump suffered by many of its competitors.

The key reason for the jump in profits, though, is not a fantastic growth Vodafone's existing business, but the result of last year's purchase of Germany's Mannesmann, and the formation of Verizon Wireless in the US.

Vodafone's earnings before interest, taxation, depreciation and amortisation were ahead of expectations at £7bn, compared to £5.5bn last year.

However, when exceptional items - such as the purchase of Mannesmann - are taken into account, the company made a pre-tax loss of £8.1bn, compared to a profit of £1.3bn last year.

As a result of the expansion programme, Vodafone's registered customers jumped by more than half.

Share slide

However, the company's shares continued their recent slide on Tuesday, following the results announcement.

Vodafone said it remained the UK's leading mobile phone operator with a market share of 28%, claiming one million customers more than its nearest rival.

The group said pre-pay products drove the growth in the UK market, with almost eight million customers at the end of March - about 65% of Vodafone's UK customer base.

Last year's results were overshadowed by the triumph of its hostile move on Germany's Mannesmann.

Since then, it has added stakes in mobile phone operations in Spain, Ireland, Switzerland, Romania, Mexico, China and Japan.

Many of these acquisitions were made through the issue of new equity, resulting in a significant proportion of shareholders who are not seen as long-term investors. This creates a constant selling pressure.

Third generation risks

The declining shares are also due to the heavy debts built up through buying third-generation licences that will allow mobile phone users to surf the net and send e-mails.

Vodafone is about to launch the stepping stone to third-generation phones, General Packet Radio Services (GPRS), with 3G to follow by the end of 2002 or early 2003.

Vodafone said the product - nicknamed "2.5G" - would be primarily aimed at the business market.

The company said it plans to spend £10bn over the next five years on rolling out 3G services.

However, there is little concrete proof that the new technology will be popular with customers.