Shares in Vodafone have fallen 3% after it revealed that its UK profit margins were being squeezed by lower tariffs introduced to help gain more customers.
Vodafone said earnings before interest, tax, depreciation and amortisation (EBITDA) were down to 26.6% of sales in the five months to the end of February.
That was lower than analyst targets, and was down on the 31% margin in the first six months to 30 September 2006.
The update came as Asda launched its own mobiles using Vodafone's network.
The supermarket's phones will carry the Asda logo.
Increased revenues
Defending the cut in tariffs, Vodafone, the UK's largest mobile phone network and the world's biggest in terms of sales, said they had helped it win extra UK customers and boost revenues.
"We doubt it will be able to sustain this higher growth rate for long"
Vodafone said its UK revenues had grown 4.8% in January and February, compared with 3.3% in the preceding quarter to the end of December.
Yet some mobile phone analysts remained unconvinced by the trading update.
"The UK margins are weaker than expected and while revenue growth is stronger, we doubt it will be able to sustain this higher growth rate for long," said Nomura analyst Martin Mabbutt.
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