Vodafone Group PLC (VOD) 2007 Q2 法說會逐字稿

Good morning and welcome. Here's the agenda for the next hour and a half. I'm going to run through the highlights and give you an update on our strategy. Andy will come next and will give you a detailed financial review. We'll then be joined by Vittorio Colao and Paul Donovan in a question and answer session.

Our first half results are good and show that we're executing well on each of our five strategic objectives. In Europe, revenues have grown in a tough environment. We're driving strong usage growth and data revenues. Our cost reduction programs are delivering results in an environment of falling prices, protecting our margins and our cash flows. EMAPA produced another great set of results with strong contributions from its markets. Good momentum continues at Verizon Wireless.

Our performance in the first half has enabled us to improve our guidance, in particular on revenue by GBP1b and cash flows -- free cash flows by 10%. Our dividend growth of 6% is above our previous guidance, reflects successful execution in the first half and our view of the future.

Here are the key financial results. Revenue was GBP17b, up 9%, or 4.4% on an organic basis. EBITDA margin has fallen in line with our expectations, by 1.4 percentage points. Operating profits rose 6.1% on an organic basis. The dilution of M&A and foreign exchange has lowered reported growth to 1.6%.

EPS rose 7.4%, benefiting from the reduction in shares associated with last year's GBP9b share B return of capital. CapEx rose by 9%, reflecting increases in EMAPA and reductions in Europe. Free cash flow remained strong, albeit a little lower than last year, principally for tax reasons. And we added 20m proportionate organic customers, taking the base to 241m customers.

Let me dig into the numbers a little bit deeper. In Europe we saw modest revenue growth of 2%, despite the adverse impact of competitive and regulatory pressures pushing prices down 19% year on year. We achieved positive growth through strong performance in voice usage, messaging and data.

In EMAPA the increasing customer base was the principal factor behind the 16% revenue growth. Verizon Wireless continues to perform well, increasing revenues by 16%.

In terms of margins, Europe performed as expected, while in EMAPA the reduction reflected the pace of customer growth and the inclusion of Turkey, which has a lower margin.

In terms of our main product line, strong data and messaging growth has more than compensated for a broadly flat voice revenue.

Now, turning to the results of our principal European businesses, in Germany last October's price reduction and roaming regulation have had a significant negative effect on both revenue and EBITDA margins. However, usage growth of 29% remains encouraging in the market. In the context of these revenue declines, a 1.3 percentage point reduction in margin is reasonable.

In Italy, Bersani was the principal cause for the 2.7% reduction in revenue and 2.5 percentage points fall in margin, offsetting otherwise good underlying trends in the business.

In Spain, the growth story continues despite a slowdown due to increased competition. Revenue grew by nearly 11% and margins by 3 percentage points.

In the U.K., our winning in the market strategy is working well, driving revenue growth of 6.7% and an increase in contract customer share. The margin impact is as expected.

Turning to EMAPA, we've achieved good customer growth of between 22% and 75% in our principal markets. This customer growth in turn has delivered strong revenue trends across the region. Egypt is growing at 33%, Vodacom at 20%, Turkey at 28%, Romania at 24%. Our recently acquired business in India continues to achieve high revenue growth and improves its market position. More on India later.

Moving to Verizon Wireless, we continue to see good performance here, as the Company continues to outperform in what is still a very attractive market. The business remains an industry leader on many metrics - total turnover, number of retail customers, lowest churn and the highest profitability. Positive momentum remains, with strong revenue and customer growth.

Now, a few words about the external environment. We discussed the external factors and environment in detail at our Strategy Day in May 2006, and I just want to update you on what's been going on.

First, competitive pressures remain. And on regulation, we've had to deal with the issues of roaming and Bersani. In addition, customer choice is expanding, as broadband creates the platform for innovation and new entrants come into our space, for example the Apple iPhone, Nokia's Ovi and Google's Android operating system. The strong growth in emerging markets also continues.

I'm pleased to say that our strategy remains right and relevant in the current environment. Our focus on revenue stimulation and cost reduction remains central to the challenges of ongoing regulatory and competitive pressures. Our total communications strategy proves to be essential in a market when others are coming in.

New entrants will stimulate innovation. Our data connectivity businesses will reap the benefits of this innovation. We will continue to provide Vodafone Live branded services in the marketplace, and in some cases we will partner with others such as Nokia Ovi. Our emerging market strategy has provided an engine for growth for the Group, excellent returns for the cash invested. Our strategy continues to drive our performance.

And now, a little more on each of our five strategic objectives. On revenue stimulation, we remain focused on driving revenue and usage through a tailored market-by-market approach of voice and messaging solutions. As a result, we've enjoyed a 24% rise in usage, 13% on a per-customer basis, while our prices have declined 19%. Messaging revenues have expanded 8.6%. Volumes rose an impressive 28%. Although overall elasticity remains below 1, it is over 1 on selected targeted offers. There is still significant scope to drive usage in a market where usage is about 150 minutes per month, well below markets such as the United States and India.

Enterprise is an important focus for us as we develop our European business and we maximize the benefits of our unique wide coverage and large partner market network. Enterprise accounts for 28% of European revenue and is growing at 6%, driven in particular by data services. These customers provide attractive ARPUs and are rapid adopters of our data products.

In order to ensure that we remain properly focused in this area, we've recently launched Vodafone Global Enterprise. This division will ensure that we deliver high-quality integrated services to our largest 142 multinational customers. We're growing revenue in this business by 14%.

We're making good progress on our strategic cost reduction programs. We remain on track in terms of timing and mostly ahead in terms of savings. I'm pleased to announce that we've secured GBP340m of savings to date, with further planned benefits to come in the next year, two and three.

Additional initiatives under implementation include network sharing, including in Italy where we've just announced an extension to our arrangement with TIM with an expanded scope. We're also working on ERP centralization. And we're also working on European co-network integration.

European CapEx was 8.1% in the first half and we are confident of delivering our 10% number for the full year. Andy will go into these cost reductions in greater detail.

Our total communications initiatives now represent 12% of revenue and we remain on track to grow this business to 20% of revenue by 2009, 2010. Mobile advertising remains a significant future opportunity. We're well positioned, having commercial agreements in eight markets. Our focus here is on shaping and developing this growth market. We continue to drive fixed mobile substitution through fixed location services such as ZuHause and Vodafone Office, where we have 6m customers and revenue growth of around 33%.

I will now cover broadband and data, which account for the majority of our total comms revenue. First, mobile data. Data revenues continue to grow rapidly, at 45% for the Group, and has delivered about GBP1b of revenue in the first half. The number of 3G devices has nearly doubled to over 21m, including our Mobile Connect cards and the increasingly popular plug and play USB modems. We now have 0.5m mobile Internet users across several markets since our launch in May. And we're working well with our key partners such as Google and eBay.

Strong data growth is also supported by the attractive speeds delivered by our 3G broadband networks, which include HSDPA, combined with clear pricing for national and roaming customers. Our 3G network is well positioned to benefit from this trend, with around a 20% average utilization. We expect data to generate attractive growth rates in the years ahead.

On DSL, the broadband market in Europe is an attractive opportunity, albeit on a case-by-case basis. Average penetration is around 50% of households. Countries like Netherlands and Switzerland are over 70% penetrated, with Italy and Germany at 40% penetrated and Spain at 50%. We now have the platform to offer DSL through ULL and resale in 13 markets. Arcor continues to perform well. And Vodafone Germany is enjoying strong fixed broadband cross selling.

The acquisition of Tele2 Italy and Spain accelerates our entry into these fast-growing markets and provides good scope for cost and revenue synergies. The acquisition, when completed, takes the total fixed broadband customer base to around 3m customers.

Moving on to emerging markets, I've already discussed the strong customer growth we're enjoying on the back of fast-growing economies and relatively low penetration rates. However, delivering profitable growth requires us to focus on cost efficiency and product differentiation, just as we do here in Europe. Our ultra low-cost handset, the $20 handset, is generating significant sales in India, Egypt, Romania and South Africa and allows us to address a wider market with affordable and attractive products and services. In Kenya our M-PESA money transfer service is now being used by 1m people, enhancing our churn performance.

Moving on to India, the India business has been successfully integrated into the Group and was re-branded Vodafone during September. Good execution of our plans is driving good performance, in line with our plans. Revenue growth of 53%, around 1.6m net adds per month and good EBITDA margins. We have a number three market share on a nationwide basis, but we are number two in our principal 16 circles.

We remain on track to invest GBP1b in CapEx this year to aid with the network rollout and support growth. And we continue to seek ways to deliver further cost efficiencies, including ongoing site-sharing discussions with other players in the market.

Can I have the next slide, please? Can I have the next slide, please?

Actively managing our portfolio. Thank you. Clearly a very important subject. Takes a while to get to the subject. In the half-year we've completed our acquisition of Vodafone Essar for GBP5.5b, and we've sold a 5% stake in Bharti realizing GBP700m. We've also agreed to acquire Tele2 Italy and Spain for GBP0.5b.

We continue to reposition ourselves from a low-growth, non-controlled position towards a higher-growth controlled business. Our strategy remains to drive returns for our shareholders from our portfolio. And the areas of developmental interest to us remain Asia, Africa and parts of Central and Eastern Europe.

On returns and dividends, the Board has decided to grow our interim dividends by 6% to GBP0.0249. This reflects the good performance we've experienced in the first half and our view of the prospects for the business on a going-forward basis. While the Board remains committed to its policy of 60% dividend payout on adjusted EPS, I would restate that we will allow the level of payout to rise above 60% as we absorb the initial dilutive impact of India. Net debt was GBP23b at the end of September and our credit rating remained in line with our policy.

Turning to the outlook. Operating conditions are expected to continue to be competitive in Europe, with ongoing pricing and regulatory pressure, notwithstanding continued positive trends in data revenue and voice usage. And in EMAPA we expect increasing market penetration to continue to drive growth.

Against this background, we've set out our new guidance. Improved operating performance has encouraged us to increase full year targets for revenue and operating profit. CapEx guidance is unchanged, with efficiency improvements in Europe offset by increased investments in EMAPA, and in India in particular. Free cash flow is also expected to be higher, benefiting from both improved operational performance and lower anticipated tax payments.

So, in summary, we continue to execute well on our five strategic initiatives. As a result, in Europe we continue to deliver higher data revenue and voice usage alongside important cost savings. We continue to enjoy strong growth in EMAPA, in both emerging markets and Verizon Wireless. Overall, I'm pleased with the strong first half performance, which has encouraged the Board to improve both our guidance and shareholder returns for the current year.

Andy, over to you.

Right. Thank you very much, Arun, and good morning to everybody. I'm going to go and provide a little bit more color to the operational performance, touch upon interest, tax and the overall debt position. So, slides permitting, we will go through. Let's start with the Group income statement.

Two key numbers here that Arun has mentioned already, highlighted on the top left, GBP17b of revenue and GBP5.2b of adjusted operating profit. The revenue figure headline is up by 9% year over year. If we take out the effect of Turkey and India, which were not in both periods in full, and adjust for some small foreign exchange differences, then the overall increase organically was 4.4% on the revenue. And on the adjusted operating profit, doing the same comparison, the major effect here was actually the removal of the Belgacom and Swisscom profit contributions from the previous year. So that, plus the ForEx, has the impact of actually increasing the organic growth rate on the profits by 6.1%.

If you look at this by region, just added in here a third line in the middle, the EBITDA line. So the first column here is Group numbers, I've just been through. And I'm going to pick each of these up in more detail as we move forward. So, on Europe the key number is 2, 2% up on revenues organically, and about 2% down on the EBITDA and the adjusted operating profits. In EMAPA, excluding the U.S., key numbers there, 16% up on the revenues, 13% up on the EBITDA and 11% up on the adjusted operating profit. And in Verizon Wireless, 16% up on the revenues, 17% up on the EBITDA and a big 26% increase in the adjusted operating profit. Verizon Wireless now represents 22.5% of the Group's adjusted operating profit, compared with 20% a year ago.

So let's just start then with Europe. Headline GBP12.7b of revenue, GBP4.8b of EBITDA and GBP3.3b of adjusted operating profit. The drivers of the revenue I'll go through on the next slide, but just by country, we have reductions in Germany and Italy and we saw good increases particularly in Spain and in the U.K. And on the profit side, where we were down about GBP100m year on year, we were down in Germany, Italy and the U.K., but up in Spain.

So let me just start then with the revenue in Europe. Left-hand side here is the makeup of the GBP12.7b of revenue. And just very quickly going down the key lines there, you can see that the outgoing voice was basically stable year on year, the incoming was down about 4%. The roaming was down about 10%. And I'll go into each of these in more detail in a minute. Messaging was up 8.5%. And data up, as Arun has mentioned, a very, very strong 41%.

If I step back from the detail, in the period we have taken on the chin the impact of the roaming regulation, the Bersani top-up decree in Italy and the termination rate cut, which have probably trimmed back the overall revenue growth between GBP400m and GBP500m in the period, which is the equivalent of about 3.5 percentage points of growth. But, through the strong work on data and on messages -- messaging and on the outbound voice, we have actually managed to make that up and add another couple of hundred million as well. The growth rate in the second quarter, if you normalize the accounting adjustments of the previous year, was very, very similar to the adjustment -- to the rate of growth in the first quarter.

So, I'm just going to go and walk through now, on the following slides, the line items that you can see on the chart there. So firstly on the outgoing voice, as I said the numbers are pretty well stable year on year. In the yellow you can see the price change, this is the price paid by each customer, which has been typically in a range of between 15% and 20% reduction each quarter now for the last four quarters. The average for the last two quarters, for the last half year, is a 19% reduction in the average price paid per customer.

In blue you can see the total volume of minutes that we actually sold, and those have typically been in a corridor between 22% and 26% over the period. On average, in the last half year, the number there was 24%. So 24% up on volume, 19% down on price. A slight reduction in the rate of growth in volumes in Spain and Italy in the last quarter, but overall still very much tracking in the same range as previously.

Moving then on to incoming, as expected we saw a reduction in the revenues here, about 4% down. Using the same color coding, we have now actually had four consecutive quarters where the price paid by customers has been going down at or around 12%. And we have, for the third consecutive quarter, had an increase in the volume of minutes of around 9%. So volume's up 9%, price is down 12%, a fairly consistent pattern there on average across the European businesses.

Moving then on to voice roaming, voice roaming revenues down 7.4% organically, again very much as we expected. That is a decline year on year of about GBP80m. Sales of the Passport products still going very, very strong, 16m customers there. And we have obviously applied the new regulated pricing. Within these numbers, there is a GBP30m VAT benefit in the U.K. So the underlying effect to the roaming is about GBP110m reduction, which is benefiting from quite good usage uptake, about 12% increase in volumes. So overall, we're probably just slightly more optimistic now about the roaming outcome for the year compared with the guidance that we gave back in May.

Now, on to data and messaging. On the left-hand side, just to remind, the data up 40.8% and messaging up 8.6%. On the right-hand side you can see the bar charts here. Collectively, those have contributed GBP300m more revenue than in the first half of last year.

The messaging increase of 8.6% comprised a volume increase of 28% and price reductions of about 15%. Over the last three years in aggregate, the price per message, on average, has come down by over a third. The volume increases there and the revenue increases particularly strong in Italy and the U.K., both of whom saw increases on messaging revenues of around 20%.

The 41% increase in data was very much driven in the business segment with Mobile Connect cards, the connectivity side of things, 1.7m Mobile Connect cards now in the market. That is an increase of 72% over the last year. And the revenues from that have over doubled. On applications like email and Blackberry we have seen 1.9m handheld devices, which is an increase of 112%, with the revenues from those up by 80%.

So very, very strong performance on the data front, enabled significantly by the greater data speeds from 3G and from HSDPA.

Moving then on to the margin change in Europe, the margin for this half year was 38.2%, which was a reduction of 1.3 percentage points compared with a year ago. If I just walk through the component parts of that reduction on this chart, first of all the interconnect accounted for 0.3 percentage points of that change. Let's put this in context. We had a 24% increase in the volume of minutes going through our networks, but we contained the interconnect cost increase to only 4.5%, primarily because of price changes and also because of keeping as much of the traffic on our own networks as possible.

The other direct costs, 0.5 percentage points of that margin reduction. Two factors in here. First of all, the direct access charges in the Arcor business, and secondly ongoing commissions and contact costs in the U.K. Personnel acquisition and retention costs took 0.8 percentage points off the margin, and I have a slide just coming up on that. And then finally, and very helpfully, the operating expense controls actually contributed to a 0.3 percentage point improvement in the overall margin. And again, I've got a slide coming up on that front.

So let's just talk about the customer acquisition and retention costs. 7.3% organic increase here overall. The majority of this was on the contract side; about 80% of the increase was on contract. And it was spread fairly evenly between postpaid and -- between acquisition and retention costs.

On the chart on the right-hand side, the green blocks are the total number of new customers added. And you can see some increase there, particularly in the most recent half year. That was particularly in Germany, Italy and in the U.K. The blue chart there -- blue blocks there are the number of upgrades. And again, those have increased particularly in Spain and Italy and Germany. Now, the consequence of that is that we do have improved contract churn rates in each of Italy, Spain and the U.K. On the top right here, the single lines are the unit subsidy per customer on both the upgrades and new customers. And you can see, broadly, a fairly stable trend on that front.

And so on to operating expenses, GBP2.3b. We've now got the operating expenses back to the levels of two years ago, i.e. they are essentially flat. Let's just put this in context. Over that two-year period the number of customers has increased by 17%, the number of network minutes has increased by 37% and the number of base stations by 39%. So against all of those metrics, the operating expenses have basically been held flat. In the second half of the year we may invest a little bit more, particularly on the marketing side, in order to support the increased revenues that are included within the guidance update that we have given today.

And so on to CapEx. Good controls here as well. GBP1b of spend in Europe on capital expenditure in the half year took our capital intensity down to 8.1%. And basically, that's a consequence of the 3G coverage now having largely been completed and some improvements also on the 2G side through a number of initiatives, some of which Arun referred to earlier on. Now, typically, we do spend more on capital expenditure on the second half of the year, so we do expect to still be within the 10% figure for the full year. But overall, good control on the expenditure side in capital.

And finally on Europe, the adjusted operating profit, GBP3.3b. That is a GBP94m decrease year on year, with Germany, Italy and U.K. being down slightly and Spain primarily offsetting, but also a good performance in the Netherlands. Also worthwhile noting that the depreciation trend is now starting to flatten as a consequence of the CapEx controls that have been in place for some period of time.

So, that's the end of Europe. Now we'll change tack and move on to EMAPA. GBP4.3b of revenue, GBP1.4b of EBITDA and GBP0.6b of adjusted operating profit. This excludes the U.S., which we'll come on to in a second. So the headline numbers I referred to earlier, 16% on the top line, 13% on EBITDA and 11% on the adjusted operating profit.

If we have a look at the revenue first of all, then you can see on the chart on the left-hand side the composition of the revenues by operating business. The top part are all businesses that have been with us throughout both of the two comparable half years throughout. And at the bottom, India and Turkey, which are in for part periods in different durations. So in the top part you can see very, very strong growth continuing in Egypt, very strong growth continuing in Romania and South Africa. And indeed, the blue bars on the right-hand side are showing the organic growth rates in sequential half years. So slowing down a little bit, but that is just as penetration rises. Overall, still a very strong performance there.

What we've done in yellow is to superimpose the Indian and the Turkish businesses, which under our organic definition are not included in the organic count. And you can see putting those in on a pro forma basis puts the actual growth rates back up, above the 20% level, particularly obviously assisted by the 52% growth rate in India and the 28% growth rate in Turkey.

In terms of adjusted operating profit, GBP563m of adjusted operating profit. That is progress in most of our businesses. The one with the small bracket around it is India, with an GBP18m loss. But it must be appreciated that that is arrived at after taking a GBP170m intangible amortization charge. So the underlying performance there is very much in line with what we had expected.

The EBITDA margin at 33.2%. As Arun has mentioned previously, the overall average for the region was down because of the mix of operating businesses. This is down organically just a fraction from the decision to invest a little bit more in customer growth.

And so on to Verizon Wireless. Key numbers here, these are six-month numbers, obviously, $22b of revenue, $8.7b of EBITDA and $6.1b of EBIT. Interestingly, down on the bottom left, the net debt figure in the business is now down at $7.6b. And you can see in the line above that, just as a point of comparison, that the EBITDA less the CapEx is now running at the rate of $5.5b. Obviously, that is a six-month number, in other words running at just under $1b per month. Now, the net debt figure there, $7.6b, is before the closure of the Rural Cellular deal, which will put about $2.7b on to that figure later when it closes. But nonetheless, very strong cash generation and a good low level of debt in the U.S. business.

So I'm now going to move away from the operational review and just comment upon one or two other things in the income statement. First of all, the net financing costs at just over GBP0.5b. These exclude the put option accounting, just to be more straightforward. This is up 25% year on year, primarily because of the increase in the level of debt and the slight increase in interest rates.

If we look forward to the second half of the year, just bearing in mind the phasing of some of the dividends receivable, the debt and the interest rates, then we would expect that the second half financing costs would be somewhat higher.

On the tax front, the effective tax rate for the half year was 30.1%. And we continue to expect the overall full year tax rate to be similar to where we were last year, which was about 30.5% overall for the year.

Now, the CFC case I know is always a topical one. We have had one-third of the development on the CFC case in the period since May, which is a further court hearing. Put simply, there were two issues raised at that. One was the question of whether the principles that had been determined in the Cadbury Schweppes case were the principles that should be applied to our [tax] pattern. And the answer to that question was yes. So that has at least provided clarity as to what principles should be applied to [a client] upon the case.

The second issue was a slightly more profound one, of whether actually the U.K. law is fundamentally incompatible with the E.U. law. And there was an interesting development there, in that whilst we lost that part of it, we only lost it on a split decision based upon the casting vote of the Chairman. So we have decided, on the latter, that we are going to appeal, and the appeal is set for the spring of next year.

So bottom line is, this is still moving very, very slowly forwards. If I had to estimate, I would say that, for a case that is already seven years old, we are probably still another two to three years away from concluding it.

And then finally, on the bottom here, the adjusted earnings per share, up by 7.4%. Do bear in mind, however, that first half on first half we have an 8% reduction in the share count as a consequence of the share issue of a year ago, and that has clearly weighed heavily on that calculation. That does not recur in the second half. Broadly, the number of shares in issue in the second half will be similar for the two periods.

And it is also worth bearing in mind that those EPS numbers are obviously after we have taken into account the contribution from the Indian business, without which the EPS growth numbers would have been about 4 percentage points higher. So order of magnitude of that has been the impact of India slightly lower than we previously indicated.

On the free cash flow, GBP2.7b on the right-hand side is the published number. There was one item in here, which was the payment of GBP200m of VAT which happened in the current first half with respect to the purchase of the Turkish business in the previous year, which if you exclude that then actually - this is sort of working from right to left - the adjusted underlying was GBP2.9b of free cash flow, pretty comparable with the GBP3b of the previous year.

And I think it is worthy of note that even though the margins and the operating profit were challenging in Europe, we did actually through the tight capital expenditure control actually generate more cash out of Europe this first half then we did a year ago. EMAPA also increased its cash contribution and, bearing in mind that that is after in India, spending about GBP360m on capital expenditure. And then we had slightly higher ongoing interest and tax costs, which basically took us to the GBP2.9b number. But overall, a strong performance on the cash flow.

The net debt, we've closed GBP23.3b of net debt, which compares with GBP20.2b a year ago. Just very quickly to walk through that GBP2.7b of the free cash flow that I have just referred to, and then the net impact of acquisitions and disposals which is shown on the right-hand side, GBP5.5b out for India in terms of cash consideration, GBP1.2b obviously on debt. We have included, as we have to do, the fair value of the options there, which are GBP2.4b. So overall, the impact of India is GBP9.1b. Then we have the inflow from the Bharti part disposal to give GBP8.4b. And then returning to the left-hand chart, the equity dividend payment coming to the GBP23.3b. So GBP2.4b of the GBP23.3b is the put option accounting. And those numbers are comfortably in our low Single A credit rating.

Now, Arun talked about the outlook statement earlier. I just wanted to make a couple of extra points on this. We have separated out here and in the press release the movements between foreign exchange movements, recent acquisitions and underlying business performance. And we've also actually, for the purists amongst you, slightly narrowed the ranges, so mathematically you'll work out this will not totally add across but this gives you the build up across.

So first of all, the key point on the foreign exchange is, because we do not consolidate any of the revenues of the U.S. business, we actually have the full brunt of the euro currency exchange movement in revenue, which has given us a boost. Whereas in the adjusted operating profit, we have the opposite effects of the euro and the dollar movements, which very simply have pretty well offset each other. So actually, even though the exchange rates themselves have moved in our latest view, it has not overall impacted the FX line.

We have then put in the Tele2 deals, assuming that those close fairly soon, and the column highlighted in red is therefore the true upgrade to the operating performance. So we have upgraded the revenues by GBP0.6b, the operating profit by GBP0.2b and the free cash flow by GBP0.3b.

Key components there on the revenues is the stronger performance of the data and of messaging, being slightly more optimistic on the roaming and good performance in the EMAPA businesses. That flows through to the adjusted operating profit. Slightly lower one-off tax settlements and we come to the GBP0.3b upgrade to the free cash flow, which is about 7% up on the midpoint of the previous guidance range.

So in summary, I think the performance was strong during the period, very consistent with our overall strategy. Europe, the real story was about driving data to overcome some of the pressures on the voice side. In EMAPA it was about continuing to grow the businesses there and integrate India. The U.S. is continuing to perform strongly and the debt levels are progressively coming down. And overall, the free cash flow generation for the business remained very, very strong during the period.

With that, I will finish and hand back to Arun.

Thank you, Andy. Can I invite Paul and Vittorio up? Okay. With that, I'm very happy to take questions. We'll start with Christian up here.

Thanks, Arun. It's Christian Kern at Lehman Brothers. I was just interested if you could help us with the revenue growth outlook in terms of the curves you're anticipating for voice. Is it a stabilizing curve or is it still flattening over the next couple of half years?

The second one would be then on the data side. We've seen exponential growth curves on subscriber growth, in the mid-90s in Europe. Is this an exponential curve you see flattening any time soon or is the consumer segment coming in? So just to get a feeling for the underlying drivers, how you see them developing over the next two or three years. You mentioned advertising on the mobile side as well in your release. That would be very helpful to get a feeling for it.

And then a pretty similar one on net debt towards the end. Andy, maybe you can help us there, where you see net debt towards the end of the year. Thank you.

Christian, a very good opening question that encompasses everything, pretty much. So, thank you for that. I'll take a shot at it and I'll ask my colleagues to join.

If you say what are the real drivers in the business, the real drivers in the business continue to be voice usage growth, which we're growing at 24% in the first half, data growth that's growing at 40%, 45%, messaging growth, which is growing at 8% or so. In EMAPA the underlying focus in each of our markets, the kinds of numbers that you're seeing, are numbers that one can expect to see in the future. Offsetting that are two major downward trends. One is competitive pressure, price per minute. We're talking about 19%, which includes both price pressures from competition and price pressures from regulation.

Now, the question is the things that are driving our business forward I think will continue to drive our business forward. I don't expect any major changes there. So then the question becomes what's kind of pulling back on the business - competition. Very hard for me to sit here today and say the numbers are going to be substantially lower. Our own view is that it will remain competitive here in Europe. Exactly plus or minus a few hundred basis points, I'm not trying to be that precise, but we expect things to remain competitive.

On regulatory pressure, we had double and triple whammies this year. We had roaming, we had termination rate cuts, we had Bersani. Frankly, we don't expect triple whammies in the years ahead. We will expect single whammies and we expect termination rates to continue to decline and we've got them planned into our thinking. On the margin, there might be one or two other smaller things. But we don't expect the kind of regulatory hits that we've taken this year.

So when you net it all out, you basically say the positive things are likely to be similar and the regulatory pressure is likely to lift a little bit. And that gives you whatever set of numbers you can dial in.

Andy, you want to add something to that?

Well, maybe I'll just pick up, I think it was the second part of your question, on the net debt side, just go on to that. Broadly, implicit in the guidance is GBP4.6b, GBP4.9b of free cash flows in the second half of the year, GBP4.4b to GBP4.9b, so GBP4.6b or so on average. We've done GBP2.7b in the first half. It's implying about GBP2b in the second half. So it's essentially a similar run rate but more capital expenditure in the second half, particularly on India, is really how the profiling on the cash side works.

Vittorio, did you want to add something?

I can get Christian's point on data. Data, we perceive it as a great opportunity. If you take just some basic facts, Vodafone today we have 1.5m active email customers, which is a very good promising number but still very small. Data cards and PC-based access to data going up a lot but still the number is in the sub-2m thing. In total, out of 106m customers, we have in a way another more or less 20m people who are active on data but not on a regular tariff.

So the potential we really feel is there. And now that the speed of the networks clearly has improved and on the other hand devices are becoming are very user friendly, also consumer data we perceive is going to be a reality. Here you have to believe that the whole society will go into more kind of personal communication, email, maps, music listings, which by the way is our daily experience, so that we perceive as a great potential.

Of course, we have then as operators to price wisely and to make the services very easy and very accessible. But that's a great potential what we have to really exploit. And compared to Verizon Wireless, we do a lot of comparison and a lot of sharing best practice and experience. And again, the experience is that people will move to bigger tariffs and packets with including mobile communication on a data basis, which we think is great in Europe.

Thank you.

Terry.

Thanks. Terry Sinclair from Citi. German contract churn is up, SACs per customer are down. Is there a chance that SACs per customer will rise in the second half?

Secondly, I assume the guidance does not include anything for spectrum in India. I know we'll talk about this on December 10 but can you help us think about how -- when we should expect spectrum payments?

Finally, can I just ask whether you're able to give any help to us on quantifying the unit -- price per unit reduction in CapEx? You've clearly hired -- you're spending more in terms of staff but you're getting a better price for it. What's the efficiency gain there?

Andy, if you take the spectrum guidance question, do you want to take the German question and I'll maybe ask Steve Pusey, who's our Chief Technology Officer here, to actually comment on what is happening to prices on a unit basis.

Yes. On Germany, what I can say is that Germany is and has been a challenging market from the price point of view. At some point last year we have taken a decision to be more competitive from a price point of view. And we are now in a way closing the gap, the negative gap in terms of revenue growth with our main competitor. We still have much, I would say, bigger profitability compared to the main competitor, which for us is, if you want, the cushion that we can reinvest into being more aggressive, which is what we are doing in these days.

We lead in the data space. Clearly, we have been conquering that space earlier than our competitors, both in the connectivity space and in the entertainment, the consumer space. So we think we're doing a pretty good job at defending our share. We are focusing more on higher-value customers than on lower-value customers, which is what you would expect. But probably it's going to be for another couple of quarters a challenging environment.

Now, the good thing about Germany is if you compare Germany with the other European markets, Germany is still the market which has the lowest usage in Europe, or one of the lowest usage in Europe, which again indicates that every time that we move the price there is a great potential to basically catch back in terms of volume. So overall, we don't think that the situation is really as negative as you described it but there is still some more work to do.

Terry, on the spectrum side, there's basically two parts to this, one is policy, and maybe actually Paul can comment just a bit about what is actually happening out there. This is not specific to India but just generally, because spectrum is lumpy and very difficult to predict when price changes do occur. We have typically guided, and I think it is footnoted in the press release, that we guide exclusive of changes in spectrum and license costs on that front. So to the heart of your question, you're absolutely right. We have continued to guide on the basis of the existing regime continuing through the balance of this financial year. I don't know, Paul, whether you want to just comment on where that situation is.

Yes. I think the kindest description that I can give of the spectrum situation in India at the moment is that it's a bit of a mess. There's been a couple of pronouncements from the Department of Telecommunications recently. Number one, allowing CDMA operators to obtain GSM spectrum under the same license as they had before. The second one is a review of spectrum allocation criteria which is actually done on a per-subscriber basis, which is actually introducing the potential for an up to 800% increase in subscribers before retrieving the next tranche of spectrum.

The majority of GSM operators do not believe that these proposal rules are either technically acceptable, nor indeed practical in terms of their implementation, and therefore have through the industry association filed a petition challenging the Ministry's rulings. The issue of spectrum fees is therefore a follow on and is equally unfair. And so we're not anticipating any incremental fees for spectrum in the near term, certainly until the fundamentals of allocation become clearer.

And indeed, yesterday there were some further announcements on 3G, which are equally unclear in terms of scope and timing. So this is something which is clearly going to unfold. We hope that by the time we have the India Day in December that we'll have greater clarity on these particular issues. There does seem to be a head of steam in India to get them clarified and give us a certainty in terms of investment outlook. But right now it's a mess.

I think the policies will be clarified in the next 30, 60 days. And I think we're just going to have to walk through the press releases that we keep getting from India. But more clarity in 30, 60 days. Steve?

Good morning. Steve Pusey. Germany, I'll give you an answer in two areas here. One is if you look, underpinning the work we're doing in both markets and the price movements in both markets, the technology itself is reducing as we exert our volume ability to procure across all markets. And the scale of India only assists in that, with the reverse synergies that we can bring to bear with the vendors.

But secondly, and as importantly, as the technologies are evolving quite rapidly and they're offering us efficiency as we deploy in the marketplace, to both service customers and service the growth, particularly in data, that you'll see. And so there are two measures looking to support the growth of our business in all those areas, both net pricing, the power that we bring as one large company and the evolution of the technologies themselves that are offering better coverage, more customers connected, etc., etc. So, two areas there.

Thank you very much.

Nick.

Thanks very much. Nick Delfas from Morgan Stanley. I have two questions. The first is on capacity utilization, page 15 of your presentation. You say 50% to 60% utilization in busy areas at busy times. I just want to clarify, is that the busiest area or is that multiple areas? It sounds like within a year of data growth that could lead to some congestion. I just wanted to get your perspective on capacity utilization and whether you need to buy any more spectrum or do something to increase capacity in those areas.

Secondly, just to Arun's point on trends, obviously Q2 over Q1 maybe there was a slight incremental roaming drag in Q2, although I think you changed most of your prices in Q1 to comply with the regulation. But many of the markets, Germany, Italy, Spain, even some of the EMAPA ones, Romania, Egypt, showed a slowdown Q2 on Q1. I wonder if you could just talk about why that was, on an underlying basis. Thanks very much.

Okay. Let me take the first part of the question and maybe, Andy and Vittorio, you can reflect on the second one here.

So, first off, on the 50% usage in our busy areas, those are literally cell sites or a group of cell sites that are in very high usage areas. The way to solve the capacity problem there is you can introduce another carrier. So it's not that we are spectrum constrained, but we might have to put a little bit of capital on top of those particular sites to make sure that we're providing good services to our customers. In general, like I said, we're 20%, 25%, data usage is growing very rapidly. And frankly, we are going to have to augment our networks in the hot spots but not broadly across, which is what costs a lot of money. Andy, Vittorio?

Shall I -- let me just kick off on this. The growth rates from the first quarter and the second quarter, the revenue recognition changed maybe a year ago, obviously one has to normalize for that. The roaming price changes have happened slightly differently in some markets in terms of their exact timing, so some did, as you say, happen very early in the year. There was one or two of them that happened late summer, so we'll see some of that coming through.

But to be honest, I think the actual underlying change in the growth rates between quarters is very, very small. It [will be really down] to point something percent. So from my perspective, and Vittorio I'm sure will comment, that we are pretty constant on the growth when you strip it back. I don't think it's a big change there.

Nothing more to add.

Robert?

Yes, hi. It's Robert Grindle from Dresdner here. Just actually it's on the capacity utilization thing again, I'm afraid. Is that 20% to 25% before the upgrade to 7.2MB HSDPA? And is it possible to know roughly on average how many carriers you have activated per base station? Is it still broadly one across the footprint?

And then in Italy, the agreement you've done with TIM, the expansion of the scope of that agreement, is it possible to give a broad idea as to how much extra that might be worth? Thanks very much.

Okay. Robert, let me -- so first off, the capacity utilization numbers here, they are mostly on HSDPA 3.6 because 7.2 is just beginning to launch. We've given you numbers in the last six months, so it's before the 7.2.

Second, in most parts of our network we have deployed only one carrier. Selectively, we'll deploy a second carrier when a need for a second carrier arises.

And on the TIM extension, I'm sure Vittorio can add a lot to this, but I'm very pleased that we're extending this and we're frankly expanding the scope. So we can do much more than what we've done in the first time around.

Yes. I think it's another very positive type of agreement that we have reached. The agreement, first of all, is very long, of course, in time. So it's going to be seven years and it's going to take a lot of time to fully deploy. But we are thinking of sharing thousands and thousands of sites, a big number.

Now, the savings will come over time, because of course you have to decommission existing towers and basically replace and put the equipment in the new ones. But here you have probably a very good effect also on the rentals, which is in Italy particularly a very high cost, much higher than everywhere else because of how the country is done. Power, maintenance, everything which makes actually increasing our capacity more difficult from an operational point of view, not from a spectrum point of view but from an operational point of view, will become much easier. And we think this is not only cost saving but it's also very future proof in terms of all these improvements that we have to make. So it's a very positive development.

Laura.

Thanks. Good morning. It's Laura Janssens from UBS. First of all, I wondered if you could comment on the strength of the EBITDA within the common functions line in the P&L. Should we interpret this as cost touching and is it fair to assume that most of that is attributable to Europe?

And secondly, now data is becoming a more significant part of revenue, I wonder if you could comment on whether there's reason to assume that the margins are very different on the data part of revenue compared to the rest of the business. Thanks.

Andy, you want to take that.

Yes. Let me just take your first one, then. So, on the common functions, the comparison year on year, if you got into that level of detail so far, there is an increase in profit contribution from there. Some of this is because of reorganization charges we took in the previous period. And some of it is because, as we're moving more to shared types of activities, we are evolving the recharge model for the shared service activity. So it's the two of those together which have caused that change there.

Sorry, your second question, Laura, was?

The margins on data.

Yes. The margins on data vary quite considerably, from messaging, which is obviously very high, to a number of the products where we've got bought-in components and we've got different ranges of profit share. But I'd say overall the margins are probably a little bit lower than the Company average but not too much different from the Company average.

The fastest-growing part of data is connectivity and connectivity has a very good margin.

Andrew?

Hi. It's Andrew Beale from Arete. Just a couple of questions, one on advertising and the other on convergence, I guess. On advertising, you've got a very bullish statement -- paragraph in the statement talking about the prospects for that. I'm just wondering if there's any near-term evidence which supports your great optimism there.

And secondly, what the model is long term, how it's mixed between TV, clicks, banner advertising and so on?

Secondly, on convergence, I think a few of your competitors are abandoning thoughts of selling fixed and mobile together, whereas you've obviously bought Tele2 Italy and Spain. Given that you've paid a consolidation multiple for those assets, I'm just wondering how you think you're going to make a return on capital out of those acquisitions. Thank you.

Okay. Thank you, Andrew. So first off, on advertising it's very early days. The fact that a number of other players, such as Google, etc., are interested in coming to our particular industry is because they think of mobile advertising as the next place where advertising -- digital advertising is going to go.

Our own view is that we are very well positioned as operators with good CRM, with billing, with information to actually help monetize all of this. We're doing a number of trials in our markets. I think the most advanced trials that we have are here in the U.K. and we're doing it with Yahoo, where we're trying different models, banner advertising, content, push.

And I'd say it is early days for us to say we've landed on a particular business model in terms of saying this class of customers like this kind of advertising and this is the monetization in terms of CPM. It's still early. The numbers that we've got are still in the tens of millions of pounds. So it's not a big number in terms of revenue. But we remain hopeful in the medium term that this will grow into a good-size stream of revenue for our business.

On your second question around convergence, so first of all, I don't think you've heard us talk a lot about triple play and quadruple play. We are in the business of satisfying customers' needs. We believe that mobility is a strong business. We believe broadband is a strong business. We believe the Internet is a strong business. And the assets that we've got and that we are collecting are assets that will help us meet either the mobility needs or the broadband needs or the Internet needs of our customers.

So we are perfectly satisfied with what we're doing, buying in some cases, doing ULL in other cases, doing resell in other cases, to make sure we can satisfy our customers' needs on a country-by-country-by-country basis.

So just coming back on that point, if you've paid a consolidation multiple for these assets, do you then need to buy another asset to make the maths work in those markets? Or do you think you can make a return on that existing business as it stands just doing broadband?

Yes. I think the businesses that we're buying are businesses that we will take and frankly grow. Typically, we're buying a 3%, 4%, 5%, 6% market share position, and obviously our mobile market share is in the 30%, 35%. And we will grow the broadband businesses that we have to a number higher than where we have today.

Vittorio, you want to add?

Yes. I can just -- I'm not sure what the consolidation multiple is, but basically what we are seeing, and I can take Germany which is a case where we have actually already today presence in both segments, we see that we have at least two strengths, one is distribution power. In Germany we are selling broadband which is really given to us by Arcor, so it's an Arcor inbred type of thing. And you see that the power of distribution under the Vodafone brand is getting traction, and secondly it's created a brand. Because you know in high-value customers in SOHOs, in small and medium businesses, we are typically in a position of strength.

That per se is what we really want to do. We want to serve those customers with their needs. And again, if then one day there is a triple, quadruple play, quintuple, whatever is going to be in Spain in these days, Orange is trying again to play this game, fine, we will be in a position to respond. But our main goal is serve the high-value customers with their needs and do it out of our major strengths, which are distribution and brand.

Thank you.

We'll take Andrew here.

Thanks. It's Andrew O'Neill from Bernstein. A couple of questions, if I could. Firstly, it seems, looking at the results from the industry broadly in Western Europe, that in the September quarter there was a certain level of competitive reduction. Do you have any sense for why you think that things got a little bit more benign this quarter competitively? I know you've already said you don't want to predict what will happen next. But what is Vodafone's strategy going forward from here, given some of the reaction of your competitors?

And then secondly, thinking through, I think, a couple of things, one is looking at the margin result in Western Europe this half year. It looks like half on half, given the seasonality, probably margins are about flat. You were describing a picture for revenue where the regulatory drag next year would be diminished. So are we moving closer to the point where we can see EBITDA grow again in the European division?

Okay. So, first of all, I would not describe the competitive environment in Europe as benign. I actually think it continues to stay competitive. And frankly, whether it's Germany or Italy or Spain or the U.K. or any of our other units, I think we're all experiencing competitive markets. And frankly, we expect these competitive markets to continue in the next six, 12 months.

In terms of your question around EBITDA actually rising, I don't see a scenario, at least in the near term, where we're going to see EBITDA margins climbing. We think that our prices will continue to decline for the next couple of years. And frankly, we will have lower margins. We're working very hard on the cost side to make sure that the margins don't deteriorate at a fast rate, as you saw this time around, 1.3, 1.4 percentage points. We'll continue to do that. We've got programs in place at the present time. We have new programs, constant cost structure reduction to make sure that we can have good free cash flow and we can have good margin production. So that's the scenario that I see for Europe here.

Vittorio, do you want to add to that?

Yes. I just don't know whether we can define -- if we look at the price decline quarter over quarter, minus 16%, minus 21%, minus 20%, minus 18%, yes, occasionally in one quarter you can get -- because in one country somebody has gone on holiday or something like that, but eventually the next quarter comes back. The positive thing from my point of view is that most of us, most of the operators, are really trying to get elasticity out of this price reduction. This is the game that we are all trying to play. And I think you are seeing some volume increases which, again, elasticity is not at 1 yet, but we are seeing some volume being brought back to us in terms of more users and more things. But Spain, U.K., there's always somebody who basically does an aggressive move. If it's not, it's just a coincidence.

We'll take John.

John Clarke, Brewin Dolphin. Two questions, if I may. Firstly, you've talked quite a bit about regulation. What are the prospects of a reasonable degree of regulatory stability, do you think? My perception is that, certainly in the past 18 months, regulation from the E.U. has been somewhat on the capricious side. This is something that the industry didn't really have to deal with before. Can you give us some idea on how you -- whether you see stability in European regulation going forward?

Secondly, could you just briefly also come out with one or two areas where you definitely see your services differentiating from the growing competition?

So, first on regulatory stability. It's interesting you ask the question because Commissioner Redding actually this afternoon is going to be making a presentation about the state of regulation and what's going to happen in the future. It's very hard for me to pre-judge what she might say. But what she's largely expected to say is that there are parts of the market reviews that will be dropped, which is good news for us, which means that we will be regulated on a more limited basis on a going-forward basis.

The second thing is that she will probably talk about creating a super regulator for Europe, and I think that's going to take a couple of years to thrash out because you've got local regulators and national regulators. And what happens at a national level and what happens at a European level will be a subject of intense debate, and I think that debate needs to be had and sorted. But that will take a couple of years.

And I think she has said in the past that she will be watching our industry closely in terms of data and SMS prices. And frankly, our data and SMS prices are falling and we continue to make sure that customers have the best rates as they travel around Europe.

So those are the kinds of things that are likely to come out. The net of all of this is what I said at the beginning to Christian's question around do I expect slightly less revenue pressure from regulation next year. The short answer to that is yes.

Now, on your second question about non-differentiated products and services, we try very hard to stay differentiated, whether it's in the provision of our 3G HSDPA data services, whether it's the plug and go USB modems, whether it's the proprietary handsets that we have. But obviously there is a vast majority of handsets that are non-differentiated. You can always find a price plan with a competitor that looks quite like the price plan that we have. So our industry is all about constantly trying to find differentiated elements in our strategy and trying to promote those to our customers.

But you aren't -- are you known -- can I come back on that? Are you known for one particular -- any single particular application? I'm not necessarily talking about a killer app here, but I'm perhaps talking about a particular service differentiation.

I wish we had a killer app, which unfortunately does not seem to exist. I would say that Vodafone is recognized, from our own market research, basically for two areas. One is the ownership and being always ahead in the roaming space. And this goes back to the passport tariffs, the seamless working services, the data to the European data tariff and more to come in that space, which is natural because of our footprint. And second is the continuous effort to be leaders, which so far we -- I think we are succeeding with in the data -- in the mobile data space, going back to Christian's point before.

We launched mobile Internet which is again an attempt to put occasional data users into regular tariffs. We have half a million of those subscribers today. In the U.K. in these days we are launching this very innovative music service. It's a Music Box, which is a rental type of music service. We are introducing the 7.2A data card.

So I would say if -- it's not a killer application but there is clearly two areas that we try to own, and one is mobile data, the other one being roaming. And of course it goes back also to good very basic performance. So in Germany we have the best-performing network in terms of speed and in terms of data, which is certified by external people. It's just basic good running. In Italy we have the best customer service in the country. This is just basically good running of the Company. The characteristics that I would really focus on are the roaming and the mobile data space.

Very good. HSBC.

Hi. It's Stephen Howard here with HSBC. Two questions, please. Firstly, can we have in a little bit more detail your thoughts about the Open Handset Alliance and Google's plans there? To what extent do you fear you might be disintermediated by that initiative?

And then secondly, on the data side of things, would you agree that it's probably easier to get consumers to start using data services more aggressively if they are on contracts? Basically, it's easier to pitch them the flat rate plan. You can subsidize a higher-end device. And that being the case, what kind of ratio of contract to pre-pay would you like to see in the European developed markets in, say, three years' time? Thanks.

Okay. So first let's talk about the Open Handset Alliance. Let's go back a couple of years, when we said that there were 30 operating systems in the mobile world. And frankly, we'd like to see the 30 operating systems converged to a number more like three, four or five. Symbian is an operating system here in the mobile space. Microsoft is an operating system here. We've always talked about somebody in the industry coming up with a Linux operating system, and of course the Google system is a Linux-based system. There'll be a couple of others as well.

So we, in general, welcome the fact that the total number of operating systems in the mobile industry is reducing from 30 to some number hopefully closer to five. This is important because, as people develop applications, they can't develop applications for 30 operating systems. They obviously can develop applications for one, two, three, four, five. So it is a good thing that's going on with Google and the Open Handset Alliance.

I don't see this as a disintermediation as much as, like I said, this is an operating system. We can write that operating system any time we would like to write that operating system. And what we'll have to see is what set of developers come around this operating system and what kinds of new products and services will be sold.

I made this remark in my prepared remarks, where I said these innovations are good for our industry, because fundamentally they will increase the kinds of products and services our customers will buy. We're going to be the beneficiary at the data connectivity level, because we have the broadband data pipes and everybody's going to be writing our broadband data pipes. But equally, in end services, whether it's an Ovi service or a Vodafone Live service or iPhone service, or whatever services get developed on Google, frankly we're going to have to compete there. And there, a bigger pie is being constructed and we will probably have a smaller share of a bigger pie in the services layer. But we'll certainly have very good market share at the data connectivity level.

I'm sorry, there was a second part to your question. I apologize. Do you want to take that?

Yes, the prepaid/contract piece. I think you have a point but I would say it slightly differently. In Europe Vodafone today has about two-thirds, let's say, customers prepaid, and this goes from a low in Spain to a very high in Italy. The point is not strictly prepaid versus contract, but this flat commitment versus if you want to pay by the meter type of thing. With a flat commitment and with a flat paying, then the worry with using data services goes away and then people do it more, which is why we have introduced this mobile Internet tariff which goes for GBP7.50 here and EUR9.90 in the rest of Europe, EUR9.90 of course in the rest of Europe. Which is why we're introducing email entry tariffs as low as EUR5 per month for very basic usage, which can be done also across prepaid. It's a little bit technically more complex but can be done.

So the issue for us is really more to educate the customers to get this extra commitment, and then be able to build additional ARPU on the services that they get. So, from the basic [layer] then move them to a more full email and then full email with attachment, and then whatever you want. It's not strictly just contract. It's more being able to give some kind of flat, no-worry type of tariff. And that we do across the board in our prepaid market and in non-prepaid markets in the same way.

Very good. Simon?

Thanks, Arun. I've got a couple of device type questions, one of which follows on. You're obviously buying handsets at $20 each for some of the emerging markets. Word on the street is that Nokia N95 wholesales at about $750, which sounds like quite a big gap. Does the Android concept provide a means to chop a piece of cost out of the cost of handset development and per-handset costs? Is that a way of bringing higher-functionality phones into a lower price point in the market?

The second question is relating to devices again but the flipside slightly, which is USB modems. You've got a competitor in the U.K. that's selling a monthly package of a gigabyte for the USB modem for free on a GBP10 a month tariff plan. Does that sound like the sort of tariff plan that would get the market using up the 80% of your 3G capacity that isn't utilized at the moment?

And finally, I wondered if you could give us a little bit more color on market dynamics in Turkey, where we saw a little bit of a slip in the margin this half. Thanks.

Okay. Well, maybe I'll take the first one. You can take the second one and you can take the third one.

So, the development of an Android operating system will, in its final form, reduce the cost of high-end phones, both because the IPR fees that are paid are going to be minimal. I don't think they're going to be zero, but they're going to minimal in an Android open system, Linux system. And I will say that there will be more folks who will have access to these open platforms and I think they will reduce, frankly, the price of high-end phones. It's going to be good for the consumer in that regard.

You want to talk about the GBP10 unlimited?

On USB modems, I would say that in general in Europe there is some kind of, I would call it, convergence on the EUR30 kind of band or GBP25 or in that range. That seems very consistent with what's happening also in the fixed broadband space. And we think that going below that or above in terms of users puts a big challenge on the network, quite frankly. So we are not sure that it is a very, very wise pricing, what we are seeing, but of course not only in the U.K. There's, I guess, the same operator does a very aggressive offer in Italy as well. And we don't think that you can deliver a very good experience in that space.

Now, what we are seeing from our customers is what they really like is the increased speed of HSDPA. Now, you have to trade off a good customer experience with numbers. We think that the customers are happy to pay a price which is in line with fixed broadband for getting a good experience, getting a lot of peer-to-peer traffic, getting a lot of bandwidth-hungry kits, because this is what we're talking about. Take away the capacity from your business customers, I'm not sure it's a very wise long-term strategy.

So we don't actually see the GBP10 unlimited as the long-term right price in the marketplace. You can do that for short periods of time, you can do that for certain segments of customers, but that's not the long-term price.

Thank you. Paul?

Yes, Arun and Simon. A year ago in Turkey we had a highly congested network with a limited footprint. We had customer service that candidly was impossible for our customers to get through to. We were living with the Telcin brand and therefore not investing in it, because we knew we were going to re-brand. We had no resilience in our IT infrastructure. And we were not really competitive in the channels. A year on, we've increased the network, we've dramatically improved customer service, we've now re-branded as Vodafone and we are investing in our brand at a higher rate. And our share of gross additions has risen dramatically.

All of that has had the short-term effect of depressing margins. But we did always say to you that the Turkey business was about a medium-term turnaround that was going to require significant investment. So, in terms of the glide path of where we intended to get to, we are on track. And in the remainder of the year you will see margins which are in the twenties of percent. So, just as you were pleasantly surprised at the margin this time last year, why has it gone so high, it's merely a reflection of the investment that we've made.

Justin? I'm being signaled here that we need to stop, but we will take one more question from Justin. After that we will stop. Justin.

Thanks. Just a couple, if possible, just firstly to try and understand the difference in the messaging trends between the U.K. and Germany. Obviously, the bulk of your data revenues is still SMS. The U.K. I think was double-digit growth in revenue. Germany was high-single-digit decline. I just wondered if you could provide a bit more color as to compare and contrast those two trends. And which of those two trends do you think is most close to where you see messaging revenue going over the next couple of years, growth will decline?

Secondly, you've now managed to sustain 40% growth in messaging -- sorry, non-messaging or data revenue for at least the last year on a growing base. I just wondered if you would care to give us a feel for how you saw that percentage rate evolve over the next two years. Do you think you can sustain that sort of growth on a growing base going forward? Certainly, our own work would suggest you might be able to. In which case, are we all essentially under-forecasting your European business? You have raised your revenue guidance for Europe for the first time in probably about eight years. Why not doesn't this feature into future years as well?

And on a separate thing, on India. You say in the statement that you've had a boost from these new low-pay, low-cost handsets. Does that imply that we're now actually running at more than 1.7m net adds per month in India?

Okay. Vittorio, do you want to take the first question, I'll take the second and third?

Yes. I would say in Germany and the U.K. messaging probably is two extremes, and here there's several things happening. On one hand, price of messaging is coming down. Messaging therefore can be used more. On the other hand, the more you give bundles, the more you give big buckets of minutes, there is inevitably some kind of cannibalization.

Now, where is the future? Is the future Germany, is the future U.K.? My guess is the future is somewhere in between. We're not 100% happy with the results in Germany, but we understand that there is a consequence of introducing those big bundles and there's a consequence of giving the customers suddenly the choice to make of calls which already included in what they pay. Inevitably, we had to get some cannibalization factor of voice versus -- on data.

On the long term, I'm not sure who is forecasting what. As I said before, we are confident that data growth is there. Spain is growing a lot. However, if you look at the percentage of non-messaging data over the total, Spain is not one of the highest. So there is potential to grow. And again, I think everything will depend on how well we integrate very nice data devices with -- and very easy to use data devices, with tariffs that can take the customers into the experience and then upgrade the experience from whatever they get as the basic service into deeper packages.

But as I said before, we are confident this is going to be an important thing and we want to ride it.

Yes. So, just specifically on your question about data forecasts, we obviously are not forecasting any particular number. What is pleasing is that it doesn't matter if you're in the U.K. or you're in Germany or you're in Spain or Italy or Netherlands, we're finding very strong 40-ish percent data revenues. Data revenues in Portugal are 75%. Data revenues in the United States are 70%. So we're finding good, strong data. We just need to package a number of things together to continue to make sure that this trend moves. And we are confident. We are not trying to predict a number but we are confident that we're going to see good growth here.

And on India, the very short simple answer is no. We're not getting up to the 7m mark on the back of ultra low-cost handsets. We're expanding the distribution, we're expanding the marketplace. We're happy with the 1.5m, 1.6m that we get and we'll continue to do so.

Thank you all very much for coming. May I just remind you that on December 10 we have an Investor Day, where we'll be featuring India and a couple of other things, so hope to see you then. In the meantime, have a good day. Goodbye. Thank you for coming again.