Vodafone Group PLC (VOD) 2010 Q2 法說會逐字稿

Good morning, welcome. Thank you for coming to our interim results and strategy update presentation. Before handing over to Andy for the detailed financial review I would like to give you the highlight of today.

First of all, Q2 organic revenue growth is announced at 2.3% with improved trends across all of our regions and, I would add, also a very good data revenue growth performance. Since last time we met, we have sold the China Mobile stake for GBP4.3 billion as you all know, with a buy-back program which is underway. And this morning we have announced the accelerated realization of our interest in SoftBank for GBP3.1 billion.

Adjusted operating profit guidance for the current year is increased this morning to GBP11.8 billion to GBP12.2 billion. And also we announced an interim dividend increase per share of 7.1% to 2.85p.

And later I will illustrate the updated strategy of the Group, a strategy which will talk about sustainable growth and returns. But before doing that I hand over to Andy for the financial review.

Right, good morning and thank you for coming along. So just on the key numbers, I'll go through each of these in a bit more detail in a moment. So GBP21.2 billion service revenue, that is a 1.7% increase, half year on half year with a gently improving trend, which we'll come onto in a minute.

Group EBITDA at GBP7.4 billion, this saw the margins drop 1.7%, that compares with a reduction of 2.2% last year. So that rate of reduction just slightly improving.

The adjusted operated profit was GBP6.1 billion, which was basically similar to last year. And the CapEx at GBP2.4 billion was slightly lower than last year primarily in India due to import restrictions.

Free cash flow at 3.5 billion, so well on track for our over GBP6.5 billion number for the full year. Our headline earnings per share at 14.31p I think is an all time half year record for us. There are three one-off items in there; so, the settlement of the CFC claim, the profit on the China Mobile disposal offset by -- in part by a charge we've taken for impairment in Greece of GBP0.8 billion, the majority of which relates to discount rates, a small amount to do with market conditions, albeit we have been holding market share there, but the majority discount rates. If you strip those three out, the earnings per share was up by 0.5%.

And, as Vittorio has said, we are increasing consistent with our medium term dividend guidance, the dividend by 7.1% to 2.85p.

So, a little bit more detail, the service revenue trend organically for the Group as a whole over the last five quarters, you can see here consistent progress and improvement; first quarter this year 1.1%, most recent quarter 2.3% giving the average 1.7% that I referred to on the previous slide. And remember, all of these numbers are suppressed by the impact of MTR cuts which probably take 2 to 2.5 percentage points out of the growth rates.

Good news also that this really was seen across all three regions. This is the last time that we'll have the three regions. We'll move on to the new regional structure from the third quarter IMS in February. But on the top left chart here we've got Europe where you can see sequential improvement with the most recent quarter being down 0.8 percentage points. If it was not for MTR cuts actually we would have up by 0.5%.

Asia Pacific and Middle East, on the top right, had its highest quarter of growth in the five quarters there. And then on the bottom the Asia Pacific and Central Europe region which has moved from essentially about minus 4 percentage points at the start of the period to plus 6 percentage points at the end of the period, with particularly Turkey having improved noticeably in that period and with South Africa Vodacom having improved consistently well through the period.

If I step back the three highest growth established businesses in the Group in the half year were in order, Turkey 27% increase, Ghana 18% increase and India with a 15% increase in revenues.

Now in terms of what's been driving that, and Vittorio will talk more about this in the strategy update, but data and the emerging markets have both been areas of considerable focus. On the top left chart here you can see the total increase -- percentage increases in data revenues over the sequential periods. And for each of the last two quarters we've been up at the 25%/26% level. That is now an annualized revenue stream of near on GBP5 billion and we are fairly close to actually having data revenues exceed the messaging revenues for the Group as a whole for the first time.

A lot of that has been enabled by the mobile Internet. The chart on the bottom left here is showing in blue the proportion of the customers in Europe who have got smartphones. So at the end of September that was 16% of our customers with smartphones.

And in red you can see the proportion of our customers in Europe who are paying for, buying or using data products. So 37% of our customers at the moment are using data products, i.e. one in three. But put the other way, two in three are still not using data products.

On the chart on the bottom right, this is about the focus on actually reducing our dependency upon voice in Europe, which is the grey. If instead you look at the red which is the total revenues coming from the emerging markets and you look at the blue, which is the non-voice revenues from Europe, so the fixed and the messaging and the data, you can now actually see that the non-European voice revenues are now the majority of the Group's revenues 56% whereas a year ago they were at 49%. So that is the first time that we've actually seen a majority actually coming through in those areas.

In terms of the Group's EBITDA, the Group's EBITDA first half on first half was down by GBP0.1 billion with, broadly speaking, increases in Africa and Central Europe region and the Asia Pacific region, plus some benefits from foreign exchange not quite offsetting the reduction in Europe. In Europe a continuing focus on the cost base to reinvest in customer growth with the operating cost down by 3.4%, which is against the service revenue of decline of 1.3%. So good, good progress on the cost side.

Interestingly now of the Group's EBITDA, a third is coming from the emerging markets. A year ago it was about a quarter.

So let me move on then to the bigger businesses and just make one or two comments about each of those in turn. So firstly, Germany where we have seen a solid performance and a further strengthening of trends in the second quarter, our commercial investment is driving increased penetration of high value customers and delivered an increase in mobile ARPU of 1.3%. Data continues to show strong growth, up 27% driven by increase smartphone penetration and a high data attach rate.

Our commercial investment very slightly reduced margins, half one was 38.1%, a reduction of 1.4 percentage points. However the overall mobile EBITDA margin remain very healthy at 43.5%.

As you all know, we've put considerable focus on to our cost base in Germany which has resulted in a 570 headcount reduction, and we will shortly be outsourcing a further 650 field ops roles. We expect these actions to start delivering financially in the second half of the year. At the beginning of the first half we acquired spectrum for GBP1.2 billion. We now anticipate having 1,500 LTE base stations operational by March 2011.

It's worth highlighting that Germany MTR rates are likely to be confirmed by the German Authorities later this year as current rates expire on November 30. We anticipate that this will slightly adversely impact second half growth rates.

Moving to the UK where we had a really strong recovery in the second quarter. The revenue growth rates were up as the improved devices range, the extended distribution has resulted in good customer growth and has also resulted in an improvement in mobile ARPU.

Our commercial activities have been successful in driving data revenues up 27% like Germany in the second quarter. We now have smartphone penetration at 19%, almost double that of last year. And a data attach rate of 59%.

The business has also performed well in the contract market with 281,000 net adds in the second quarter, a total of over 1 million in the last year. We are working to reestablish ourselves in the pre-pay market and launched our new pricing plan, Top Up and Get, on November 2.

The second quarter service revenue trend in Italy has improved primarily due to messaging, mobile Internet and growth in enterprise. Our summer campaigns have been extremely successful in driving usage with over 9 million customers participating.

Data revenues continue to grow strongly at 22% driven by mobile Internet. Having been the market leader in fixed broadband net adds in the first quarter, our business delivered another strong quarter with net adds at 76,000 and revenue growth of 35%. In what is a more competitive environment the business has controlled costs well, limiting the EBITDA margin impact to a 0.9 percentage decline over the prior year. Overall, the first half EBITDA margin remained healthy at 47.5%.

On September 30, we announced our EUR0.01 pricing plans. Initial indications are that these have been well received by the market.

Vodafone Italy continues to explore a JV with other operators, to build a fiber network. In addition to this, Vodafone Italy has announced a plan to bring mobile data to rural areas covering 1,000 municipalities.

The Spanish market continues to be challenging, with the recent VAT increase, a 5% cut in public sector salaries, and a further increase in unemployment. The second quarter revenue declined 7.9%, due to pressure on voice and roaming revenues. However, our new prepaid pricing plans were well received, with 279,000 net adds.

Our contract net adds in the second quarter were disappointing, but we have subsequently launched new contract price plans to address this segment of the market. We have also made a number of changes to improve the quality of our distribution, and our customer service delivery. In the third quarter, we will have the full impact from the iPhone, which we started selling at the end of July, through our 900 direct sales channels.

Data continues to grow well, driven by mobile broadband, and Internet. In the fixed broadband market, we continue to see strong customer growth, with the customer base up 34%. However, aggressive price competition has restricted service revenue growth to 3%.

As a result of the reduced revenues, the EBITDA margin is 3.2 percentage points lower, at 33.2%.

Turning to Turkey, Turkey has delivered excellent revenue growth for the fourth quarter in a row, at 29.5%. The second quarter service revenue was the highest since we acquired the business, and is almost double the low point of the fourth quarter of '08/'09.

MTR rates effectively halved on April 1, so the underlying service revenue growth, excluding MTRs, was actually nearer 43%. Our businesses both increased the contract base, to 3.6 million, a 67% increase, on a year ago, and increased ARPU, which was up 21% year-on-year.

Data revenues have doubled, and now represent nearly 5% of service revenue from an active data user base of 4.9 million.

Enterprise revenue has grown 47% as we launched a new enterprise portfolio and exploited synergies from the Borusan acquisition.

Our market share is now 25.1%, an increase of 5 percentage points in the last 12 months, and has risen from the 22.5% at the time we acquired the business.

We continue to invest in enhancements to the network, installing 800 2G and 800 3G sites, in the last quarter. We now have 5,100 operation 3G sites in Turkey.

Vodacom; Vodacom continues to deliver solid service revenue growth. In the second quarter, in South Africa, service revenues grew by 4.4%, suppressed a couple of percentage points by MTR cuts.

Outgoing revenues, which represent 60% of the revenue base, grew 5% in the quarter, as we made commercial investments and launched new value offerings, driving up usage and net adds.

The second quarter net ads totaled 712,000, and contract customers now represent 20% of the base. The South African business is also making excellent progress in data, driven by mobile broadband, with 916,000 mobile connect cards, up 46% year-on-year.

Vodacom's impressive 55% share of the mobile broadband market equates to a 38% share of the total broadband market, highlighting the significant opportunity for mobile data in emerging economies generally; particularly so as broadband penetration in the South African market was only 4% in 2009.

In Vodacom's international operations, we have seen good customer growth and some recovery in revenue.

India, in the first quarter, we achieved 19% revenue market share, up from 17.4% last year, making us clear number two in the market. In the second quarter, the business continued to deliver strong revenue growth, of 15.7%, with increasing evidence of prices stabilizing, as the chart on the bottom left shows.

Data revenues, whilst still in their infancy, grew 26%. Cost control has led to a 2 percentage point improvement in the EBITDA margin, now 26%. India has delivered its highest operational free cash flow in any half year, since we acquired the business, partly assisted by the CapEx import controls, but we expect to remain free cash flow positive for the full year.

The Indus Towers business continues to perform well, and now has an occupancy rate of 1.8. Following the 3G auctions, at the start of the first quarter, we now have 3G spectrum covering 66% of our revenue base, and over 50% of the Indian GDP. We intend to launch 3G services in the fourth quarter of our financial year, and are currently exploring 3G roaming agreements with other operators.

Verizon Wireless; Verizon Wireless continues to perform well, with data driving overall service for revenues, up by 6%; the first half EBITDA margin increased by one percentage point, to 40%. Verizon Wireless will have in place, an LTE network, covering 110 million of the population in 38 metro areas, and that will be built out by the end of next month.

Notwithstanding, the investment in that significant rollout, Verizon Wireless has generated, as shown by the chart on the bottom right, $12.5 billion of free cash flow in the last 12 months, not dissimilar to the closing net debt level of $14 billion at the end of September. Vodafone's proportionate share of that $12.5 billion equates to GBP3.5 billion.

So, moving back now to the P&L, financing costs, not a huge amount to say here. They were GBP0.4 billion for the half-year, similar to the level of last year, and our overall average cost of debt was 4.0%, which we believe compares very favorably with our European peers.

Our effective tax rate for the half-year, was 22.9%, slightly lower than our full year guidance of mid 20s, but there or thereabouts. Additionally, not in these numbers, we released a GBP0.6 billion provision relating to the CFC settlement.

Next week we will attend the Indian Supreme Court, to ascertain what size of deposit we will have to put down, in order to have our appeal heard, in due course, on the issue of jurisdiction, which will probably take place next year. We continue to believe that no tax should be payable, and we have made no provision in our accounts.

So, onto free cash flow; free cash flow, as I mentioned earlier, GBP3.5 billion for the first half of the year. This compares with a published number for the first half of last year, of GBP4 billion, albeit there were one or two deferred dividend items in there, relating to the US legiate. If you strip those out it was more GBP3.7 billion. So the difference between the two halves of the year, not significant. A little bit on working capital, which will reverse out during the balance of the year, and little bit on the capital spend in India, as I referred to earlier.

Overall, free cash flow per share, was 6.62p, and we are today, reiterating our full year guidance of in excess of GBP6.5 billion for the year as a whole.

Now, in terms of net debt, we started the half year with just over GBP33 billion of net debt. We have ended with GBP30.5 billion; some fairly significant movements in there. We have spent, as you know, GBP2.9 billion on Spectrum in India and Germany. We have paid out GBP3 billion of dividends.

And importantly, we have received in the GBP4.3 billion of proceeds from China Mobile, but at the half-year we had only paid out GBP0.1 billion of the buy back commitment of GBP2.8 billion, so there is another GBP2.7 billion of that to go. And hence, in some senses, the GBP30.5 billion is more GBP33 billion on a more normalized basis.

We have today announced that we've reached agreement with SoftBank, to accelerate the realization of interest we retain in them, as part of the disposal of Vodafone Japan. We expect to receive GBP1.6 billion in this December, and GBP1.5 billion in April 2012, both somewhat earlier than we had previously envisaged. We will use the first installment to reduce debt, and will review the use of the second installment nearer the time of receipt.

So, in terms of guidance for the current year, on revenue we said, at the start of the year, that we aimed, during the course of the year, to go positive. At the first half point, we have been positive in both quarters, and up, as I said earlier, 1.7%.

In terms of the EBITDA margin, we said we expected to see a substantial reduction. The first half reduction at 1.7%, is lower than the reduction last year of 2.2%, so 0.5% improvement in the trend there.

And thirdly, on the CapEx, we said we expected similar levels to last year, if anything we're slightly lower at the half year, but would still expect to be in that sort of range, similar to last year, for the year as a whole.

So, off the back of that, with the slightly improved revenue outlook in our control businesses, and the stronger performance from Verizon Wireless, we are today, increasing the profit guidance for this year, from GBP11.2 billion to GBP12 billion, which it was from May, to GBP11.8 billion to GBP12.2 billion. Those are both stated on the same FX assumptions.

So, in summary, I think a good first half to the year. Good to see the revenue pick up and that continuing with 2.3%. Data running very strong, 26%, cost focus there; 3%/3.5% reduction in Europe; GBP3.5 billion of free cash flow, well on target for our full year. The China Mobile situation resolved, SoftBank clarity there; increase in the profit guidance, GBP2.8 billion coming back with the buyback program; and the 7.1% increase in the interim dividend.

So with that, I will hand back over to Vittorio, for the strategy update.

Good. So, a strategy update, I think it's good to start from the November '08 strategy. When I was appointed I met most of you, and we illustrated a new strategy of Vodafone, the title of which was A Stronger Vodafone.

I believe that two years later, we can say Vodafone is stronger today. This is the strategy which was illustrated in those days. I don't have to go through all of the elements, but I am happy to say that, in terms of operational performance, we have improved.

Trends are improving. We have reduced cost. We had focused on the right areas of growth, especially of mobile data. We got a fantastic 23% average increase over the period. The business is today, GBP5 billion.

One key element was emerging markets. We had moved the emphasis from expansion into emerging markets to delivery and execution in emerging markets. I -- again, as Andy has said today, we have a solid number two business in India, which is promising for the future, India being just at the beginning of the data wave.

And Turkey, Turkey we talked for two years about turnaround, turnaround, turnaround. Now, I think officially, we can say the turnaround is finished. Now we are in the profit building phase.

We have worked on strengthening capital discipline. I like to point the 12% increase of dividends that the Board has resolved since '08. And, apart from the selling the minorities, another interesting, I think, point, has been the solution we found for Australia, which is capital efficient and, as you can see from the numbers, is also working commercially.

And finally, we had a GBP5 billion to GBP6 billion guidance. We have exceeded and upgrade the guidance.

So the picture that I like, I think, because it's a good summary of the last two years, is the one here. On the left-hand, we have return to revenue growth, so this is the business. The business is doing better now. But also, on the right-hand, cumulatively, over -- including this year, in three years about GBP19.5 billion of free cash flow, and a resolution to return GBP16.5 billion to shareholders.

So I think the stronger Vodafone is here today. Now, the question here is where do we go from here? And here I would like to propose to the same framework that we, as management, have proposed to the Board, and that we have used in the Board, to discuss the strategy.

And this starts from what is Vodafone today? Today, Vodafone is really two things, two parts. One part is controlled assets, the other part below the line, is non-controlled assets.

The controlled assets, according to estimates from analysts, are more or less 55%/60% of our value. These are 27 operations; 22 number one/ number two positions in the market. Good balance, 70%/30%, consumer and enterprise, and good balance, more or less, 70%/30% mature emerging.

A point that Andy has already touched, the emerging market part, which was cash flow negative, when we looked at the strategy two years ago. Now, in aggregate, is cash flow positive, with only a couple of countries that still have to go and become contributive to the cash flow.

And I have to say, on top of the emerging market turnaround, I think we have worked on employing the performance of a number of other operations, including the UK, which today, reports a good revenue growth. Now, this is one part of Vodafone. This generates GBP6 billion of free cash flow, on a -- this was last year's number.

Then below the line, we have the non-controlled assets, about 40%/45% of our value, which, on a proportionate basis, would generate GBP5 billion, leading the total to GBP11 billion. But in practical terms we only get GBP1 billion, mostly from Verizon and it is from SFR.

So it was important for us, and for the Board, to reformulate a strategy, or to update the strategy, which took care of both parts of the set of assets that we have. Which is why I would say the title of the new strategy is -- could be from a Stronger Vodafone, to a More Valuable Vodafone. And as, I would say, almost as an agenda for today, the new strategy is composed of five elements. The first one is clear focus on our leadership in three areas, Europe, Africa, India.

The second will be growth; growth coming from data, in different ways. I talk a lot about mobile data and what internally we call already, super mobile, but also enterprise, and also some regional differences between Europe and emerging markets.

And some investment in new services, which in the future, will be appealing for our customers. Continuing to leverage on our scale advantage and where we can really create a difference for our customers, in terms of lower cost.

And to deal with the assets below the line, [an] approach to generate liquidity or cash flow from all of our non-controlled assets, in terms of portfolio strategy. And then, of course, continuing to apply capital discipline, and financial objectives and commercial test to all investments we make, internal and external.

Now, in order to implement this strategy, in September, we announced a new organization, that I have put in place, which I would say, is aligned to this strategy and can create at a faster pace the conditions to implement successfully.

The new organization is based on two regions. One led by Michel, which is Europe and, de facto, has with one exception, all controlled operations under it, and another one headed by Nick Read, which is everything which is emerging, plus Pacific, with a clear mission -- very lean structures, and a clear mission to drive growth and regional leadership.

Then we have regrouped all functions under two other units, Technology and Commercial. Technology now has direct control over all the technological platforms everywhere, wherever they are in the world. And here, they have clearly the objective to create effectiveness, but most important, efficiency and shared road maps. Shared road maps for technology being the prerequisite for lower cost to handle our technology, but also to have much better performance in the data world, where this is going to be very important.

And then Commercial under Morten Lundal, who sits here; Commercial is a streamlined and simplified set of functions, covering consumer, enterprise, terminals, brand, large accounts and everything that was in different parts of Vodafone, streamlined to really deliver innovation and maximize the benefits of scale.

And then, all the minorities, all the investments that we don't control, are in a separate portfolio, and I would say that the gray color clearly associates responsibilities for myself and Andy to this portfolio.

We also worked on the performance. We had already changed last year the way we give incentives to our people, to make incentives more aligned to competitive performance on a variety of metrics. We are also now increasing ownership guidance to align the longer-term, not just for the ExCo and for the top people, but also for the people below, to long-term interests of shareholders.

So this is just to say I am convinced, now, we have also the right setup already for the new strategy; it's not something that we have to implement in the next six months.

Let's start looking a little bit in more detail at the first pillar of the strategy, all the growth oriented part of it. First of all, where is growth coming from? Where will growth be coming from in the coming years? These are external estimates. I think we all agree that the big part of future growth is mobile data, $140 billion expected growth. The second is fixed data, a third of it almost, $50 billion. Then there's still a little bit of mobile voice growth in the world, mostly emerging markets, I would say, and again, linked to penetration. And then, as we all know, the fixed voice business is declining.

So, the good news is the biggest part of the growth expected in the coming years is where Vodafone has its strategic focus and, quite frankly, our DNA. We are all communication people, but at the end of the day, we were born as mobile people. So we have the core where the growth will be. We will selectively, and we have been selectively, expanding in fixed data, where it's complementary to mobile data. And we continue, of course, to follow with our existing presence the mobile voice growth, wherever it's still existing.

Now, mobile data is here today. This is a -- when I came back, in 2006, to Vodafone, less than one person in 10 had a smartphone-type of experience. The only application that really existed in those days was really e-mail at the end of the day. And there was one device that, at a low speed and very thin data usage, that worked.

If you look at what we have today, we have a variety of operating systems, competing finally between them, which is good. We have one in five people really having a smartphone experience; very high speeds, and a huge variety of applications. So, from a customer point of view, now the experience is compelling, and this is why this is quickly accelerating. And this reminds me very much of the early days of mobile, when we were all mobile voice guys, when we needed to reach a certain type of critical mass, so that all the effects of -- the network effect, and the experience effect really started pulling up everything.

And if you look at the world, this is really happening in different ways, but everywhere. The two biggest markets, Europe and the US, about GBP120 billion (sic - see Presentation Slides) between them; Vodafone or Verizon together 60 million customers; here the data penetration is, let's say, one in three. So there's still two in three, as Andy has said, who are not yet in the mobile data world. And these are and will be the biggest markets for data in the world.

But if one looks at emerging markets, yes, the market is smaller, let's say, GBP12 billion -- GBP11 billion, GBP12 billion, GBP15 billion, but penetration incredibly low, in places where there is, as you all know, de facto no other alternative. Now, in India, we talk about 5%/6% penetration. In Africa, the number that I have on the chart is higher, because it's our number, which covers South Africa, but if you take the aggregate, it's low. So, we are definitely convinced that we are at the beginning of a very, very interesting and profitable data experience.

So, mobile data is the first pillar of our strategy. Internally, we called it -- we've looked for a name, and to be honest, we couldn't come up with anything better than Supermobile, because this is not LTE, this is not HSPA, this is not WiFi, this is not femto, this is not you-name-it; this is the whole set of things. And this is going to be a strong strategy, based on covering technology, covering pricing, covering all the customer experiences and all the touch-points that the customers will touch and, of course, covering all leading devices.

Our objective here is clearly to deliver data earlier, and more profitably, than what we thought under the old strategy. And this is going to be very good from a customer perspective as well. What do the customers want, today? Customers at the end of the day want to have broad data coverage, to have very high speed and to have reliability. These are the three things that customers from market research and from common sense, quite frankly, they ask us.

Where is Vodafone today? We are very well positioned, relative to these customers' demands. And if you look at our European network, we have 50,000 3G sites, 80%/90% coverage. We have 65% of those at 14.5 Mbps or higher and 20% or 21% above the 21 Mbps/22 Mbps.

And, this is an important thing, despite a growth which has been in Europe 100% and something previous quarter, 88% this quarter, we keep having exactly the same average utilization and the same percentage of sites that are used at peak in the busy hours, which is proof that having invested consistently and having standardized our network consistently over time, we can cope with the growth that we are trying to stimulate.

Good capacity management and good investment are very important. And this is not just my opinion; this comes out of drive tests. This is the result of our drive test. You can see that both in uplink and in downlink we have higher performance. The average performance in Europe is higher than our best competitors.

And in six markets we lead, with a seventh one where we are more or less on par, so we can say it's a fact that our performance is better. And I have to say, if you just try to watch some videos from your laptops in London, which I always do, you will see that actually it's true, that the performance is good now, from a customer perspective.

So, what are we going to do? We are going to invest more. We are going to increase by about 50% from 50,000 to more than 70,000 the number of sites -- the number of 3G sites. We want to bring to 100% to full coverage the 14.4 HSPA capability and, of course, we also want to increase the percentage of the higher speeds.

And we have an objective to reduce by at least 30% the cost to carry data. We're going to do it through the usual things, and the variety of things that you can see there. So it's not just LTE; it's LTE, it's HSPA, it's single RAN, it's a number of things. But the objective for supporting Supermobile on the network side is clearly to extend our number one position in this area.

Important question is pricing. How will we price, and why do we think that certain pricing structures actually will be conducive to good growth? If you look at -- I already talked a lot about this, and I could go on for hours talking about data and science on this topic, but the real important graphic is this one.

This is one European market. In this market -- and this is just representative of all, 6% of the customers get 54% of the traffic, and 25% of the customers get 84% of the traffic. This is clearly not necessarily good for the customers, especially for the remaining 75% of the customers, and not necessarily good for us, which is why we have moved to a different type of pricing, we can call it tier pricing or staircase pricing, enabling customers to get in at a lower level of pricing, with a lower quantity of data, which will be market by market defined by competition, 250 MB/500 MB. And then, as soon as they start using more, get on better and better pricing plans, with an increment of our ARPU.

And as you can see from the Dutch example, on the chart, this can also be associated with higher speeds, or even more other marketing type of value-added that we can add to this. We have introduced this in many countries. There's Italy introducing this month. Our objective is to go there by the end of '10/'11 in all the markets. And this is an important part of our strategy which, of course, you need to be able to manage from an IT and technology point of view.

Which is why the third aspect of Supermobile is investing and re-engineering a variety of aspects of our business systems, from the shops, where we need to, of course, redesign the shops for the data experience, which is a different type of experience than the traditional one, to the customer care and support functions.

We today have 5,000 specialized data customer care reps in Europe. We keep being recognized as one of the best, if not the best in some cases, data customer care in the world, which we think is very important to support ARPU growth. And we continue to enhance, of course, our online experience, which in this world is more important than in the old world.

Important billing, flexibility of billing, so multi-SIM billing, multi-account billing, managing families and enterprise in a more flexible way; again, to optimize for the customer and to optimize for us. And, of course, opening billing, which we have done in Europe, and we are now in the commercial phase, to third parties to allow content and application to be billed directly to our customers.

And finally devices, I have already touched this point. We have a fantastic competition now between different operating systems, which is very important, of course, to go down in the levels of -- in the segments of the customers. Our goal is, as Andy has already said, to be at 35% of penetration. We are at 16%; [will grow].

The important thing is also to have lower-cost devices. Some of you might remember that we said that we had a target to go below the EUR100 line for smartphones. Today, we manage to do it. Of course, this is part of the benefit of working globally and using our global scale. As you can see, you have examples there of EUR70, EUR120, EUR45 devices. The new target now internally is EUR50, because we need to bring smartphones below EUR50 for places like India or for places like Africa, but also for lower segments in Europe.

And finally, our device strategy is going to be a multi-device, multi-connectivity strategy. Our objective here is to have a connected device in the hands of customers, in the cars of customers, in the houses of customers, in the offices of customers. And as you can see if you walk into one of our shops, you can get today dongles, MiFi, WiFi, depending on the market, VDSL, mixed TV satellite devices, all of them white, all of them with a nice red logo on it, because we want to be at the core of the connected life of our customers.

What is the most important thing in all of this mobile -- Supermobile, strategy element? What is the thing that I debate the most with my colleagues, on which I put more pressure on my colleagues? It's clearly profitability. And here I have to ask you to follow two sides of the story.

The first side is the commercial yield management. Every time I talk I give a little bit more detail about this. The top part of the chart indicates what's the ARPU increase, when we have a migration from non-smartphone to smartphone, and the increase is in the range of EUR50 to EUR240. There is a corresponding higher commercial cost. The corresponding higher commercial cost is between EUR30 and EUR200.

So, if managed appropriately -- if yield managed appropriately, the migration from non-smartphone to smartphone can increase profit. At worst, it gives the same profit. At best, it increases profit. Of course, it has to be managed proactively, which is why we put a lot of emphasis on it and, of course, it has to be managed in the right way. So my recommendation to my colleagues is never to mix up the grays and the reds. And if they have to mix the grays and the reds to mix them in the right direction, not in the wrong direction.

Then, the next question, which I have I think already addressed a number of times, is can you cope with this? Is this going to kill your networks, is this going to be much more CapEx? Now, here again, this is the data, non-smartphone 0 MB to 10 MB per month, smartphone 10 MB to 500 MB, but let's call it 300 MB, which is the high end that we are seeing today. So, from 0 MB to 300 MB is the migration effect.

If we look today at our traffic, today 85% of our traffic is not of this type, but is of the dongle type, of the mobile broadband type, where the average usage here is 1.7 GB, and the range is 600 MB/700 MB to 5 GB/6 GB.

So, technical yield management will also be incredibly important in our networks, and is already important. I don't think it's by coincidence that we keep seeing 100%, 80%, 90% increase of traffic, but then, you see the congestion levels that are remaining the same, because we do yield manage. And every time you have an over-user at 5 GB/6 GB that kindly and gently decides to join the competition, we free up the space for 10 smartphone customers, with very positive impact on the economics.

So, the migration to smartphones, and this new Supermobile strategy, can be -- and I am convinced, and I am a great supporter, and I am a great fan of this -- can be a profitable migration for Vodafone. So, Supermobile is the first piece of strategy that will be true and common across Vodafone.

The second one will be enterprise. In enterprise, this was already a focus of the previous strategy; we have a nice GBP8 billion business, 37% market share in Europe, 23 million connections across the Group. We have made a good success in the International, almost at the two extreme ends of the market.

In international accounts, where we clearly as Vodafone have an advantage, because customers expect us to be better and we are better. We now cover about 560 multi-national accounts, EUR1.3 billion business, 7% growth since the strategy was announced. We are evolving from a pure managed mobility service offering into new verticals, machine to machine, health, logistics, these things. And we are extremely successful in the market.

At the other end, we worked on smaller accounts, enabling our local companies to develop integrated solutions for smaller companies, which don't have a lot of ICT sophistication, with fixed, mobile, and ICT solutions. Now Vodafone One Net is available in six markets, and we have 1 million seats, not SIMs, because here you talk about seats, connected through Vodafone. And now we are starting distributing also to these smaller accounts, cloud services, which we provide clearly in partnership with other companies.

So the strategy here is to push in both segments, SoHos and the multi-national accounts. In SoHos we will continue basically expanding OneNet and the cloud -- third-party cloud solutions. And on the large accounts we will push down in smaller international accounts with an economic model that we call VGE Light, our international plans, because the -- I keep hearing when I talk to people who don't necessarily work for large multi-nationals, what I keep hearing is, why not us? We are an international company. We're not a multi-national, so what? We still need five, six, seven, eight countries support, and we like the Vodafone single approach. So we will extend unified communication managed mobility in this field. We will continue to push here.

On domestic corporates we will, I would say, selectively and cautiously go. This is traditionally the turf of the incumbents, and it can be incredibly intense from a competitive point of view. But we will extend in this field unified communication solutions, again in partnership with others and, where the economics make sense, IP VPNs offering to serve in a unified way, enterprise.

So, Supermobile, enterprise varied across the piece; regional strategies. In emerging markets, as I said, there is still a penetration gain. GDP growth is expected to drive penetration. We expect customer growth in markets like South Africa, Egypt, or India. And we expect to see growth coming from SIM penetration. Now, whether SIM penetration is totally meaningful or not in the future, we will see. But we expect between 20 and 30 points of additional penetration still being available to us.

But the most important thing, and the thing that again I am incredibly passionate personally, is the data experience in emerging markets. And let me talk to you for two seconds about India. India, as Andy has said, fantastic market share, 19%; strong company; strong brand; very strong distribution; very good tower company. The opportunity in India is very high. If you look at population, 1.2 billion and growing; penetration, 58% and growing; but data experience, fixed or mobile, 5%, 6%, 4%. So there is a huge potential there.

The issue in India is is it possible to get that potential at conditions which are economic? And I have to say, introducing low-cost solutions will be the answer, will be our answer, both at the terminal side. So Opera Mini browser, which we have introduced, is a very efficient way of introducing data experience to emerging market customers.

As I said very important to have, like we do, messaging, data, low cost terminals, which we ask -- provide us -- to develop for us explicitly, and then being very cost efficient on the network. We have Indus Towers partnership with two other operators. We will have roaming agreements -- data roaming agreements, which will be particularly efficient.

I am convinced that low cost data will be a very good experience for us and for the shareholders in markets like India. And if I look at the proof, the proof comes from a place like South Africa, where we have, as we have already said, an incredible 35% data revenue growth. We have almost 40% of all the connections, of all broadband connections in the market. And if you look at the penetration, we have basically doubled, or we are almost doubling -- we have doubled penetration in the market from 4% to 8% and we want to go to 12% in the near future.

So regional strategy for emerging markets is still, if I can say that, a little bit of the old game, penetration and the classic things, and coverage and things, but much more transitioning into lower cost data.

In mature markets, Total Communications, and here we take Europe as a case. Today we have built, what we call, a good presence in Total Communications services. If you put together the three big markets, Germany, Italy and Spain, this is a EUR14 billion market, where we have 5.6 million customers active. And we have also smaller presences in Ireland, Portugal and Greece.

In the last two years we have been successful in proving the value of the Vodafone brand in the field, the strength of the Vodafone distribution, and we have been, I think, fairly selective and financially minded in how to build this on the back of our mobile business.

So the strategy going ahead is to continue to address convergence on a market-by-market basis. Convergence is happening slowly. If we look at the consumer segment, it is happening but not at a very accelerated pace. There is more evidence of demand in the business segment. So our strategy is to continue to try to get access to fast broadband networks to serve our high value customers in this market. But we have to do it in a capital efficient way.

So the strategy would be to look for commercial agreements. Commercial agreements can happen if there is somebody willing to give you a commercial agreement, which helps. And, of course, a regulator that makes sure that the conditions are good conditions.

As an alternative, we will look, for example, this is the case of Italy which Andy has already referred, at partnership investments, where we can put resources together with other operators, and compete on the service level not on the infrastructure level, which could be an efficient way of deploying -- of using capital. Or we will look at acquisitions. I don't see region-wide solutions, it has to be justified by cost synergies, of course, and both the financial and the commercial case must work. So, convergence will be looked at, but it will be looked at in a market by market way and in a cash capital efficient way.

And then the final element of our growth strategy is new services. We have been investors, early investors in new services. In machine to machine we have today, 105 people working throughout Europe. We have GBP150 million of revenues. We just want to continue. We see smart metering, logistics and tracking and car telematics as promising businesses. We'll continue to invest there.

We already have invested, and I talked already about third party billing. We are now active in 10 markets. Media companies now are starting to get there and games companies and entertainment companies. This is direct billing capability to the customers. So distribution capability of digital content with the possibility of paying directly from your prepaid or postpaid account bill. Again, we continue to push for this.

And financial services, which is more in the state of an emerging market type of thing, we are active in five markets; we will continue to roll out to new markets. We are now adding two new areas; we have [near] field communications with trials underway in Spain and Germany. Now near field communication, if you want my opinion, is not going to be a huge market in terms of absolute size, but it will be profitable, because the margins are good.

And most important, this is incredibly customer friendly. Customers want all the capabilities that near field communications can give. And we have the great advantage of having customer identity and customers' trust in terms of privacy and security, which we can leverage upon to provide a better customer experience; so not a lot of money, but a lot of trust and a lot of loyalty.

And finally push mobile advertising, of course, when the penetration of smartphone reaches a certain critical mass, then the whole topic of marketing through smartphones and through small screens becomes much more relevant for advertisers; again, another area that we want to be in.

All in, this is not going to be in the short-term. These areas are not going to be a lot of money for us. But it's important that we are there because these are again things that can strengthen the franchise and the relationship with customers and, quite frankly, customers like these things, so we should provide them with these experiences.

So why do I think that this strategy for us would be winning as a wrap-up of the growth piece? Because we have strong positions, number one/number two positions; because we have a very clear technological platform and commercial platform that we want to invest in, in order to accelerate the adoption of data. We are leading in enterprise. We have clear and slightly different strategy in mature and emerging markets, and we have been an early investor in new areas. So I am convinced that this for Vodafone is a good strategy and actually have an advantage vis-a-vis competitors in this area.

Let me now talk a bit about scale advantage and especially scale advantage from a cost perspective. First of all, I would like to report back on the GBP1 billion cost reduction program; we are on track to deliver the first GBP0.5 billion by the end of this year. And of this 40% will be reabsorbed in volume and inflation, and 60% will be available either for margin or for reinvestment.

I have to say, I'm glad that we are seeing absolute costs going down in Europe by 3.4%, with very good and classic actions on network, on brands, on these things. But for the first time also we start pushing the off-shoring to our own internal offshore units, which for the future I am convinced will give us a lot of flexibility and a lot of capabilities which would be very useful.

If you look at the bottom part of the chart, we have, with exception of customer care, where deliberately we have made an investment, we have improved relative to our peers, and this is external AT Kearney benchmarking. We're 3.3% our cost position. And in all areas throughout the piece this is happening.

So where will the scale advantage be more visible in the coming two years? Let me mention just a few things. First of all, network; we have already today a top quartile position, again, based on external benchmarking in the main market. We've continued to standardize technology to enable efficient purchasing. I think this data management technique and spreading a certain way of running our platforms will be more and more important in the future.

Terminals, top quartile purchaser; clearly centralized purchasing, but also regional logistics and lower cost smartphones are very important in order to deliver a scale advantage to Vodafone.

In supply chain, 4% lower prices than the peer group. We now have the Vodafone Procurement Company working not just on technology, but across all categories. And I am glad to report that we are now purchasing not only LTE equipment, but also servers through joint auctions with Verizon Wireless.

One word on outsourcing, you might remember that Arun in '06 announced the ADNM, IBM, HP-EDS outsourcing. That's going well. We have reached our cost target for that part of the IT infrastructure. As I said before, we are now getting into phase two.

Phase two is also, not just outsourced when it's worth, but also to offshore to our own centers. And now we have set up a system of four centers, Budapest, Cairo and two in India, which cover all the functions that, excluding, of course, the kind of infill commercial functions that we can have within Vodafone. And, therefore, we can position our activities and we will be positioning more and more our activities wherever the combination of skills and cost is more -- is better for us. And as I said, I am very convinced that this is the right approach to enable the data experience, lowering the cost and improving the skills.

And finally, tax and treasury; tax and treasury we have a low cost of finance, good handling of liquidity. This is clearly another Group advantage.

These are the areas where I think we'll continue and we want to continue to deliver cost advantage.

I just mention the last on this page, brand. I have not talked about brand, even if I'm very passionate about brand. We have the seventh most valuable brand in the world. Sometimes I'm asked if I see a cost advantage from the brand. I don't think brands should be just [necessarily about cost], but the answer is yes.

And this is not just for the cost of sponsorship, which even if I think it's efficient, it's a small cost. It's really in the amount of advertising. If you look at what we spend in all of our markets, our share of voice tends to be always a little bit lower than the corresponding equalized for market share, share of voice that incumbents have. And this is because we clearly get a better yield on our money.

Now it's very difficult to quantify it and I prefer to think about the power of the brand in the minds of customers. But that one is there as well. So brand is also a source of scale advantage.

Now everything we have said so far covers the assets above the line, the controlled assets, the part of the business that we manage. Let me now cover portfolio and the other assets. First of all, overall objective, releasing liquidity or free cash flow for more of our assets. And starting from the operating assets, I have to start, for obvious reasons, by Verizon -- with Verizon Wireless.

Verizon Wireless is a strong number one. Market is a growing market and especially the data market. I'm convinced it's going to be the biggest and most appealing data market in the world. We are cooperating, thanks for the convergence of technology, more and more with Verizon Wireless. So the outlook here is dividends coming from future cash generation. And we keep and the Board keeps an open mind on assessing all options on a post-tax basis. But the outlook -- the main outlook today is dividends from future cash generation.

On SFR, SFR is strong, as we know number two converged operator in France. It's cash generative and it's dividend paying. So for Vodafone, this is a valuable asset. However, we are open to all value enhancing plans. When I'm asked what's the priority for Vodafone vis-a-vis France it's to have one commercial agreement in order to serve our customers in France.

And finally Polkomtel, number one operator in Poland; cash generative, again dividends; here the most recent news is that we have sat down with the other shareholders and agreed to explore a joint sale of the company, on which we will report once we know what the outcome is.

If we then move to the pure investments; two years ago, we were talking about three. China Mobile; China Mobile as we know, now has been sold for GBP4.3 billion. This has enabled a GBP2.8 billion share buyback program which is underway. Here I would like to stress that the orderly and successful management of the process has also enabled to continue our commercial and technical cooperation with China Mobile, which is very important, even in absence of an equity relationship.

The second asset, again was or is still for a little while, SoftBank. We have accelerated the realization today, GBP3.1 billion of proceeds at premium versus book value. We'll get two tranches, one by the end of this year; the other one in April '12.

And finally, we are left with a 26% minority stake in Bharti Infotel Private Limited, which really represents a 4.4% see through interest in the commercial Bharti, Airtel, the one that operates in the market here. The outlook is to monetize this investment when the value objectives can be met. I have to say there are no near-term solutions and the nature of the asset and the options that we have here are truly represented by two words of the name, private and limited.

Let me finally go to capital discipline. It's -- so first of all, an important point, we have kept and will continue to have the discipline of regular assets review, so to review the assets every year and to consider all options to optimize the value for shareholders.

Then in terms of capital allocation, the logic being maximizing shareholder value; the first set of things we'll look at is organic investment, with, of course, investments enabling growth as priority and meeting spectrum needs wherever we have autions for spectrum is a corollary, mindful of our commitment to return money to shareholders, the 7% dividend increase that we have committed to and has been enhanced by the GBP2.8 billion buyback program. And third, look, consider selective consolidation based on scale, based on cost and always with a cash flow accretion objective in mind.

And one other principle that we have adopted in the last two years and we want to continue to keep is to subject both organic and corporate activity-type of investments to not just the discipline of the M&A financial test, but also rigorous commercial testing, which is very important.

If we look back, the important part of the postmortem assessment of our investment has always been to combine what lessons we have learned from applying financial criteria, and what lessons we have learned from applying commercial criteria, which is why, for example, we have not made certain recent acquisitions, because we couldn't find the commercial logic solid enough to justify the investment. But the same applies to organic investment.

So what does the whole strategy lead us? It leads us to a medium-term outlook of 1% to 4% per annum organic growth rate, with EBITDA margins that we see stabilizing over time, and a free cash flow expectation of GBP6 billion to GBP7 billion, taking into account the extra investments that we will have to make to deploy the Supermobile strategy.

What are the main variables here? Clearly, data migration economics; data migration economics we have not assumed that they improve dramatically. I am convinced that they can improve and they should improve. But again, this is a competitive thing, so we cannot bake into our forecasts competitors' behavior. European economy and public policy decisions, which -- concerning spectrum and concerning MTRs can have an impact in one direction or the other. And finally, we have made no assumption Verizon Wireless dividends.

So to sum up our strategy, I think from a stronger Vodafone, we should add a more valuable Vodafone, leadership focused on Europe, Asia and Africa; a growing Company, with a couple of elements across the piece and more regionally focused elements. Everywhere superior data experience for customers, with a strategy of releasing liquidity or cash flow from all non-controlled assets and maintain and enhance capital discipline. With an outlook of sustainable growth, stabilizing margins, solid cash flow, to increase our shareholders' returns.

I thank you for your attention. I think we should move to Q&A. I will ask my colleagues to join me. We also have Morten Lundal and Ravinder Takkar representing Nick Read here, who can taken questions on the strategy, the performance and everything else.

Okay, Simon, and then there and then here with --

Thanks Vittorio, Simon Weeden from Citi. I have three questions, short ones.

On CapEx to sales, can you elaborate on your capital intensity expectations and whether you -- or how much flexibility do you feel you might need to go above 10% in Europe, if indeed you need that at all?

Regarding Poland and the joint sale process, I understand you have preemption rights over the stakes in your partners -- that your partners have in Poland, which, in fact, you've exercised on a previous occasion. Is there a scenario under which you would exercise your preemption rights here? Or have you effectively agreed not to do that under the joint sale process?

And finally, within the GBP12.5 billion free cash flow from Verizon over the last 12 months, a detailed question, but is there any element of Alltel integration costs still being carried in that and if so, roughly how much?

Simon, let me cover the first two and then, Andy, maybe you'll cover the third one.

On CapEx to sales, I'm not totally obsessed with the CapEx to sales ratio. If the data growth supports higher CapEx and still we can deliver our cash flow commitments, I'm fine. I think in Europe we will be a little bit above the 10%. But again, it's much more important to focus on how can we really create profitable growth from data? We are confident that we can handle our cash flow commitment even in a growing and accelerated data environment.

On Poland, we have not waived our preemption rights. And I think this is in the interests of everybody. As I said to the Polish partners, it's a good thing that Vodafone has preemption rights, because this will keep bidders honest.

And on --

Yes, there's a little bit of Alltel cost in there. It's not significant. And to be honest, there's some benefits coming through from earlier. So it's not significant in there.

Good, shall we go there, Nick, Robin, Andrew and then we come back here, yes, Paul. Nick?

Thanks, Nick Delfas from Morgan Stanley, just a quick question on your medium-term guidance.

In the half-year, including common functions, EBITDA in Europe fell 7%. What exactly is going to change in terms of trend between now, which is I suppose a slightly better economic environment than it was a year ago and the future? So how's that going to turn around?

Then secondly on -- a small question on The Netherlands, if you do subs times ARPU, you get minus 4%. And yet in the text, you talk about 6% growth in The Netherlands.

Wonderful questions for Michel.

The first one --

Especially the second.

So on the first one; I guess that there are three major elements which will impact the improvements of our margin in Europe second half. First is growth, of course, as you have seen. So quarter after quarter we are improving our growth profile, so -- which will have an impact.

Second is cost management. So we have seen already the first impact in the first half, minus GBP3.5 [billion] in terms of OpEx. We expect to do better in the second half, with the impact effects of all the measures which have already been launched.

And third INR, you know that we had a baseline which was different for the two halves, because we started to increase our INR least year in H2. So, of course, the baseline this year will be easier.

So that's the three major pieces, which will drive improvement in our margins. And, of course from a revenue perspective, as you have seen quarter after quarter, so quite good up to now. And we expect, driven by Northern Europe, to continue these improvements.

And the second question, I am not so sure that I have completely picked up the question.

It's just if you look at the subscribers versus ARPU and you look at the year-on-year change in The Netherlands, it looks like it's a shrinking market. But in the text of the release, you talk about Dutch growth of 6% in your subsidiary.

I think -- I can come back and check with you -- I think last year, we had some of the international wholesale activity for Europe being actually flowed through The Netherlands. So actually, I think there is a slight distortion year-on-year. And iIf you strip that out, then the statement in the press release is true on a like-for-like basis for The Netherlands, but we'll check.

The Netherlands is fantastic. I was there recently. EBITDA margin has gone up in the mid 30%s. We have ARPU increases; one of the three European markets where we're seeing ARPU increase. And all the benefits of consolidation, which we have not been an active but passive supporter, are actually flowing through. Strong Company, it's a fantastic performance.

If you don't mind, just coming back to the improving trend on top line that you talk about in Europe. What's your expectation for termination rates in Germany and throughout the European Union up to end of 2012, specifically of the German decision coming this month and then longer term?

Generally, we have seen -- I'll answer it across Europe. We have seen termination rates trimming 2 percentage points/2.25 percentage points off the revenue growth. I think we're expecting something in that range going forwards for the next 18 months or so.

Yes, Andrew -- sorry, Robin, Andrew, Robert.

Yes it's Robin Bienenstock from Sanford Bernstein, a couple of questions if I may.

I guess the first is about total communications. It seems to me that the most obvious market in which convergence is a threat for you is Germany; that raises obvious questions about cables. So I'd like to know if you can tell me a bit how you think about the technical challenges of integrated cable, how attractive that is and how you think about the evaluations right now.

And then the second question quite different; I'd like to know how important it is for you to see Android as a successful platform alternative; whether you think you need more than that and how concerned you are about value chain wars?

And then just a really specific question; I want to know which is the country in Europe that didn't get a number one or number two net promoter score.

I'll maybe give it a try and then, Michel, maybe you can integrate a bit.

First of all, total communication can be a threat; can be an opportunity also. So we are very -- we have very cold feelings. We have to look at things and it's not necessarily everything is threat.

Quite frankly we look at all opportunities in the same way. You mentioned specifically cable, but I would not just limit to cable. We look at things. We look at our market position. We look at our cost synergies. We look at our ability to increase churn -- or improve churn, not increase churn. And we look at the case. There's no specific Germany or cable way of looking at things. It's just, as I said, disciplined M&A.

And of course, I take your point of, yes, cable prices are high. Fine. We haven't made acquisitions in the past in emerging markets just because prices were high. So I think we have proven that we have much more discipline on the commercial and on the financial front, and that's the way we look at things.

On Android, I think it's very good. As I said I didn't want to mention anything specifically, but the outlook vis-a-vis two years ago is much better now. You have competition among operating systems. Android is an open system. It is enabling us to do a slightly different strategy. There are hopes on Windows Mobile 7. We will see what Nokia comes up with.

But if we can get four -- five would be a dream; let's say four, solid competing operating systems I think our customers have a choice, and we have choice as well, which is why we have shifted our 360 strategy from a more vertical strategy to a service enablement strategy which will work on a variety of environments. So it's good news.

And the third question was?

Number one or number two in NPS? So, we are number one or number two in NPS in the whole European countries. We were number three in the UK, and we're now number two.

Thanks.

Yes, Andrew, Robert and then we have to come back here.

Hi, it's Andrew Beale from Arete Research. Just coming back to the smartPhone operating systems area; there is some evidence that some of the over-the-top guys, the Apple and Google, are trying to target the HLR and the SIM now. And those are obviously pretty key to maintaining margins and profitability out of your mobile customers. I'm just wondering how you see that threat and how you counter it.

And then on a slightly different topic, clearly the Apple and Google guys have very different software development capabilities from the telcos. Is that an area that you see as lacking? How do you bring that in, or is it just beyond your competence to be very good in that application development area?

Okay, let me say first -- the first part of your question, I don't have any kind of specific information. But I would say we are always in favor of everything which creates innovation which is useful for the customer. And also, we are confident that we have the ability to preserve our relationship with the customers based on security, based on privacy, based on the relationship -- the kind of protected relationship that we can assure. So we can work with these guys and we can cooperate as long as clearly these key elements of our customer relationship are preserved.

In terms of software capabilities, I have to go back to my answer to Robin. As long as there is competition, it's good. And as long as there is competition we can, as I said in my earlier answer, limit our presence into what really matters. So maybe address book or backup and restore, or portability of customer data from one operating system to the other. So if you ask me where we would put our resources in the future, it's really on ensuring portability of experience for the customers across operating systems.

At the deeper end of the operating system, as long as there is competition we don't need to be there. That's my view.

Michel, you want to integrate something? No?

Yes?

Thanks, Robert Grindle from Deutsche Bank. Just on Common Functions EBITDA, any particular reason for the deterioration in the first half; any indication on the prognosis for the full year?

And then going back to the Supermobile slide, you talked I think about a 30% reduction in the unit cost to carry data. Is that an annual decrease or a accumulative decrease between now and --?

We'll open that discussion here in front of you. Well, Andy and Steve, I would say.

The Corporate function's one is fairly straightforward. I think there's a 0.1 apparently adverse movement. It's just purely to do with the timing of recharges to the operating businesses, and that will reverse itself and be neutralized by the end of the year.

Good morning. Secondly on the cost-to-carry reductions, there are two elements that constitute a reduction in cost to carry. One is an increased volume, of course. Over a relatively fixed asset it generally reduces anyway. But more importantly, the technological assets that we're installing in the infrastructure to make it more efficient and more cost effective to carry that data is what we're focused on. So yes, those are our goals, and those are the two methodologies that will achieve it.

And the 30%?

30% is certainly something that we see achievable over the plan period. Of course, my colleagues would hope that it was more, but we think 30% is very realizable.

Can I come back on that? If you look at your CapEx in the last couple of years versus your traffic growth -- your traffic growth at 100%, you're getting a unit capital efficiency saving of around 30% a year already. So does that mean that trend slows down and it's compensated by lower traffic growth going forward? Is that how the mix of the CapEx works?

No, the CapEx, as you say, has gone not so much into the volume yield and is going into further reach and performance. You can see that from the things we're really proud of on the individual country drive test etc. So it's partly mathematics. Partly as you -- you've got a fixed asset, you're increasing the volume through that fixed asset, so inherently it's becoming more efficient as you say.

Secondly, there are particular techniques that we're spending that CapEx on like video management, for example, that's particularly efficient. I'll give you one reference that I think is reasonable. We can reduce in a market a particular video stream's traffic by 30% by the introduction of a new technology with a seamless experience for the customer.

These kinds of techniques are allowing us the cost to carry reduction in efficiencies as well as volume. And when you add it all up against a fixed installation base, particularly towers that are relatively fixed although we are increasing them, you get the two adding up to that efficiency, and hopefully more.

Good, I think we need to go this side here for a while. Paul.

Thank you. It's Paul Howard at JPMorgan; a couple of question. Just in terms of your medium term guidance and trailing into the regions. Given the outlook for mobile data, are you prepared to say that this is the last year of declining profitability and cash flow for the European business? Does it start to grow at some point?

And then secondly, consumer broadband in the UK is an obvious thing that's missing in your portfolio. Are you intending to enter that market?

And then finally, on total communications, the way you describe the M&A criteria or the investment criteria, is it fair to say that M&A is the last resort? You'll look at commercial partnerships first and that's the order you go through before resorting to M&A? Thank you.

Andy, Michel and myself.

Yes, w've not gone hugely, obviously, into detail of individual components within the various regions. And I think we've got top line on Europe clearly on an improving trend, and I think as we get into next financial year we should start to see that coming positive.

The margins stabilization will be partly the improvement in the other regions, but equally the benefits coming through on the cost side in Europe. So the collective of that should be that we'll be starting to see Europe very much more stabilizing on the profit front.

Michel on --

UK, so as I mentioned last time we were there, so the focus is clearly on mobile as the market is really organized mobile on one side and fixed on the other side. So on mobile I guess that I am proud with the results which have been delivered, including in data.

As far as fixed is concerned, the only piece on which we are slightly active is in the enterprise space with the One Net launch that we have operated a few weeks ago, and which will grow up in the next coming months in order to be able to offer integrated offers to our customers. In order to do that we leverage commercial partnership with the existing fixed operators and we believe that it's the best way to achieve a convergence in the UK. It's one of, let's say, the country in which commercial partnerships do work.

And I guess the answer to the third part of your question Paul is linked to this. We look -- as I said to Robin's question, we look at things with a very cold approach [and] a return on capital thing. So commercial agreements have low return but low capital committed, which is fine. Joint investments have a little bit higher return, but a little bit more capital. And the acquisitions have to prove their case on both financial and commercial grounds, so the best is harder. So whether you call it last resort or not, I would say the test is harder clearly.

I don't know who was first, but you decide who was first.

Christopher Nicholson from Oraca. Two questions if I may. The first one is does the free cash flow guidance range assume a significant or at least material contribution from Verizon?

And the second question is what, actually, is the barrier to a much larger revenue opportunity from near field communications in your view?

So, on the first one, the free cash flow guidance excludes the assumption of any change at the moment on Verizon Wireless. So the GBP6 billion to GBP7 billion is exclusive of anything that may or may not come through on the dividend front.

What makes near field communication probably not a huge economic opportunity is that it is fragmented. It's a lot of different systems. You have to agree across operators things, because you cannot ask customers to have different Oyster Cards working in different ways or things like that. And quite frankly, the fact that it's not today a huge market, but if you take instead the customers' perspective it's a great experience.

So that's why we think that at a reasonable level of investment it's a nice area to be in. And when you start seeing people swiping -- in our cafeterias, swiping their phone to pay for a sandwich, you understand it's pretty practical. You like it.

Yes, Stephen?

Yes, thanks, Stephen Howard here of HSBC. So returning to what I think is a crucial question of yield management, you've outlined how you're using tariffs of a tiered and smart variety to try and control the usage.

Some of those tariffs are now, I suppose, about a year old, and that gives you the opportunity to reflect on how they've been received by the customer base. Have you yet seen any issues of bill shock, or upset customers who are in any way dissatisfied with the speed you've promised but perhaps not quite delivered, or running through their [caps] and so on? How are you finding the job of communicating prioritized tariffs to the people who are not paying for the prioritization, and dealing with any issues that they're feeling second class citizens, as it were?

And then secondly, in terms of -- I'd just like your thoughts in terms of whether you lead from the front on this, or are there markets where you want to wait to see other people implement these yield management tactics before following yourself? So obviously you're leading from the front in Spain, but are there some markets where you're worried about potentially disruptive behavior, people taking advantage of your introducing these types of yield management techniques, and therefore are waiting?

Yes, I think I can give a broad answer and maybe, Michel, you want to integrate.

First of all it's not one year that we are fully commercial; we tested and then we went fully commercial. In the Netherlands we introduced in September. In the UK there was two rounds but basically in October. In Italy will be the end of this month. In Germany has been a little bit longer.

If you look at Germany it has been no big shock; it's actually quite the contrary. You get -- everybody gets the right type of package for the right type of consumption. And I think that as part of the education, consumers will learn. I cannot say that I as a consumer watch videos all day, but I do it more and more and more over time, and one day I will hit the threshold and I will say, you know what, for an extra EUR5 I'm watching Channel 4 on my laptop, why not continue? It might not be even [EUR5].

So it's a bit -- if you think about it, it's like what happened in the US with cable television. It's what happens with PayTV subscriptions. It's a kind of an adaptation and adjustment process as all consumers in the world do with this type of service. So I am not concerned, or at least I haven't heard of any negative feedback.

On the competitive thing I want to be clear. We said that we go to this staircase structure, but we would be very competitive within that. So the mission that Michel mostly, but also Nick Read, has is the staircase structure is the philosophy. But then, market by market, be competitive; don't let any -- so lead from the front, lead from behind, I don't know. Our philosophy is we respond quickly to pricing moves, and when we anticipate and the others don't follow we just change; so again, normal competitive scenario.

Well, maybe on [fact] base, so I could say that our new tariff structure quite successful. Just to take some examples, in Germany, so you know that we move from SuperFlat to SuperFlat Internet, which are integrated voice, text and data, which have now more than 1 million subscribers. And 60% of our gross adds in contracts are now on these type of tariffs, so quite successful.

The same in Spain, where now we have 25% of our customers which are on our new tariffs, which have been introduced a few months ago and which are also integrated. We're going to refresh them. So I could take many examples in all the countries to show that those integrity tariffs are now the norm.

Just to give, let's say -- to your second question, in nearly all the countries I guess that we have more or less been leader in implementing those new tariffs. We have been followed nearly in all the markets but one in Europe for the time being, which is Netherland where we are still the only one to have really tiered pricing. And we expect, let's say, the other providers to follow, because we believe that it's the right move to implement.

Good. Tim, then we go there, and then we come to the back, yes.

Tim Boddy from Goldman; a couple of questions. My understanding in the past is that you haven't always given long-term revenue guidance. It's a very confident thing to do. So I'm just interested in where you see the confidence to provide the three-year outlook, and what changed in your attitude?

Secondly, and building on that, your outlook for market share, it would be good to understand within that period if you feel you can get back to stable market share in both Germany and Spain. Obviously, we haven't seen all the results yet for Spain.

And thirdly on brand, clearly you emphasized the power of the Vodafone brand. Clearly, there are competitors taking a multi-brand strategy, if you could just remind us of your philosophy about multi-brand, including potentially the use of different brands on the fixed side?

Yes, let me start and then I leave the market -- so I take the brand, market share and outlook.

I think dogmatism is wrong in business and, therefore, my philosophy for the brand is that the brand -- the Vodafone brand is a fantastic brand, and we need to leverage on it as much as possible. However, pragmatically there are situations where you might want to have a second brand, and this is what we are already having, and Michel may comment about that.

You -- tactical use of second brands, tactical use of sub- brands associated to the main brand, but in a loose way, I think it's fair. And again, as long as we are clear that this is tactical use of something else, it's fine. So we are not -- and I think, Michel, maybe you want to say a little bit more of what we are doing, you link this to Germany and Spain?

So on brand, I guess that we are quite pragmatic. Of course, we have one major brand, which is Vodafone.

In some markets, we do have, let's say, additional brands, whether it's in fixed rates, involving Italy with Tele2; or in Germany, where we have introduced a second brand for prepaid offers, in order to match tariff expectations from some of our customers. Or we also leverage partnerships with MVNOs. So for an wholesale type of agreement, when we don't want to develop ourselves a new brand, because it would be too expensive to do it. So quite pragmatic, and we have some projects in some other countries that you will see in the next quarters.

As far as market shares are concerned, you have probably seen that, in Germany, this quarter, we have stabilized our market share, so with the revenue performance that we have delivered. And I should say that, in terms of seven years' revenue growth, quarter-on-quarter, we are the highest in the market; so which has allowed us to stabilize our market share.

In Spain, we are still losing a little bit of market share, mainly to MVNOs, and to, let's say, Yoigo. So, as you know, there is this fourth player, which is building up in the market; so which means that, let's say, you can expect the main players to lose slightly market share for the time being, and then probably stabilizing.

Yes, in terms of confidence on the outlook, I think if you go back two years ago, when we last did the strategy update, we were looking straight into the precipice of the global downturn. I think things have improved a lot since then. Clearly, things are not totally clear, but I think that is one major factor in here.

I think the second one is probably that data, four years ago, was a concept that we strongly believed in, but did not have a lot of revenue. Two years ago, it was starting to show its metal. And now, we're sitting there with a GBP5 billion revenue stream; a clear appetite from customers; devices that really are taking off; and just, I think, a lot more confidence on the data front, that this is real, and this is a big opportunity for us. So we put those together, and we thought it would be helpful to go out with some numbers, to show where we are aiming to get to.

Yes, let's go a little bit back there. Yes?

Yes, hello. It's James Ratzer from New Street Research; two questions, please. The first one's, on slide 40, you show multiplicity of connector devices, split between high-end smartphones entry, price handsets and mobile connectivity. I was wondering if you could say, today, which one of those is the most significant for data revenue growth, which one is the least significant? And then, over the three-year guidance, which one is the most significant, least significant, so if there's even a changing mix within that?

Then the second question I had, please, was regarding tax. We're in an environment when governments are starting to scrutinize their tax receipts a little bit more closely. Could you please confirm your medium-term guidance on the Group tax rate? And also the long-term viability of the way you hold Verizon Wireless, whether you think the tax structuring there can be maintained? Thank you.

Yes. Let me take the first one. In absolute, clearly, smartphones are the most important thing, and mobile Internet is the most important thing. But I'm not sure I would look at things the way you propose. Because when you talk about multiplicity of connector devices, you're talking about sometimes the same customer. And I'm not so sure MiFi dongle that you keep in your car, that serves in a WiFi environment to your car, is it a dongle, is it -- so what is it? And when you use it at home, it's a replacement for the dongle in your car -- in your PC?

So there's a -- what we said is, we need to go into a new world, where we have a relationship with a household, or with an enterprise, and the multiplicity of accounts, and the multiplicity of devices hooked into that relation; a little bit like it happens already with companies. And that's the way we look at it. And that's why we have started investing, a while ago, in IT systems, in building, in all the capabilities, beyond the network that will enable that.

And that's why I am now, going back to the earlier question, we have more confidence about the data revenue growth, because we see that this is happening in a major way. So when I said Vodafone will be in the hand, in the car, in the house, and in the office of our customers, it's really a multiplicity of situations. But the relationship will be the most important one.

I'm not sure we'll go at the detailed level of by device. Think about in Germany, we announced -- we launched this DSL with IPTV, with digital terrestrial channels integrated. It's a product in the home, and it does certain things that -- at the end of the day, it's the relationship which matters.

You don't want to do tax?

I don't know. Shall we pass it to Steve?

Yes, the tax is, obviously, getting a lot of focus at the moment. And I think we understand, in terms of the state of government finances and the economics at the moment that is understandable.

It's interesting; we're seeing some countries, this being one of them, where the focus is on actually getting corporate tax rates down to increase competitiveness. We have seen one or two other countries which have done small but targeted tax increases particularly in the telco sector, so it's something which, obviously, we are monitoring very, very carefully.

We have said that mid 20s as an effective tax rate for the Group, we think, is where we should be for the medium-term. At the moment, we don't have any reason to believe anything different to that.

And in terms of the last part of your question, on the US, we're very comfortable with the structure there. So that is fine.

Steve Malcolm from Evolution; I'll go for a couple, please. I'm interested in your comments on scale, Vittorio, and the fact you're trying to make a difference for your customers in terms of cost. It's hard to see that, because as you mentioned, your yields tend to be a little higher; your data pricing's relatively lower than anyone else's; your margins are no higher.

So how should we think about the way you leverage your scale? For a given level of subsidy, can you put more value in? Should we see that in more volumes, in terms of new customers going forward to market share take? Should we expect higher margins going forward, than your competitors? Could you give us a couple of tangible examples of where that scale is being brought to bear in customer numbers, and you're your shareholders' perspective at the moment?

And then on top of that -- sorry, different to that, on roaming, can you give us an idea what's happening to price and volume on roaming at the moment reflecting a slightly better, I guess, economic environment in Europe? Thanks.

Yes, I think you see the advantage of scale in the cash flow, mostly, and in the fact that we have been able to support big growth with a stable CapEx.

You see it in -- and you will see it more, I think, in the ability to see ARPU increase. We now have three European markets, where we have ARPU increase in absolute terms. And that will be, again, a reflection of the ability to attract the customers on the higher bundle packages, because the service is good. And again, I don't think it's by coincidence that the three markets where we have the ARPU increase are Germany, UK and Netherlands, which is where we have been working in that direction. So this is where you will see it more and more.

Subsidies, quite frankly, are a function of competition. I wish I could see in all markets subsidies balanced to the profitability. And we will do our best to make sure that we go there. But again, we don't want to lose commercial traction. So subsidies, in a way, are more a function of competition.

On -- do you want to add anything?

Just to -- on roaming?

No, on the first point.

On the first point, just as far as subsidies are concerned, I guess that more and more, we are trying really to manage our subsidies in a profitable manner. Meaning that we, let's say, allocate subsidies based on the price plans that are then subscribed by the customers. And we take also into account the behaviors for each device, because we know that specific type of device can unlock additional revenue, and so can allow us to manage a little more the subsidies in one or the other. So we are more and more,let's say, management of our subsidies in a profitable manner.

On roaming, maybe the second question, so on this quarter, we have a slight decrease of traffic in Europe, in roaming. In fact, it's a clear reflect of the macroeconomic situation; meaning that roaming is increasing in Northern Europe, but decreasing, and mainly in Spain, in Southern Europe. That's for voice.

On data, we still see a strong potential to unlock roaming, in the next coming quarters as, let's say, of course, data roaming is much smaller than what we are experiencing in voice today. We have more or less 40 million customers roaming on voice and we have, let's say, 4 million to 5 million roaming on data.

Shall we go there? Justin? And then we come back, and then yes, through you, we will come back.

Thanks. Yes, just a couple of questions. No guidance on offering profit at the moment, which is understandable, but do you think we should be thinking some sort of iPhone effect on Verizon Wireless margins next year? Perhaps in the first half of next calendar year, whether we need to think about that at all?

Secondly, I just wonder if you could make it more simple on your CapEx message. We're talking about European CapEx sales going up, and how much?

Just [really] on commercial questions, when TI launched their -- the equivalent of your per second pricing in Italy, they cannibalized their base for longer than most of us thought. Are you managing the cannibalization effect in Italy? Or is it too soon to tell?

And then in the UK, are you benefiting a bit from everything everywhere taking their eye off the ball a bit? Thank you.

On Verizon Wireless, I would not comment on the guidance of another company that we don't manage, based on commercial assumptions that are not in our control. So I would like to ask you to ask them the question.

On CapEx, maybe, Michel, you want to be a little bit more specific on CapEx in Europe?

Yes, I can say that on CapEx in Europe, plus the Group functions last year, were around 11%. So we were slightly over 10%. And what Vittorio has said is that we are quite pragmatic, so we should remain in that range. Again, let's say, we are looking at CapEx where we see that there is a profitable growth. And as you have seen on data, we are gaining market share.

For -- let's say, on commercial, so on Italy; on Italy, that's true that we have seen a strong cannibalization within Telecom Italia. And that has been reflected in their revenue figures for, let's say, the pricing that they have tested during the summer.

As you have seen, we have not suffered with the same effect. We have, let's say, made some tactical moves during the summer, in order just to protect our base; mainly on [minutes] and text and voice.

We have changed recently our pricing structure in prepaid and postpaid. And we are very happy with the first results of that; 1.5 million customers have already subscribed to our new actions on prepaid. And we have seen a regain of traction in terms of growth adds, so which means that not only it's not cannibalization, but we even increased our market share in terms of gross adds additions in the past few quarters -- few weeks. So we are quite happy with the results of those new pricing.

In the UK, so as you can expect, you have seen, let's say, the results that we have published. I guess it's our highest net adds in the past three years, at 281,000 additional customers that we have captured in the quarter coming from the different operators. We are positive vis-a-vis all the operators, meaning every -- meaning Orange team on one side and, of course, let's say, O2 on the other side.

So yes, we are capturing customers from those different base through -- thanks to all the measures which have been taken, in terms of distribution. Now iPhone portfolio device, new pricing. So I guess that we have a bunch of new things, which have allowed us to regain traction.

But I would say, in Italy and the UK, we are competing well. It's -- we're doing the right things. I'm not sure exactly what's going on in Italy, why Telecom Italia is behaving like this. But we are confident that we have solid offers in the UK. ARPU going up was good news for us, because it means that what we have been doing is right.

You have been waiting for long; apologies.

Thank you, Karen Egan from RBS. You showed on slide 41 that the increase in ARPU for smartphone users is, to a large extent, matched by the higher commercial costs of acquiring them. Is -- does that explain why in Europe the EBITDA is still falling by 5% organically, although revenues are improving and cost reduction is on track? And does it also explain why your three-year guidance, at the EBITDA level, is a bit more vague than your revenue guidance?

And on the same vein, for full year EBITDA margins were down 170 basis points in the first half. Can you be a little bit more specific about what you're expecting in the second half? In particular, it seems many analysts are expecting flat year-on-year margins in the second half. Do you think that's reasonable?

Why don't we start from the last part, and then we take the smartphone economics question?

Yes. We said at the start of the year that we expected, for the whole of this year, on average, a significant reduction in the reduction of the margin, which was 220 basis points last year, so roughly 100 basis points, I guess out of that. So 170 basis points first half; mathematically, you're right, we need to be down 0.25% or so in the second half of the year.

As Michel has mentioned earlier, part of this is the commercial investment, which we kicked off in the second half of last year. And, therefore, is on a comparable basis for the two second halves, but it was not on a comparable basis for the two first halves. So directionally, that is where we'll aim to get to in the second half.

On smartphone economics, I think you're pointing to the right chart, maybe getting to a little bit of an early conclusion. The chart indicates mins and max. So you can be on one end or at the other end, or anywhere in between.

As I said in my earlier answer, the more choice we have with smartphones, the more -- and with more Mobile 7, the more RIM, the more whatever, choice we have, the better it is, because that gives the opportunity to improve the yield.

If you look at cases like the US, you have seen probably AT&T's margin going down in the earlier phase, on the introduction of smartphones, and then going up. So the yield management and the commercial choice, which is good for the customers, would be good also for us.

Michel, do you have --?

No, I guess that we have always said that there are two factors which are influencing our EBITDA decrease that you are referring to. First is revenue, of course, because we're still declining in terms of revenue. And the second is INR, due to the fact that we are investing ahead of the pack, in order to push our smartphones in the base.

As you have seen, our ANR is increasing by 10% year-on-year, let's say, H1 on H1; so which was there in order to push our smartphones. But the profitability of our smartphone, in terms of incremental EBIT, we have, let's say, shown on different occasions that it was the same as -- let's say, as with legacy phones. So we just have an upfront cost, which is slightly higher.

Yes, here. You've been waiting for a while.

Thanks. It's Mark James from Liberum. Remuneration incentives and the metrics that you measure; you mentioned that you've changed the metrics that you measure, to align them more closely with the changes in strategy. Can you elaborate on that, in terms of what metrics you're using going forward, and what targets are being set?

Yes. Absolutely. So what we did, we introduced in the yearly incentives, relative competitive performance; which is a blend of revenues, profit and brand, or NPS, whatever is the metric, relative to the in-market competitors, or the European, or the worldwide. So at every level, we have introduced that in the remuneration of people. And I have to say, it has been incredibly powerful to see how people immediately focus, yes, on the budget, but also on the competitive performance.

We are now -- we have increased ownership at the Executive Committee level. So we have gone up quite a bit last year. We are now increasing ownership at the levels below us. And we will, if -- as I assume, the Board will approve, have a more similar system, which would be mirrored below the top, whatever, 20/30 people.

So we really want to cover the top 250/240 people with similar roles, with different clear -- clearly, different numbers, but similar roles, so that also the long-term part of the rewards is totally aligned to shareholders' interest, both short and long-term.

Yes?

Thanks. It's Paul Marsch from Berenberg. Most analysts and investors seem to deduct about 25p to 30p for the capital gains tax, theoretical liability, in the event of an exit from Verizon Wireless. Now, the message today from you seems to be that the outlook for that relationship is to stay on board, and reap the benefit of future dividends, and exit seems to be quite remote. Is that because there is no tax efficient exit from Verizon Wireless at the moment? Or maybe there is, but Verizon doesn't find that option appealing?

Do you want to take?

Yes. There are two or three points. The first is that, as we are positioned today, as and when we do start to receive dividends, those will be tax-free. And with the tax structure we have in place, we also get other benefits from that. So the status quo has a pretty good tax position.

An outright sale, as you refer to, has a significant capital gains tax element to it. There are some other options about splits and things like that which are very complicated. They may be able to be done in a more tax efficient way, but there are lots of operational consent and other issues. And frankly, at the end of the day, one is still talking about a minority position without dividend rights. So whether it actually is value creating is very, very debatable.

But I think I can say that we as management and the Board, we keep our mind open, as I said in my presentation and we continue to assess options because we have to.

Could I follow on with one more question? Use of proceeds from disposals, are you constrained in any way by your credit status, credit rating?

We're not constrained. We've said that we target a low A. We're on a split rating at the moment. We're on, I don't know, 2.3 or thereabouts multiple of EBITDA. So we're clearly at one end of a range, rather than at the other end of the range. And I think in the medium-term, that's really where the Board wants to stay. Does it mean in the short-term, we could go outside of it? We could do, but the intent would be to come back into that range fairly soon.

Thanks.

Yes?

Yes, it's Emmet Kelly at Merrill Lynch; just three quick questions please. The first one is on your Supermobile presentation. You gave a target for smartphone penetration within your base of around 35%, but didn't really talk about any data card penetration in the future. I guess at the moment you're giving preference to smartphones over data cards because data cards use so much capacity.

However, going forward, correct if I'm wrong, I guess the launch of LTE is probably the tipping point there, because LTE, the pipe is so much bigger and the speeds are so much better.

With Verizon Wireless launching LTE over the few weeks, if you were to see them really blowing the lights in terms of very, very strong data card take-up and seeing a very strong acceleration in revenue growth from data cards, would you consider going early on LTE? Because up until now, you've talked about HSPA Plus then MIMO and maybe LTE in 2012, so would you maybe look at going earlier in LTE?

The second question is again on Supermobile. You talked a little bit about best network. If you look at the US and if you go to New York or if you're in Boston, everywhere you go, you see Verizon Wireless advertising their best network message. And I think network perception in the States is very, very important at the moment, and there's obviously a big gap in the network perception between Verizon and AT&T, for example.

You showed a slide that suggests that you've got a better network quality here in Europe at the moment. Do you think you can extend that gap against competitors if you rollout MIMO and LTE? And also, do you think you're getting that message across to the subscribers through your advertising at the moment? Is there something you're looking to do going forward?

And then just the last question is on emerging markets. When you gave your full-year results, you talked about a pretty big free cash flow swing at the big EM businesses; I think it was India, Turkey, Ghana and Qatar. Are you running ahead of schedule on that free cash flow swing after announcing the results today? Thanks.

Yes, the first question is almost a philosophical question. We are not against data cards, of course. We just need to manage. As I said, it's a huge world. It's a world of people who use 500, 600, 700 per month doing mostly emails and PowerPoint and the world of people who watch movies like I did two nights ago but just they do it every night. So it's a wide thing.

The important thing is to yield manage, commercially and technically. And to basically make sure -- I think in one of our countries we had -- what was the percentage of the -- 2% of people taking 26% of traffic or something like that just streaming. Already today, we are a big streaming network. Already today, the single largest application is that one. So it's just a matter of managing it. It's not a matter of saying, we de-emphasize or don't like it. And therefore, pricing is very important, and I'm a great fan of that.

LTE is part of it. Quite frankly, we are agnostic, because as a customer, I don't care as long as I can get my own uninterrupted video for 39 minutes or one hour, I don't care whether it's HSPA Plus or -- then it depends a capital efficiency and the technological efficiency choice; where we can continue to increase, we increase, where we need to move, we move.

But again, we are not like -- Verizon, in a way, was constrained because it's end of life for CDMA. For us, it's not the case. So we will look at it. We are launching 1,500 sites in Germany and we will continue to evolve our network the way Steve will advise us to do.

On the best network advertising, we have it in Greece. We have it in the UK with the sure signal thing. It's a bit of a bit of a market-by-market thing. It depends on the market conditions. It depends.

Can we really be structurally always much better than the main competitor? I think we can be slightly ahead of them, but I doubt that we can. With the all the self-esteem that I have, I don't think we can really beat structurally by a large amount in the long-term serious players. Can we be significantly better than everybody else other than the main competitor? Answer, yes. And so this is going to -- which is the why the polarization in the world of data, I'm convinced is already happening.

On emerging markets cash flow?

Slightly ahead on Turkey and temporarily ahead on India, but probably will even itself out by the end of the year just because of the import restriction issue. So overall, just slightly ahead.

Yes. One there. One there. Okay.

Hi there, Ottavio Adorisio from Societe Generale. I have three follow-up questions actually. They were already asked but I would like to have a bit more color.

The first one is on bill shock. Now looking at slide 19, you're proposing GBP25 for 500 megabytes. I'm a happy Vodafone customer actually. At the moment, I pay GBP5. So what's your assumption of customer churn when it's going to be presented to a 500% increase? And how are your competitors, because, for instance, in Italy [when] TI went increasing pricing for voice, we were not beneficiary? How churn can actually perform on the subsidiary where we're actually going to increase, especially in the markets where 3 are present, because it looks that 3 is going the other way? It's actually decreasing prices.

The second one is on the outlook. Now [depreciation] is a moving pieces, EBIT, therefore, I just want to have a quite precise answer. For your outlook for EBIT or operating profits, just operating profit for the year-end, you have to achieve flat EBTIDA margins. Is that consistent with your guidance or not?

And the third one is on you're better if you compare your EBITDA margins for H1 against the full year. You present today with a 50 basis points improvement. But if I remember well, and I probably -- my memory I think [I'd] double check, you're actually talking about last year that headline EBITDA margins were down 220 basis points, but adjusted was only 190 basis points. Therefore, it looks that the 170 basis points you present today is just the same trend. Thanks.

Yes, let me take the pricing question. I think you're looking only at half of the picture. When people get one of these -- if you ask my wife how much she pays for SMS, she doesn't know; how much she pays for minutes, she doesn't know; how much she pays, right. She knows how much she pays per month and how to go up.

And this bundling of data and voice pricing is what we are absolutely pushing because voice as a service will not exist one day. We will not even talk about voice as a separate service. There will be a variety of services and you pay for your connection. So voice revenues will go down. Data revenues will go up. Our exercise is to make sure that the total is higher than before.

And therefore, the type of thinking that you just illustrated does not take place in the shops. If you go into the shops, they ask you, okay, do you want to get this, do you want to get that, GBP30, GBP35, GBP15, GBP20, whatever. And it's going to be a bundle of things and it's important that all elements are staircased, so that if you want 500 texts and next month you want 700 or whatever, you can have the option. So that is a little bit the missing part of the story.

And I'm not saying it works like this. It requires a lot of work. It requires the right incentives, the right devices, the right price and everything that I said.

Maybe just on the specific point you were referring. We have to be competitive in each market and the price points are different. So you were referring to slide 19, where in Netherlands with, let's say, EUR20 you get 500 meg, that's true that's in the UK, the price point is GBP15 for 3 gig. So which means that we have to be in any case competitive in each market and within each market, introduce these tiered pricing in order to make sure that we can have our customers contributing much more.

But in -- let's say, in the different markets and you were also referring to Italy, of course, our brand, as it was advocated by Vittorio, can induce a little premium of tariffs compared to some other players. So that's why in some markets, remaining competitive we can afford to have a slight premium.

In fairness, I was referring to only one market. Sorry if I fall out on that one. And it was not a shop -- a price in the shop. I was referring to a price in the chart, slide 19 or page 19 where actually you basically say that you're going to charge GBP25 for 100 megabytes. Now --

Plus voice plus; plus.

That's right.

Plus.

Yes.

So how much voice you give on that one. You're not going to cannibalize voice, you're throwing away of lot of voice revenues just to sell data?

It's the opposite; it's not cannibalizing voice, it's immunizing our revenues. It's really immunization of revenues what we are doing. When people ask me, are you concerned about VoIP, I say, today, on the margin 2% is not big. Am I concerned about the future? No, because one day we will pay GBP30/GBP35, hopefully GBP50, GBP60, GBP65, whatever it's going to be, and we will not really care whether the call is a circuitry call or a VoIP call as long as we can bundle the data and the texts and the SMS, and whatever the service you want into one thing. So it's quite the contrary what you're saying. It's immunization of revenues.

Can I just -- just on your EBIT point. What I said earlier, I think it was Karen's question about a significant reduction in European margins, i.e. around 100 basis points for the full year is entirely consistent with the adjusted operated profit range for this year. So those are precisely related.

And secondly, the headline for last year, 220, the organic underlying at 190, I think at the half-year, the numbers were 170 and 160. But either way, divide those by 2 and you get to around 100 basis points, so we'll be down at around that sort of level for the second half of the year.

So the improvement from last year was around 20 basis points not 50, when you basically take the organic?

It is 190 playing 160 I think. It's 160 basis points half-year organic, so it's 30.

So it's closer to 30 to 20 than to 50, okay.

On an organic, 50 on a headline and the guidance was on a headline.

Thanks.

I think we have a little bit of time for a few more questions if there are. Yes? Sorry, let's -- people who have not asked questions. So first here and then -- okay. Yes.

Yes, it's Jerry Dellis here from Jefferies.

Yes, Jerry.

Just going back to slide 41, you show a fairly interesting decline in voice traffic on European networks between Q1 and Q2 and I just wondered whether that's the start of a trend, whether it's a function maybe of your yield management work? Or to what extent it might just be related to perhaps slowing adoption rates of mobile broadband dongles?

And then on the SFR slide, you talked about being open to various value maximization strategies. And I just wondered what a value maximization strategy would be potentially other than just selling your stake. Thank you.

Sorry, we -- I'll take the SFR --

We're struggling with your first question.

I will take the SFR question while my colleagues try to identify the slide, because we don't --

Just tell us the slide.

Which slide?

Yes, sorry, it's slide 41.

41.

You show traffic going from 115 to 88.

That's the year-on-year growth slide.

That's the year-on-year growth of data.

Of data.

Yes.

It's year-on-year growth of total number of petabytes that Steve carries, so it's not a decline.

No, no.

It's a slowing down of the acceleration --

No, no.

Of the growth.

I'm not suggesting it's not a strong number, but it is nevertheless quite a slowdown and I seem to remember six months ago, you presented a chart where you talked about 70% or 71% growth in data traffic across Europe for the full year. So I'm just wondering whether we are seeing that as your yield management kicks in --

Yes.

We're maybe seeing traffic --

Yes.

Slow a little bit.

That's right, yes. I think the direct answer to that is yes.

Particularly if you consider most of the traffic growth is video and then that's the thing that one has to really focus on is video. Sometimes it's streamed audio and we particularly targeted the techniques to manage video in the infrastructure we put in.

One main country is Spain where we have very high usage in mobile broadband and which, thanks to those techniques, have been, let's say, managed. So that's where we've had strong slowdown.

And again, it's linked to the commercial question which was asked before.

On SFR, we look at various options. There are options; some are more appealing, some are less appealing. And again, we are open to all of them, but what I wanted to say is we are open and there is not a single one option, or we are not a first seller if you want to put it in journalistic terms.

There were questions -- let me see, somebody who has not -- all right, let's give opportunities to all. Yes there and then I go back there in the -- yes.

Yes, thank you. It's Guy Peddy from Macquarie; two quick questions. As you've reviewed the first half results, did you consider actually reinvesting some of your strengths that you're going to have in margins in the second half in restimulating the revenue growth and market share even more so? So actually continuing to invest more in margin?

And then my secondary point; is your CapEx -- it seems like your CapEx outlook is a little bit vaguer than perhaps it was. Is that a function of the fact that you don't have spectrum visibility in most of your European markets and, therefore, how you plan your networks on a five-year view is still open to various different options? Thank you.

Our CapEx outlook does not include spectrum costs, so we take spectrum costs out. And in that respect, yes, you're right, we don't have visibility, because there will be auctions in the UK, in Spain, later in the following year possibly in Italy and we don't know where the auctions can go, because it depends on how many people will participate. And so -- but is not part of our CapEx thing.

I want to reiterate this CapEx point because I don't think we have been vague. I think Michel has said we were at 11% last year. We will be in -- around that this year and we feel that's the right amount of investment.

What I said is I'm not particularly fixated with the specific percentage. I'm much more fixated in free cash flow and return to shareholders. And then, we can manage the different lines of the P&L according to the needs, so that was my meaning. Having said that, I think Michel was more precise than me, as it often is the case, in saying, we will be around where we were last year.

On reinvesting the margin, we have a discussion and every time -- three to four times per year, we have our forecasting, we look at how things are going. It's always a balanced judgment of how much more resources you want to put in the market and how much is the risk of heating up commercially every market.

In some conditions -- Italy was a case, we have been dragged into a strong competition in the spring. I said we will not refrain from competing. I always repeat we do not refrain from competing. In other cases, we just manage in a financially disciplined way commercial growth. I cannot give you a generalized answer.

I think we are -- we can probably take one or two more maximum? No, no, only one. Okay. You have been so patient in waiting, I think you deserve the last slot.

Thank you. It's John Davies from ING. I'm going to push it and ask two questions. First of all, historically, when you had simultaneously a revenue growth target and an EBITDA target, there was some cause for arguing that your competitors, therefore, had a good insight into exactly what you were going to do and it operated somewhat as a straightjacket on your operational flexibility and that was something you moved away from.

You've gone back to that now. Is that a change of mind as to what your competitors are thinking? Or is it a sending of a message to them as to where the market should be going?

And the second one is one I think for Steve. What's the thinking on voice on LTE in terms of standards and so forth at the moment? Thank you.

Yes, the first part of your question, we have here Rosemary who is our General Counsel, has only one answer since signaling is not legal. By definition, it's not signaling and it is a commitment. What can I say? We are convinced that things are going in the right direction. What can I say?

The -- we have more -- I would say we are more sure about the economics of data. I think that going back to the earlier remark, all the things that I have been talking about, from when I was Head of Europe to more recently, on the network and capacity management side, we are now seeing the result through. And we start seeing, as I said, positive ARPU reactions on the data front.

So it's early days. We cannot be super aggressive, which is why we have a range. But things are going in the right direction and absolutely, there's no signaling element in anything we say.

Shall I do the second one? The voice over LTE is something that we pioneered with good collaboration with Verizon and China Mobile. We progressed it to a de facto standard and I'm now pleased to tell you it's becoming the industry standard and it's going through the standards bodies to be ratified now. So it's a very good example of collaboration between the three of us that's now become the industry standard that's going through as we speak.

Very good. I thank you very much for your attention and for your questions. And again, thank you very much for coming today.