Up to £28bn to be cut from Vodafone goodwill

Operator reveals downbeat forecast...

Vodafone has announced that an increasingly competitive market will see it write off up to £28bn from the value of its overseas assets.

The mobile operator said it is currently in the process of an 'impairment review' which it expects will see the goodwill associated with its European and Japanese operations revised downward by between £23bn and £28bn.

Most of the goodwill on the Vodafone balance sheet is associated with the company's acquisition of Mannesman in 2000 – made when "share prices in the telecommunications sector were significantly higher than today".

Vodafone attributed the change to a "lower view of growth prospects, particularly in the medium to long term".

The company also announced growth for the year ending 31 March 2007 will be lower than expected, with organic mobile revenue growth expected at between five and 6.5 per cent.

Vodafone said the forecast was due to an "increasingly intense competitive environment, continuing regulatory reductions in termination rates and the one-off beneficial impact in the year ending 31 March 2006 of the introduction of mobile to mobile termination rates in France".

Vodafone also added it expects organic mobile margins outside of Japan to drop by one per cent.

Mark Newman, chief research officer at Informa Telecoms and Media, said the gloomy predictions from the operator are not unexpected while it continues to compete in saturated, cut-throat markets.

Newman said in a research note: "This should come as little surprise to the industry. Vodafone's problem in Europe is that it finds itself in three of the most competitive markets. Both the UK and Italy have become intensely competitive over the last year following the launch of Hutchison Telecom's 3 service. And Germany, historically one of the most conservative markets in Europe, is now seeing intense price competition from MVNOs."

Vodafone's share price fell by around three per cent on the news.