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* Q1 organic service revenue down 3.5 pct vs 4.2 pct in Q4
* Spain down 10.6 percent, Italy down 17.6 percent
* Conditions challenging in north, central, south Europe-CEO
* Nothing new to report on Verizon relationship
* Shares up 0.5 percent
By Kate Holton
LONDON, July 19 (Reuters) - Vodafone said it did notexpect any let-up in the pressures weighing on its business, asthe world's second-largest mobile operator reportedfirst-quarter results hit by regulation and recession acrossEurope.
The British group, which has been battling regulator-orderedprice cuts, economic pressures and competition throughout itsEuropean markets, said on Friday it expected the next threemonths to follow broadly the same trends after reporting yetanother sharp drop in its key revenue measurement.
With competition increasing in its once-reliable markets ofGermany and Britain, and with Italy and Spain postingdouble-digit revenue falls, Vodafone posted a 3.5 percent dropin its key organic service revenue figure in the three monthsthrough June.
The fall in the measure - based on revenue coming from theprovision of ongoing services and which strips out the impact ofone-off costs such as handset sales - was slightly improved onthe record 4.2 percent fall in the fourth quarter.
But it is still another sharp drop for a group that wasposting growth only 12 months ago.
It said the performance was in line with its expectations,allowing it to reiterate its outlook for the year and sendingits shares up half a percent.
"Conditions in Europe remain challenging in northern andcentral and southern Europe," Chief Executive Vittorio Colaotold reporters.
The falls across the core region of Europe took the shineoff some of Vodafone's better-performing businesses, includingIndia which showed signs of stability and an increasing demandfor internet services after years of a ferocious price war.
"Vodafone's first quarter was in line with consensusexpectations but the detail points to a further deterioration inrevenue trends in the core European businesses," analysts atEspirito Santo said.
The tougher competition in Germany has surprised investorswho only last year saw the market as a haven of growth and highmargins..
CONSUMER WOES
Vodafone, with 454 million mobile customers globally,reported a worse than expected 5.1 percent drop in servicerevenue in Germany, its biggest European market, and a 4.5percent fall in Britain.
Spain, where Vodafone has struggled throughout the downturn,was down 10.6 percent and Italy down 17.6 percent, as customerssought to save money by making fewer calls and retaining olderhandsets, and as rivals stepped up competition.
It wrote down the value of its businesses in Italy and Spainby 7.7 billion pounds in the last financial year.
In response, it has sought to shore up its business byinvesting or buying fixed-line assets to enable it to offer awider range of services, including the purchase of the country'slargest cable operator Kabel Deutschland for 7.7billion euros.
It has also moved customers on to a new tariff calledVodafone Red which enables users to pay a monthly fee dependenton how much data they want to use, and including unlimited callsand text messages for free.
EGR Broking managing director Kyri Kangellaris said Vodafonewas a stock worth having for its dividend yield, although itsresults looked uninspiring. "Vodafone's quite a good yielder,but I wouldn't trade off these results," he said.
According to Thomson Reuters StarMine's "smartestimate" -which favours top-rated analysts - Vodafone is expected to havea 5.5 percent dividend yield over the next 12 months - above aforecast 3.8 percent from Britain's benchmark FTSE 100 index as a whole.
Investors have also bought into the British telecom firm inrecent years in the hope that the group will sell its 45 percentstake in its joint venture in the United States in a deal thatcould exceed $120 billion.
Joint venture partner Verizon Communications has saidit would like to buy out Vodafone, in what would be one of theworld's biggest-ever corporate deals, but Colao said on Fridaythere was nothing new to report on the relationship between thetwo sides.
