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* First top-line revenue and earnings growth since 2008
* Sees acceleration this year on 4G, data demand
* Capex to fall, not as much as expected as investmentcontinues
* Shares up 2.4 percent (Adds further CEO comments on consolidation, updates shares)
By Paul Sandle
LONDON, May 17 (Reuters) - Vodafone expects a biggerrise in profits this year after investment in faster networksboosted demand in Europe and helped the group return tounderlying revenue and core earnings growth in the year justended, the first annual rise since 2008.
Chief Executive Vittorio Colao said on Tuesday a strong yearfor the world's second mobile operator had been capped by arecovery in the last quarter in Europe, its largest region whichhas taken more than five years to nurse back to health.
"We achieved the first quarter of positive revenue growth inEurope since December 2010," he said, referring to the group'sperformance in the three months to March 31.
In Germany, Vodafone was "back in the game" against formerincumbent Deutsche Telekom, while Italy, its secondlargest market in Europe behind Germany, also recovered in thefinal quarter, he said.
Its performance in its home market was marred by problemswith a new billing system. Colao said the business should beback to normal in the second half of the year.
The company has been spared becoming the smallest mobilenetwork operator in the UK market after Europe stopped Hutchison, the operator of the smallest network Three, buyingTelefonica's second-placed O2 on May 11.
Colao said the European Commission had no choice but toblock the merger because O2 and Three respectively have network mast-sharing agreements with Vodafone and market leader BT's EE.
But he said the ruling left open the possibility of themarket consolidating in some other way.
"My prediction is that there will be commercial alliances,possibly new deals, but it's very hard to see now who withwhom," he said.
However, Colao said Vodafone could compete in anycircumstances as mobile and fixed line markets converge,including if cable group Liberty Global bought O2 orThree, as long as it could secure cheaper and more reliableaccess to former monopoly BT's fixed-line network.
In February regulator Ofcom said BT must give rivals greateraccess to its infrastructure to help improve high speedbroadband coverage and must meet tougher targets on fixingfaults in order to avoid the enforced separation of itsOpenreach local access network.
"To me the role of the regulator is to create the conditionswhere 'make' versus 'buy' is a free choice, it's not a mandatedchoice," he said. "But then if an (acquisition) opportunitycomes then we will look at it."
NETWORK UPGRADE
Vodafone has spent 19 billion pounds ($27.5 billion) onProject Spring, a programme that has brought 4G speeds to 87percent of its European footprint, built more fixed-line fibreand extended 3G coverage in emerging markets such as India.
Colao said the group had 47 million customers on faster 4Gnetworks across 21 countries, and on average they were usingtwice as much data as they were on 3G networks.
"Price is coming down, but people are spending more," hesaid. "It's a win-win for consumers and for the company."
Vodafone reported earnings before interest, tax,depreciation and amortization of 11.6 billion pounds for theyear to end-March, slightly shy of forecasts but up 2.7 percentand said it expected this rate to accelerate to 3-6 percent thisyear.
"I am confident we will sustain our positive momentum in thecoming year, allowing us to maintain attractive returns for ourshareholders," Colao said.
Capital expenditure will fall after the end of ProjectSpring, but not as much as had been forecast, to the mid-teensas a percentage of revenue rather than 13-14 percent.
Shares in Vodafone, which have fallen 2 percent in the last12 months against a 11 percent decline for the European sector,closed up 1.5 percent at 227 pence.
Analysts at Citi said Vodafone's improving core earningsmomentum should be met positively, although the raised capexoutlook, and its likely impact on free cash flow and dividendswould offset that.
Vodafone reported full-year revenue of 41 billion pounds, up2.3 percent on an underlying basis. It raised its final dividendby 2.0 percent to 7.77 pence. ($1 = 0.6909 pounds) (Editing by Louise Heavens, Greg Mahlich)
