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By Kate Holton
LONDON, May 20 (Reuters) - Britain's Vodafone saidnext year's earnings would be hit by vital investment in itsnetwork, as it again wrote down the value of some of itsEuropean business - this time by 6.6 billion pounds - owing totough market conditions.
Shares in the stock dropped 4.3 percent, wiping 2 billionpounds off the market value of Vodafone - which has reportedrecord falls in underlying revenue in the last 18 months, andmade several multi-billion impairment charges as it grappleswith fierce competition, regulator-imposed price cuts andconsumers who are making fewer calls to save money.
The latest charge takes the total impairment figure forVodafone in the last four years to 24.4 billion pounds.
To fight back, Vodafone has stepped up spending on itsnetwork - the first among its rivals Telefonica,Deutsche Telekom and Orange to boost itsinvestment plans. All have all reported lower profits due tocompetition and the need to rebuild.
But before the spending and improvements can kick in,Vodafone has suffered particularly poor revenues in Germany,Italy and other European markets and said on Tuesday it had beenforced to write down the value of its assets across Europe dueto lower projected cash flows.
"Vodafone continues to spin the plates with mixed success,"Richard Hunter, head of equities at Hargreaves LansdownStockbrokers, said.
"The writedowns across several European regions are furtherproof of the challenges the company is facing, with underlyingprofit continuing to move in the wrong direction."
Vodafone has earmarked 19 billion pounds over the next twoyears for investment in Europe and across its emerging marketoperations in a bid to get ahead of its rivals, after sellingits U.S. business in a $130 billion deal.
It has bought cable operators in Germany and Spain toincrease the range of services it can sell - betting, like itsrivals, on fibre-optic networks and packages of servicescombining mobile and fixed-line phone, high-speed internet andTV to attract customers and boost future growth.
In its mobile business, it has pinned its hopes on the saleof superfast fourth-generation mobile networks, or 4G, and saidon Tuesday it had 4.7 million 4G customers across 14 countries.Europe has lagged regions like the United States in rolling out4G and much of Vodafone's spending will go on this development.
Verizon, Vodafone's former U.S. partner, had 26.3million 4G subscribers by the end of the first quarter.
"It is time to muscle up," Vodafone's Chief ExecutiveVittorio Colao told reporters of his spending plans, describingthe move to 4G as a potential changing point in the company'shistory as customers using it tend to use more data and spendmore.
SUBSTANTIAL CHALLENGES
Vodafone's investment plans will bring core earnings down tobetween 11.4 billion and 11.9 billion pounds for 2015, from the12.8 billion pounds it recorded in 2014 - itself down 7.4percent.
The forecast for 2015 was well below the averageexpectations of 12.5 billion pounds by analysts, according toReuters data, and is affected by the higher spending, the impactfrom foreign exchange movements and other factors.
"Full year 2015 is an interesting one for Vodafone as thecompany makes substantial investments in order to make a clearerdistinction between the quality of its network and thecompetition," Espirito Santo said in a note to clients.
"Should this be achieved, then alongside an improving macroenvironment Vodafone shares should benefit, however at thisjuncture, visibility of success is low and competitive forcesremain substantial. We reiterate our Neutral recommendation."
Overall 2014 results were helped by an improvement inunderlying trading in the fourth quarter. That had been expectedhowever and was largely overlooked due to the weaker thanexpected earnings outlook.
Colao said the highlights for the year came from India andits African unit Vodacom, where an increasing number ofcustomers are using data, and where prices have held up.
Germany and Italy were deemed to be particularly difficult,while Britain and Spain showed some signs of improvement. Colaosaid Italy had turned highly competitive again in recent monthsand that Vodafone would respond to the more aggressive tariffs.
Group organic service revenue for the fourth quarter fell by3.8 percent, an improvement on the 4.8 percent drop recorded inthe third quarter and the 4.9 percent fall in the second.
For the year, organic service revenue - which strips outitems such as handset sales, currency movements and acquisitions- was down 4.3 percent, dragged lower by a 9.1 percent drop inEurope.
Shares in the group were down 4.8 percent to 206.7 pence by1244 GMT, making it the top faller on the FTSE 100 Index. ($1 = 0.5943 British Pounds) (editing by Sophie Walker)
Vodafone (VOD)