Vodafone Group PLC
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Vodafone Group PLC
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Good morning, and welcome to our Q3 trading update. Margherita and I will be very pleased to take your questions. But what I thought I'd do is just do a very, very short key highlights of the results that we've announced with today. So first, we delivered a good financial performance, maintaining our strong top line momentum, growing service revenue at 2.7% and continuing to grow across all of our customer segments. In Europe, we grew at 0.5% with Germany producing a consistent performance at 1%. And trends across the rest of Europe were pretty consistent. I think what I'd point out is that this was particularly good performance, given this time last year, was a stronger trading performance to a tougher comparative when you take a 2-year perspective. In Africa, trends in South Africa reaccelerated, mainly due to business performance and also the reintroduction of some government grants. And in Business, we saw double-digit performance growth in IoT and cloud and security. Commercially, our European mobile business was good, adding 333,000 net new contract customers in the quarter, which is back at pre-COVID levels. However, our performance in fixed line, and in particular Germany, has fallen below our expectations. This is a key area of focus for us. And we have a series of initiatives underway to improve that performance. So overall, I would say that our results are in line with our expectations. And we're well on track to deliver the upper end of our financial guidance for FY '22, which we reiterate today. Now while this is a Q3 trading update, given the recent speculation surrounding our strategic activity, I felt it's important to put our plans into context. Now over the past 3 years, we've been moving at pace around two central things: first of all, simplifying and focusing Vodafone on converged connectivity markets in Europe and Africa through a series of disposals, acquisitions and combinations; and secondly, to drive more value from our assets. And this included establishing network sharing agreements in each of our European markets, then aggregating the towers together for Vantage Towers and then the successful EUR 12 billion IPO of Vantage Towers last year. Now to achieve this, we have been pragmatic and open-minded in our approach to these transactions to improve shareholder returns. And we intend to continue to operate in that way moving forward. We've had a clear long-term strategy to drive sustainable growth. And we're determined to improve shareholder returns. And we outlined three operational priorities and three portfolio priorities. So let me just touch on them. In terms of the operating priorities, we said that we are focused on improving the commercial performance in Germany, and clearly in broadband, which is our major focus. In Spain, you saw the announcement of our restructuring in quarter 3. And we moved to a fully franchised model within our retail estate and have had a series of initiatives with the government to improve the economics for the sector. In EU recovery funds, we're very much focused on positioning ourselves as Vodafone Business, which is about 30% of the group, to capture those opportunities. Turning to the strategic portfolio priorities. We've made very good progress in terms of Egypt moving into Vodacom. It got unanimous approval by the minority shareholders. And we're on track to conclude that by March. And in terms of the other two activities, they are primarily what we are doing in terms of further activities around Vantage Towers and moving to a potential industrial merger, continuing to advance those conversations as we are the second one, which is in market consolidation. Now clearly, there isn't much we can say about those in-market consolidation activities. But I just want you to know that we are very proactive. We are very pragmatic. And we are getting good engagement from our counterparties to advance this moving forward. Our goal is just to ensure that we have a set of strong assets in healthy markets delivering strong returns for our shareholders. And on that, I will open to Q&A.
Our first question today comes from David Wright of Bank of America Merrill Lynch.
Yes. So Nick, I just want to try and extend a little on those final comments. And I appreciate that there's a lot you can't surely say. But just regarding pragmatism, I think one thing you have said is that return on capital regionally is a focus. And you even defined this a couple of years ago, and we've had some momentum. But it seems to me that the asset that stands out is Spain. And I obviously refer to reports this morning about potential MÁSMÓVIL deals. We've also had reports of Italy and the U.K. and everything, quite frankly, recently. But is it fair to say that Spain is the standout asset for you from a return on capital perspective? And then also on the whole sort of pragmatism debate, would you be willing in any of these circumstances to exit in entirety? Are there any sacred cows, so to speak, in those core European markets, where if you've got the right offer, you would be willing to sell 100%? I should probably leave it there, given everyone else in the queue.
Okay. Thank you, David. Very important question. And maybe if I could sort of frame up. I think it was 1, 2 years ago, I can't remember the exact presentation, we laid out our portfolio criteria or our framework of how we think about it. And I just want to reinforce because it's applicable to every single country that we operate in. And the criteria had three elements to it. The first element was we want to have regional scale, but we have to have local scale. And that is important to achieve both. The second thing was do we see the fact that we have a credible and actionable plan by management to ensure that return on capital is over WACC in the medium term? And Margherita and I invest a lot of time, especially around the February period, going through those reviews to understand on a multiyear basis what are the levers you are pulling to produce that outcome. And these have to be in our control, things we can do on our business, not a whim and a prayer, and we hope that this happens and that happens, what things are in our control to deliver that outcome. And then the third thing that we say is are we the best owner of this asset? We want to make sure that our group derives value for that asset being part of the group and that we are delivering value to that asset. And so we go through that criteria. And there could be circumstances where a particular market does not meet that criteria. And in those situations, what we said is we will be very proactive. We will be very pragmatic at finding other alternative solutions. And so specifically to your point, other solutions can be JVs. It can be us moving into a majority controlling position on an aggregation, it could be us moving into a minority controlling position on an aggregation or it could be a disposal. We don't close down options. We evaluate everything with a lens of what's in the best interest of our shareholders.
Our next question today comes from Georgios Ierodiaconou from Citigroup.
As you mentioned, Nick, very strong set of results. But we are telco analysts, and we always look at glass half empty. So I wanted to ask a bit about the German broadband performance this quarter. If you don't mind, you mentioned some initiatives. If you don't mind updating us on how you plan to address it. We've seen some announcements on personnel changes. And could you perhaps give us a bit of an indication whether the third quarter is the low point and the recovery will come already from the upcoming quarter? And if possible, can you also comment on whether this could also impact the service revenue performance in the coming quarters?
Well, Georgios, let me do a tag team with Margherita, so she can handle maybe the latter part of your question. Maybe if I start with the first part, what I'd say as I called out the fact that improving German operation and commercial performance was one of our top 3 priorities. If I look at our financial performance in Germany, I think it's a good performance. You saw the half year on EBITDA, et cetera, I think -- and consistency of service revenue. And we've seen some improvement in mobile, which is good. But the performance in broadband, without doubt, is below my, our expectation. And so why is that? And what are the actions we're taking? I'd say, first of all, COVID remains a factor in our performance in Germany. And it's a factor in two respects. Still, with obviously restrictions over the quarter that we had, retail is still nowhere near pre-COVID levels. I think it's still running at around 50% of the level that it was at pre COVID. So that is a really critical channel for us because we're the challenger in the market taking share, and therefore, we need that retail performance to be in place. And the second aspect of COVID is just the sheer volume increase on our networks. It has been unprecedented in terms of that volume, and especially on the uplink. So we've been doing a series of upgrades to our network, and they will continue. By summer, we will have uplifted the capacity of the whole network by 60% versus pre-COVID levels, and we will have doubled the capacity on the uplink in the major centers where we see the highest activity. So we are investing hard. This takes time to roll through. But we're very much focused on bringing that capacity up. I would say then we had the new telecoms law that went into place. And it had, I would say, two factors for us. The first factor was that, essentially, it was a big heavy lift for us in terms of IT changes and in terms of customer journey changes. And frankly, our German team put a very conservative process in place that was very cumbersome. And what it did was delayed the transactions with the customer in somewhat of a painful way. And therefore, what we've said is, "Hold on a minute, we need to stand back. Our competitors did a simpler execution, less conservative than us, let's say. And I think we need to move to that execution." So what we're doing is we are now putting in changes through the IT system and the customer journeys. But unfortunately, that will take quarter 4 to make all of the changes that we want to do. I would say, secondly, is this new law essentially said that the recontracting was not automatic on the customer anymore. And so that has an effect of bringing forward potential churn that we would have seen over the coming quarters. It pulls forward. Now that pull forward is an industry or, let's say, sector dynamic. And it would increase churn overall, yes, for all players. The challenge we have is that our retail channel, it was very important to capture our fair share of the gross adds, and that's what we're not seeing. So we're suffering the churn impact, but we're not benefiting from a higher gross add uplift because of the retail constraints. So there are a number of things we're doing on the commercial front, actions that have got in place in terms of our plans and portfolio and marketing over the fourth quarter to improve performance. So all I'd say is quarter 4 is going to be obviously a more challenging quarter because we have a full quarter impact to these things. And then we would expect to see improvement past quarter 4. I don't know if you want to comment.
Yes, sure. On the sort of -- on the numbers and the KPIs and the financial, we are focused on reaccelerating momentum. But let me go back to what Nick has just said because I think it's really important. In Q3, we only had a partial impact from the factors which have just been described because the telco law only came into effect on the 1st of December. As we get into Q4, we will have a full quarter of impacts. And this will be both on fixed and on mobile. Now beyond Q4, we will then start to see a gradual improvement because you will have the mechanical effects that Nick was describing in terms of more volumes in the market that will unwind gradually and then, of course, our actions as well that will come into effect. So that's important for volumes. From revenue perspective, I need to say, very pleased to see the consistent revenue generation that we are having in Germany, another quarter at 1% growth with also an acceleration in mobile. If I think about the coming quarters into FY '23 for Germany, clearly, we will have an impact from the fact that fixed broadband volumes have been lighter. But it's not all about volumes. These are -- tend to be relatively small movements. It's also important to remind that we are having a good dynamic on ARPU. On fixed, you will have seen this quarter around 2% growth on the whole of the base. And then beyond fixed, you have mobile. You have seen a stronger quarter on volumes in mobile, actually probably a bit stronger than what it looks like. You have read 70,000 net adds in contract in this quarter. In reality, we have also disconnected some 0 traffic seen from the old Unitymedia MVNO. So the real underlying performance is closer to 120,000. So that's supportive. And then finally, we will have, of course, Vodafone Business, good performance this quarter. Strong demand, particularly, I would say, in Germany at the moment from the public sector, where we are also seeing some early wins on the European recovery funds side. Stepping back, Germany, a good market for us but not just on service revenue, net of all this. But also, as you know, from an EBITDA perspective, we are continuing to outperform on the synergy delivery, so good operational leverage also going forward.
Our next question today comes from Akhil Dattani from JPMorgan.
I just wanted to ask a question on the broader operational outlook in terms of the revenue trends going forward. And three small parts, if I may. I mean, the first is if you could just give us some color on the puts and takes for Q4 and beyond just so we understand how you're thinking about revenues. The second is it's obviously great to see that all the U.K. telcos seem to be pushing through pricing. You've obviously talked about beyond the U.K., so if we could get an update on that. And the third thing, and I guess, it's kind of linked to the U.K. piece, is that there's a lot of debate in the market at the moment around real versus nominal growth, given where inflation is. So given your guidance of growth in Europe, I'm sure you have ambitions for growth to continue improving there. Could you just give us some thoughts around that real versus nominal question that [indiscernible] put into us?
Do you want to?
Sure. I'll take the three in turn. So starting with near-term service revenue performance into Q4, I would say it has very small puts and takes in the near term. If I look at the markets, I would say, in Europe, you will have Spain, which will have a new MTR reduction and also will lap the price increases that we did in November last year for the first time for a full quarter. So that will be a drag. On the other hand, you are seeing the U.K. results continuing to accelerate with very strong commercial momentum. So that will be supportive. And then beyond Europe, in South Africa, we are lapping a peak quarter. Last year, in terms of service revenue growth, you had the COVID measures and then you had the Cell C roaming. So a little bit of puts and takes in the near term into Q4 but nothing particularly significant overall. As maybe you are asking about CPI plus pricing mechanism and how all this is going to play into next year. Trying to summarize, on the pricing mechanism, we are pleased with the progress. We have embedded into our contracts in five markets now the CPI plus mechanism. And as we get into calendar '22, clearly, the time has come to activate the mechanism. We will see two markets within these five that are going to go live, first, U.K. and Ireland. And then you should expect more to follow. This pricing dynamic are expected to support service revenue into FY '23. Maybe more broadly, you are asking what sort of real growth we will have in FY '23. Again, a few puts and takes. We are sitting down to do our target-setting now in the coming weeks. But if I can share the outlook elements of growth in Europe into next year, particularly, I'd say if I can get out of the way once again what is a little bit technical, we will continue to have roaming tailwinds offsetting MTR headwinds, exactly like this year. We will then have, of course, the lapping of the MVNO revenues in Italy starting from Q2, so another, I would say, more technical drag. But from a business perspective, we will have the support of the pricing actions we have just described. We will see the fact that the commercial momentum this year was affected by COVID, the discussion we have had just now in Germany on fixed but equally, recovery in mobile. And then the final element, which I think is really important for next year, is the European recovery funds. This will start to impact revenues materially now. And we are very pleased with the progress, particularly Italy, Spain but early signs also in Germany. And I hope we will have a chance to explain this in a little bit more detail later. Net of all these puts and takes, technical and nontechnical, I really see us as well set to continue to deliver sustainable growth in Europe and Africa into FY '23.
Our next question today comes from Maurice Patrick from Barclays.
Maybe a question on consolidation related to feedback you've had from the various stakeholders. When you made the pitch in November, Nick, around the need for consolidation, you talked about it, it seemed as though you were raising that agenda with -- for more than just as in the audience of investors and analysts. So I'm sure you had a challenge to float your views with people like the EC and Margrethe Vestager, et al. Just curious as to how those conversations have gone, what kind of feedback you've had. If you think there's a change we might see some sort of positive noises ahead of the result of the EC appeal, I think it was due this summer around the Hutch-O2 merger. So maybe some thoughts in terms of feedback you've had on the -- your conversations around potential M&A.
Yes. What I would say is though we've talked about it in November, this has really been a conversation that's been building, I'd say, over the COVID period, so over the 2-year period. Because that's when the conversation has really changed in terms of the dynamic. We, I think, did a very professional response to COVID with our five-point plan. That was recognized by governments. They started to proactively engage at a different level than we have ever experienced before. I think I've said previously, I'd had multiple calls with governments in terms of our response, how we could support and what they needed to do. And I think it opened up a different stream of discussion. And the different stream was, they wanted more critical national infrastructure, next-generation connectivity expanded as fast as possible. What could they do to help facilitate that? And that gave us an opportunity to talk about the low returns in the sector. And if they want to attract investment, we have to improve the returns to an acceptable level. And I went through those arguments about the fact that we are a highly fragmented sector across Europe, over 100 players; U.S., 3; China, 3, all the arguments you've heard before. But what it did was it allowed us to have a little bit of a framework of policies that we've engaged in, I would say, for the last 2 years. And it was around spectrum. And I think you've seen a number of good progress on spectrum. Frankly, all of the auctions, if I put Portugal to one side, have been good outcomes, whether it's Spain, Greece, U.K., in terms of just lowering the cost and understanding we need a certain size of spectrum and Spain going to that unprecedented level of doubling the duration to 40. We also talked about specific taxes to the sector. Spain again responded by lowering taxation on the sector. And then the third was how do you focus the EU recovery funds on the goal of accelerating digitalization in Europe? How do we stay competitive globally? And we really influenced the focus to be on SMEs because SMEs in Europe are way down in their level of digitization on their business model versus others. The second was health, because the health industry needs to be modernized and digitalized, and then public sector transformation. So we've been very targeted, very thoughtful about those engagements. And within that, the final one was consolidation. And my argument is this has nothing to do with competition pricing. It's to do with we need industrial scale locally on top of our regional local scale. And if we don't have that, we don't earn the acceptable returns. So the case has to be by country. And I think that has really resonated with every member state politician that I've engaged with. They understand the logic. They look at marketplaces. Let me pick U.K., Spain, Italy, and I would argue now Portugal that's now added two new entrants when they really meant to have one, as examples where you've got four MNOs and very big-scaled MVNOs. So it's already hypercompetitive. And all we're talking about is going from four infrastructures down to three infrastructures to have the right economics to earn a return at the pricing levels you see in the number of the markets. So I -- what I would say is I think that the argument is not about do we not want competition? We want competition. We are the challenger against the incumbents. So we're pro competition. But what we're saying is, "Please, balance -- a new balance of competition versus encouraging investment going forward." And I think that, that is a very positive narrative for politicians and for Brussels. Of course, it will always come down to the fact pattern being presented for that country. But what I'd say is I think the countries will lean into the agenda and the sector is leaning into that agenda. And therefore, I think it's not about we need rule changes. This is not about rule changes. Commissioner Vestager has already said that she has enough flexibility depending on the situation of the market. And I think that there's a new reality now within the marketplace, a new economic context that allows a different judgment moving forward.
Our next question today comes from Andrew Lee from Goldman Sachs.
Thanks for the comprehensive one around the consolidation as far as you can go right now. Just had a couple of questions on two other kind of changing events going on in terms of operations. So Margherita, you hinted at the European recovery fund. And maybe if you could give us a bit more detail about, firstly, the timing and the impact of those recovery funds because it's quite hard for us to get a sense of the materiality there. And then just secondly, on the cost side, I know this is a revenue reporting quarter. But across your peers, we've seen quite a few delayed cost efficiencies and some misses on OpEx guidance over the past couple of days. I wonder if you could just give us an update on how your cost control is going, given cost inflation. And has anything changed in terms of the scope for cost efficiencies in the longer term from -- in your perspective?
European recovery fund first. We have really worked a lot, I would say, on this, both in terms of, as you know, investing in our digital services offer to make the most of the opportunity as well as working with the governments across Europe to ensure that digitization of businesses was a key part of the agenda. So I need to say it's good to see now two major programs kicked off in two of our biggest markets. We have Italy and Spain now going live in these weeks. So let me just describe those two programs. In Spain, first, EUR 3 billion have been allocated to SME digitization. And of this, EUR 0.5 billion for the companies between 10 and 49 employees are going live effectively now. And this will be subsidizing digital toolkits for these companies. And the money will be effectively spent over the coming year. More tranches, so EUR 0.5 billion now, more tranches for the full EUR 3 billion will be distributed in the coming year and beyond. So in terms of how this impacts us and our revenue performance in Spain, we will be a key aggregator of digital services. So we will have toolkits at the ready for our customers to effectively subscribe through the website on this model. And we should -- we are not going to be the only players. There will be other telcos and also other players outside telcos. But because of how we are positioned in terms of our markets in Business in Spain, 1/3 of our revenues are Business in Spain as well as in Italy and we have really strong assets, we are gaining share, we think that also in terms of these allowances, we will have a good share in our numbers going forward. Italy, this probably in terms of P&L, we start flowing more in terms of our own results around the summer. The program that is kicked off now is also for SMEs. But it's focused on connectivity vouchers, so pure connectivity, not broader digital. EUR 600 million again being distributed over 2 years in this case and again, well positioned Vodafone to get advantage of that. And then finally, we start to see Germany moving on a different level. We are not talking vouchers there. We are talking about public sector tenders on 5G digital services and the like in which we are also starting to see some wins for Vodafone. So I think you should expect this to be material into FY '23 for us. And it again plays to our strength and the investments we have made in Business.
And sorry, just before you go into the second, I think one thing I would say is that being really the only genuine pan-European player, a lot of the governments are asking us what are other countries doing, what's best practice, what's accelerating. So the mechanisms of how they do these schemes, we are really facilitating a lot across the countries. We love the scheme in Spain. Frankly, I give Spain government full credit by how they are they are executing this. Because the mechanism is really good to get the funds to speed quickly on the services. And that's something that we are keen to replicate in a number of other markets, and we're seeing traction on that. So again, it's another reason to have a slightly higher dialogue with the various policymakers. Sorry.
Inflation and OpEx, moving from revenues to cost. I think it's a really good point that you are raising here because we are seeing, as everyone else in the industry and beyond, inflationary pressure building into next year, which are stronger than what we would have seen in a normal year. And probably, to bring this to life, I'd say the key examples for Vodafone would be, on one hand, employment costs. It's 15% of our service revenue. And clearly, we are seeing pressures for increases there. And then the second aspect, as everyone else, is energy. To actually give you a sense of scale, if energy prices were to remain where they are today, just for Europe in Vodafone next year, we are talking about a cost increase of EUR 150 million. And this is with our -- with most of the year being hedged. So we are talking about an impact which is part of the second half of the year. So it is material. As you know, we are starting from a really strong position on cost management. We have talked in November about Vodafone continuing to progress in efficiencies, top quartile, moving to the top of the top quartile. So we are in a good position there. And we also are really working hard to push further our key cost efficiency levers, which are always the same one. Essentially, as you know, very well, we are leveraging our scale to drive shared service operations and then digitize these operations at speed. The big driver of further efficiencies coming into next year is going to be the transformation we have just done this year in technology. We have integrated all our European teams in technology. And therefore, we can expect an acceleration of efficiencies from that. But equally, it's going to be a more challenging year than usual in terms of the pressure and the headwinds for inflation against that. Now we are sitting down in the coming weeks to actually plan, as I was saying earlier, next year. So what I can tell you today is that, first of all, we are well on course for the remainder of the year. You remember, we have to deliver another EUR 200 million net OpEx reduction in FY '22, fully on track to deliver this. It will position us as having cut net to the bottom line over 16% of European OpEx. So quite a result, and of course, supporting us, confirming that we will close EBITDA in line with our guidance, at the upper end of our original target range. Beyond this year, we will do the final numbers in the coming week, and of course, update you in May. What I can see -- I can say now is that we continue to see us well positioned to deliver the continued step-up that we have put in our mid-term ambition in terms of continuously growing return. But the precise element of that, we will share in May as part of our guidance.
Our next question today comes from Jerry Dellis from Jefferies.
I had a question related to Germany, please. You mentioned 3 months ago the possibility of investing in fiber to housing associations. And that could be a useful mechanism for maintaining the collective contract arrangement into the medium term. I'd just be interested in your sort of thoughts on that now that you're sort of armed with some early insights of the impact of the sort of German telecom law in other areas. And you mentioned that one of the issues that you've been sort of feeling in broadband this quarter is related to the IT systems. And there have been some glitches as it seems to me in terms of customer retention. I don't quite understand what it is about your IT systems that have sort of created these challenges. And I'd just be grateful if you could explain that briefly, please.
Yes, Jerry. Maybe I'll start with the latter and then talk to the former. So it's very simple. When I say that our team did a conservative process, it was a painful process for the customer. And it requires customer confirmation. And we were requiring the customer to confirm back in an e-mail to us. And that is a painful process because, you imagine, we've gone through the whole call. We've had the transaction. And then we send them a link to then confirm back to us. I mean, it's too many steps. Whereas others have done things like record the conversation, send the file as confirmation. So there's many other ways that you could be less conservative in your application of the customer confirming back to us. So that was one part. And then the second part was, I'd say, our IT systems, the execution itself was not as, let's say, stable as we would have liked. And therefore, we had challenges. So I'd say we are improving the customer journey. But improving the customer journey, you have to then rewrite the IT code for the journey. And that is -- in the big systems of telcos, that takes time. So look, it was our management. I am sure the other competitors will not mention it. And I'm saying it's our execution. We understand the issue. And we are rewriting the code. We are rewriting the journeys. We know what we need to do. The team are on it. But it just takes a bit of time through Q4. I'd say on the former question, if I understood it correctly, I commented about the fact that we are engaging with housing associations. At the time of November, around about our engagement was just under 50% of the housing associations. Clearly, we've had the festive period, COVID, various other things. So I wouldn't say it's overly advanced to now. But by March, the end of March, we are aiming to have contacted 2/3 of the housing association. So I think we can give a lot more color when we get to May. It still is really into three buckets, which is, first of all, the housing associations that could be interested in having fiber accelerated to the building but are not interested in changing the wiring in the building until they do a refurbishment. And that is normally a 5- to 10-year cycle. There's another group of customers that are saying, "Just tell us about the upgrade of your cable network because we don't want disruption either in the building or outside the building." And then the third are saying, "Look, this isn't even on our register. It's not something that's important." When we understand that, to the first bucket, that is the first bucket where we say, "Okay, if it's sizable enough," we may then say, "We do want to accelerate fiber to the building in some zones area, et cetera." And if it was sizable enough, all we were pointing out was there's plenty of infra funds sitting out there that would love to co-invest in that model, and we would do it off-balance sheet.
Our next question today comes from Carl-Murdock Smith from Berenberg.
I just wanted to kind of ask on the CPI plus dynamic. Can you remind us who the other three -- which the other three countries are where you've embedded CPI plus dynamics? And then kind of as we move forward in the next few months, one of the very interesting things, I suppose, is how much of these price increases will stick versus how much will have to be reinvested into retention and acquisition? So I was just wondering if you could talk a bit to that in terms of your assumptions. And also kind of have you seen anything in the market as yet? Obviously, we've started getting the communications happening of these increases happening in the U.K. So are you seeing any changes to the kind of special offers in the market?
Yes. Carl, maybe I'll just touch on the U.K. because it's sort of like a live example being executed now and then maybe, Margherita, touch on those. Just in terms of the U.K. Clearly, BTEE, Virgin, Three have all communicated already to the customer. So those communications have gone out. Our communication is planned for March. So that's when we'll be engaging with customers. No change in our plans in terms of execution. Clearly, when you think about the -- you're really alluding to what we call the front book/back book dynamic here. So you're repricing the back book that sits on our base. And therefore, what could undermine is potentially front book promos. And what I would say is just bear in mind that, let's pick the U.K. as an example, 1/3 of that commercial activity that we do in any given month, only 1/3 of it is actually new customers coming into Vodafone. And actually, 2/3 of it is us just doing renewals on the base. So that renewals process has that formula within it, okay? Then on the third, yes, it could be susceptible to promos. We have to see how the market develops. What I would say is we're coming out of Black Friday, we're coming out of January promos, we are seeing in a number of competitors throughout the U.K., the price increases of the front book because of the actions they're taking on the back book. So what I'm saying here is it is a market dynamic. You have to move front book pricing sort of in line with your back book, depending on where you are, if they're in parity or whatever. I think operators are well aware of that. And we'll have to see how it evolves. It's not something we control. It's a market dynamic. But obviously, we want a healthy marketplace, and we need to improve returns. I think that's why the U.K. market, the players put through the changes. And we'll see how it evolves.
Yes. In terms of perimeter across Europe, at the moment, we have live U.K., Ireland, Portugal, Hungary and Albania. And we cannot comment on specific market. But we have another major market, which we are working on with a mechanism which will be a bit broader than CPI plus but with always in mind that the same, I would say, logic, which we think is the necessary logic for the industry as we see the need to invest more. And also, as we discussed earlier with Georgios, the fact that our own cost base is increasing. In terms of how this will feed into the service revenue trends into FY '23, back to what we were discussing earlier, we will continue to have, on pricing, the traditional pressures that we have seen also this year, particularly in Southern Europe in terms of heightened competitiveness in consumer, particularly on the low end. We don't expect this to change and where the various market stands. But these movements will give us a chance to start working in the other direction, again something the industry really needs. The activations, U.K., Ireland, going live in April. As far as the others are concerned, it's again also a market consideration. So it's difficult for us today to sort of tell you precise scheduling but definitely right approach for the industry that we are leading.
Yes. And just final build on Margherita's point, it may be that the incumbent chooses not to do a CPI plus-type model and do some other form of price increase in a different way. And if that's the case, fine, it's going in a healthy direction. That's -- all we care about is how do we improve and produce sustainable returns and a healthy sector.
Our next question today comes from Robert Grindle from Deutsche Bank.
Something interesting is going on in your mobile data traffic growth, which has been easing post the early pandemic but slowed more materially in Q3. Absolute petabytes declined sequentially in Europe, what we're just seeing less working from home here. MSR growth is accelerating, so prices must be improving faster than volumes slowing so that should help capital intensity. Are you seeing less congestion in the network or less pressure on volume-related CapEx, leaving more headroom for new services? And sticking with the mobile network. I see that Johan and team are getting into open round chip architecture design. Is that something beyond specification and testing? Or is it just about improving the ecosystem for open line?
I don't know. I'll take the latter and you take the former?
Yes, many questions. If I start on the traffic trends, absolutely true. We have seen a moderation of the traffic growth actually in mobile as well as in fixed. But I think you should step maybe away from the sort of quarter-on-quarter elements that includes a degree of seasonality. I would say the best way for me to look at it is -- post COVID, is the compound of the last 2 years' growth rates. And if you look at it in this way, cumulating Q3 this year and Q3 last year, you would see that traffic at least for us in Europe in mobile has increased about 80%. So it still is a run rate of 40% on average per year, year-on-year, so not very different from the run rate we were having before. If you just look at similar reasoning for fixed, which has been up 70% on the 2 years cumulative in Europe, if you look just at this particular quarter then, you have certain dynamics in terms of how the various COVID lockdowns and restrictions played. And in particular, just on Q3 versus last year, it's a real slowdown. Because last year, we had peaks in variable usage, driven by the sort of the Christmas lockdowns of 2020 that impacted traffic. All in all, I would say, also linking into your sort of CapEx potential implication, I don't see a major movement there.
And just on Open RAN, I think it's fair to say that we really believe in Open RAN. We have been doing a lot of frontrunning on the thinking of Open RAN. And what we're trying to do is drive a bigger and bigger ecosystem around Open RAN. We think that this is important for diversity, resilience of networks moving forward. If we're going to have fewer and fewer vendors, we need to find another route to create sort of more diversity. And so I think we're making very good progress. You know that we signed an MOU with the other major European players in terms of development of Open RAN, the standards, the vendors we're engaging with. I had a meeting with a number of them. Was it last week or the week before? This was a topic on the agenda in terms of the next steps of what we were doing. And actually, we were seeing a demo of Open RAN and making sure that we had full interoperability between the components and the operators. So in other words, like a shared RAN execution. So I'm very pleased with how it's progressing. We've also just opened in Malaga this Monday a new R&D center that is 600 software engineer and specialist salespeople. And within that, there's 50 people dedicated to Open RAN development. So that's where we are centering. We're also going to do one in Dresden as well. So we are trying to provide places where new vendors, new software providers can come and engage with the industry effectively on Open RAN. And we've just done the first-ever commercial launch in the U.K. So the first site is in Bath, just in case you want to go there for lunch, yes? And this is part of the first commercial launch in Europe of 2,500 sites. So I would say we're pushing ahead very actively. We're trialing interoperability in Germany, in Ireland and we're also trialing down in Africa as well. What I would like to say, more European players. So at the moment, it's all the U.S. people involved in Open RAN. And what I was encouraging with my counterparts and in Brussels and member states is we need to develop a European ecosystem. Goes back to my point about, we have an opportunity in the digital decade of resetting what Europe can produce. And I'm very passionate at trying to create that alternative ecosystem as well. Now that's a long 1-hour presentation for another day.
We have time for one more question today. And that's coming from Jakob Bluestone from Credit Suisse.
It's on consolidation. So it may be a very short answer, in which case, we should be fine in terms of time. I just wanted to follow up on your -- what you're saying with -- in response to Maurice's question earlier around engagement with particularly antitrust authorities as opposed to just with sort of a -- with broader authorities. I mean, you've talked about how policymakers understand the importance of in-market consolidation. But just listening to some of the more recent comments from Vestager in particular, she's still saying that competition drives investment, not consolidation driving investment. And also, we've seen in the U.K., with the sort of reaction from the CMA to the Cellnex-Hutch deal, that I think it's fair to say it's not a walk in the park getting a deal over the line. So can you maybe comment on -- specifically with antitrust authorities, are you still confident that they, too, have shifted their sort of draconian stance? Or is it just sort of politicians more broadly? And also, if some of these various reported transactions do sort of get to that stage, do you think we'll see a different model of remedies from what we've seen in the past?
Yes. Let me try and give some color. I mean, I saw Commissioner Vestager's comments yesterday. My view is she is saying competition is healthy. I don't disagree. So I am violently agreeing. I'm pro competition. We need competition. But there's a difference between competition and the hyper competition that damages and constrains inward investments into what is critical for Europe to achieve its Digital Decade objectives. So what she also was saying was that there's not a magic number. It doesn't need to be 4, 5, 6. There is no magic number. In the U.S., there's 3. In China, there's 3. As I say, there's over 100 in Europe. So I don't think 100 is the magic number for sure, yes? You can decide whether 3 years. But what I'm saying is that I think there's a reconsideration going on of rebalancing. I want competition, but I do want investment. That I want investment was never part of the conversation before. I would say that they are actively balanced now. So I think there's a new balance and there's a new economic reality of where we are post COVID and pandemic and the desire to stay globally competitive. So there is a lot of political pressure to say we need investment, we need this infrastructure to be competitive. It is a highly competitive sector already. And therefore, having industrial scale is a valid argument. And so to me, when you talk about, "Well, what are the arguments?" It's not pricing. I hate the word market repair. It's not ever used by me. I'm talking about industrial scale to get the economies right to make the investments but still earn a return. And that's the central argument. And I would say, from my engagement with the commissioner, she says, "I hear your argument. Of course, I will need to see the individual facts of the market. But your argument is not invalid, if you like. I can see the points you are registering." And so what I would say is don't see the world today as what the world was like back in 2016. It has moved on. 5G is a new cycle with a completely different economic basis. And therefore, it requires a different fact pattern and different consideration. And I think that's resonating. Just on your point of CMA, I've not personally engaged with them directly. I think the comment they were really making about the Cellnex transaction is they were worried about a duopoly. Yes, I worry about duopolies and I worry about monopolies, yes? I agree, okay? But we're not even remotely close to that scenario in any market in mobile across Europe. So to me, that's a bit of an irrelevance to the debate. I have strong views though. On that, look, I'd like to say, first of all, thank you for taking the time and energy to spend with us. Look, I'm pleased with our Q3 results. We continue to have service revenue momentum. We've got three very clear operational priorities. We've got three very clear portfolio priorities. We are active, engaged, pragmatic to deliver shareholder value. And I look forward to updating you, we look forward to updating you on further progress moving forward. So take care.