Worse before better for some: European mobile in Q3 2025

Q2 results were something of a mixed bag. Headline growth was solid thanks to 1&1 onboarding, and whilst underlying trends in Germany for both revenue and EBITDA were still firmly negative, the former stabilised and the latter improved.

Tightening of EBITDA guidance in Europe is welcome, implying a flat headline performance and an underlying EBITDA decline of no more than 4%, with the potential for better, we believe.

VodafoneThree synergies and cloud reselling should take over the growth mantle when the 1&1 boost fades, facilitating some limited capacity for dividend growth.

Europe experienced flat service revenue growth in Q2, with French trends worsening as SFR’s woes intensified.

There are signs of better pricing momentum in several markets, particularly in Italy and in Germany where O2 has softened its aggressiveness.

This, together with expected improved momentum in the UK, and a likely resolution in France, paints a more positive outlook—and will be particularly helpful for Vodafone’s German turnaround ambitions.

Vodafone’s financials have begun what should be a steady improvement as this year progresses, leaving behind the TV regulatory hit and benefiting from the onboarding of 1&1.

Looking beyond one-offs, the core operational metrics are mixed but skewed to the positive. Vodafone has some tricky balancing to enact to deliver a return to sustainable growth.

EBITDA growth was solid in this quarter and is likely to remain so in the medium term, thanks in particular to VodafoneThree. More evidence of fundamental commercial delivery would strengthen hope of an enduring positive trajectory.

The expected service revenue boost from in-contract price increases failed to materialize this quarter, nullifying the upside surprise last quarter.

Traffic growth picked up again to 17%, lending further weight to the view that at least some of the recent sharp slowdown was somewhat one-off in nature.

Government statistics imply steep mobile price inflation while the opposite is true—which may help to diffuse the current furore over in-contract price increases.

The slowdown in telecoms traffic volume growth post-pandemic has persisted for far longer than a simple hangover effect would imply, and has spread from fixed broadband to mobile in many markets

The eventual emergence of the metaverse and/or AI-generated traffic may mitigate this trend, but it is hard to see growth ever returning to a sustained 30%+ per annum level, with around 10-15% likely to prove the new normal

While far from disastrous for telcos, it does have important implications, such as the need to structure pricing more carefully, focus on network quality over capacity, and be more wary of the threat (or opportunity) from MVNOs, FWA and satellite