Vodafone shares jump as new offerings prompt improved outlook

LONDON (Reuters) - VODAFONE (VOD.LO), the world's second-biggest mobile operator, nudged up its full-year earnings forecast on Tuesday as improving demand in its big European markets and an investment push into new products helped reduce a drop in revenue.

Faced with increased competition from entertainment groups and fixed-line providers, Vodafone also said it plans to launch a broadband and TV service in its British home market to compete with rivals who offer a wider range of products.

The improvement in trading, which sparked hopes of a return to growth in its key revenue measurement by early next year after more than two years of falls, sent its shares up 6 percent to a six-month high.

"There is growing evidence of stabilisation in a number of our European markets," said Chief Executive Vittorio Colao. "Our two-year, 19 billion pound investment programme is well underway and customers are beginning to see the benefits."

Vodafone has embarked on a programme to either build or buy superfast fixed-line broadband networks across Europe, to enable it to compete with rivals offering mobile contracts alongside television, broadband or fixed-line deals.

Vodafone said it would launch a consumer broadband offering with a TV package in Britain supported by its Cable & Wireless fibre network which it currently offers to corporate customers. The additional services will help it to compete with BT which is due to launch a consumer mobile service next year.

Vodafone said it was not looking to spark a price war in its highly competitive home market but to defend its position and keep hold of existing customers.

DATA TRAFFIC

Analysts said the move into more services such as fixed-line telephony, TV and faster 4G mobile had helped the overall results. Customers signing up to faster 4G mobile services were willing to pay for bigger packages, with data traffic up 80 percent, while demand for 3G in India boosted results there.

The update echoes Dutch rival KPN , which in October showed revenue and profit falling at a slower than expected pace as its strategy of investing in faster networks bore fruit.

Analysts at Hargreaves Lansdown said the outlook for Vodafone was more positive than for some time.

"The increased use of data services, particularly in the upgrade from 3G to 4G, is supportive and there is still much headway for growth as those networks roll out in the key Indian market and Europe respectively," they said.

Vodafone reported second-quarter organic service revenue, which strips out items like handset sales and currency movements, down 1.5 percent, compared with near 4 or 5 percent falls it recorded in the last six quarters. It also beat the consensus expectation of a fall of 2.8 percent.

It now expects full-year core earnings to be between 11.6 billion pounds and 11.9 billion, compared with previous guidance of 11.4 billion to 11.9 billion.

(Editing by Clara Ferreira Marques and David Holmes)