Michel Combes - Executive Director, Member of Executive Committee and Chief Executive of Europe Region Operations Andrew Halford - Chief Financial Officer, Executive Director, Member of Executive Committee and Member of Treasury Risk Committee Vittorio Colao - Chief Executive Officer, Executive Director and Chairman of Executive Committee

Jeremy Dellis - Jefferies & Company, Inc. Akhil Dattani - JP Morgan Chase & Co Emmet Kelly - BofA Merrill Lynch Justin Funnell - Crédit Suisse AG James Britton - Nomura Securities Co. Ltd. Adam Rumley - HSBC Lawrence Sugarman - RBS Research Simon Weeden - Citigroup Inc Ottavio Adorisio - Societe Generale Cross Asset Research Robert Grindle - Deutsche Bank AG Morten Singleton - Investec Securities (UK) Tim Boddy - Goldman Sachs Group Inc. Maurice Patrick - Barclays Capital Will Draper - Execution Nick Delfas - Morgan Stanley Robin Bienenstock - Sanford C. Bernstein & Co., Inc. James Ratzer - New Street Research LLP Nick Lyall - UBS Investment Bank

Good morning, ladies and gentlemen, and welcome to the Vodafone Group First Quarter IMS Conference Call. Today's call is hosted by Vittorio Colao, CEO of the Vodafone Group. Please go ahead, Mr. Colao.

Thank you, operator. Good morning, everybody. And thank you for attending our Q1 results call today. I'm here with Andy Halford, Nick Read and Michel Combes. I will give the usual highlights to open, then pass to Andy to cover the operating companies, and I will then summarize before we open for questions to all. So let me start with Slide 3, highlights. Group service revenue grew 1.5% or nearly 4% excluding MTRs. This is less than the previous quarter due to the impact of additional termination rate pressures in the U.K. and weaker growth in Spain as tariff reductions added to the ongoing macroeconomic pressures. However, we also see improving performance in our other core European markets, Italy, Germany and continued momentum in Vodacom and in India. In our strategic growth areas, we continue to perform well with data, up 25%, driven by smartphone penetration; fixed, up 6%; and AMAP, which mainly covers our emerging markets, up by 8.7%. We also saw continued good growth in messaging, plus 5%. We continued to execute our strategy to realize value from noncontrolled assets with the sale of our 24% stake in Poland and our 44% interest in SFR. And following the quarter end, we announced an agreement to buy the Essar stake in India for $5.5 billion. The original GBP 2.8 billion share buyback completed during the quarter. Net debt reduced from GBP 30 billion to GBP 23 billion in the quarter due to the GBP 7 billion that we have received from the sale of SFR. This is the lowest level in the last 4 years. However, this includes only a small share of the current GBP 4 billion buyback. It started only recently, and it would take about a year to complete. Moving to Slide 4. Service revenue was…

Thanks, Vittorio. Let me start by giving you a little bit more color on Europe. On slide 6, starting with the top left chart. If we exclude the impact of MTR cuts in the quarter, most notably in the U.K., underlying service revenue growth is 1.6%, a decline of 60 basis points over Q4, primarily due to deteriorating trends in Spain. The top right chart shows positive underlying trends in our Northern European businesses, with German service revenue, excluding MTRs, growing at 4%, U.K. at 5.3% and Netherlands at 5.6%. In contrast, economic pressures dominate the performance of our Southern European businesses, which continue to show negative growth rates. The bottom charts focus on 2 key drivers of European growth. The bottom left, European Data revenue of GBP 1.1 billion, now represents 14.4% of European Service revenue, an increase of 25 basis points on last year. Data revenue grew nearly 19%, led by Mobile Internet revenue, up 44%, offsetting weaker trends in Mobile Broadband revenue, up 6%. Finally, on the bottom right, while macroeconomic pressures continue to impact on consumer spending, particularly in Southern Europe, Europe Enterprise revenue grew 0.7%, driven by a 7% increase in customer connections and continued strong data revenue growth, reflecting increased smartphone and e-mail usage. Within consumer, contract revenue growth continues to be positive, whilst prepaid revenues remain under pressure. On Slide 7, German service revenue growth in the quarter was 0.2%. Adjusting for MTRs, underlying growth improved on the previous quarter, with overall service revenue up 4% and Mobile Service revenue up 4.6%. Data revenue grew 21% with nearly 300,000 net additions to the SuperFlat Internet customer base, which increased to 2 million. Enterprise revenue increased 4.4%, benefiting from contract wins and particularly strong growth in fixed enterprise revenue of 9%. We continue to…

Good. So before closing, Slide 16, my favorite topic of data. Data remains central to our growth strategy. Revenue grew 25%, as I said, driven by rising smartphone penetration and the data attach rate. In the same period, SMS revenue grew 5%, with volumes up 19%, which is similar to the previous quarter. So we have no material evidence of IP-based apps hurting our overall growth. 2 key reasons for this: First, VoIP, which only accounts 2% -- about 2% of traffic today and of course, early adoption of integrated tariffs, which accounts today for about 25% of our consumer contract revenues in Europe. Also our proactive traffic management has contained data volume growth to around 30%, but without impacting revenue. The bottom left chart of this page shows the mix of our European revenues. Today Enterprise is in Europe, about 31% of revenues; Consumer Prepaid, 26%; and consumer Contract, as you can see from the chart, 39%. Of this last area, 18% of our total mobile services is out of bundle or metered revenues, which is where we see the greatest potential substitution to IP-based communication apps, and therefore, we are focusing on this section with our integrated tariffs. So looking forward, the prospects for data, we are convinced, remain strong given the low penetration in key growth segments such as prepaid, but also emerging markets. And we have now new offers such as sub-EUR 100 handsets, attractive data roaming offers to maximize the data roaming take-up in our footprint and charge-to-bill services now available, not just for RIM and Nokia, but also for Google. So Slide 17, overall summary. Overall, another quarter of good commercial performance in what remains a challenging macro competitive and regulatory environment. Revenue growth remained strong in data and in emerging markets, we're driving smartphone penetration across our customer base and delivering growth in markets such as India and Vodacom. We have achieved the GBP 15 billion of disposals in total following the sale of Poland and SFR and returned over GBP 3.2 billion to shareholders to date via buybacks. We delivered strong free cash flow while maintaining CapEx investment to enhance the network experience of our customers. Our priorities remain improving our performance in Southern Europe, especially in the context of the macroeconomic situation; driving forward our Supermobile strategy; managing profitable data migration and growth; and I would add, of course, maintaining a strong focus on the cost base and the operating excellence that we've been aiming for. Thank you very much for your listening. I have here Michel and Nick Read for questions. Operator, back to you.

[Operator Instructions] The first question is from the line of James Britton at Nomura.

If I can just start with a question on the Netherlands. You cited slower revenue growth rate then because of your issues, one of which was slower messaging growth rate. Can you just quantify how big the slowdown was in that market, and if how you can compensate for that going forward. Do you feel that you can follow KPN's lead in repricing your data phone?

Why don't I pass the first half of the question to Andy and the second half to Michel?

Yes, James, just sort of overall, the service revenue growth is about 0.5%, which is slightly lower than in the fourth quarter. But actually, if you extract the MTR effect, it was actually still up around the 5% level. So I think pretty healthy performance there. Within that, the messaging was slightly lower, but again sort of 8%, 9% revenue growth in the messaging revenues. So I think the performance on that front was pretty high. More generally, I know you're question was specific to Netherlands , but interesting that the overall messaging revenues of the group were up 5.5%, and so volumes were up. So the overall performance on the messaging side, I think, has actually remained strong. Michel, for a little bit more detail.

Yes, on Netherland, just to highlight as well that revenue is still growing as far as messaging is concerned, of course, slightly less than in the previous quarter. It's completely consistent with what we had flagged 3 months ago, that we start to see some cannibalization of our SMS by messaging over IP. Nevertheless, as we have said, we have, let's say, introduced integrated tariffs in our base that we have pushed quite significantly, meaning that to the 80% of the consumers that we acquire are on those integrated tariffs and more than 60% of customers that we retain as well on those tariffs. So which means that more than 50% of our customers in the base are on integrated voice text and data, so which means that, let's say, we're quite well protected for this migration from our customers to voice and text to those IP-based type of services. So we're quite confident that we have taken the right measures. And we have just announced this morning that we are already enriching our pricing in order to give even more, let's say, tiered data pricing and even more SMS into different pricing that we are offering. So basically, I would summarize by saying, I think, that we see what was expected and our integrated tariffs that we have pushed in this market quite ahead of the competition is the right answer to this move.

Also as a follow-up, please. A general point on the smooth transition from revenues into the ones we see. How quickly do you think this transition to flat rate will proceed? So I mean, if I can make that specific, you're excited, referring to the pie chart on Page 16, showing the percentage of revenue out of bundle and in the monthly fee. How do you think those percentages might evolve on a 1 or 2-year timeframe just because of the fact that how quick this development?

Let me take it myself because I don't think this is a question for a specific country, but it's more a broader question. The answer is the speed would be different by market. What we have -- and it depends on, I would say, 2 or 3 things. It depends on how much is prepaid in the market. It depends on level of subsidies. And quite frankly, depends a bit also on the state of the economy and consumer confidence. The more contract, the more we control distribution, the more there is consumer confidence, the quicker the transition will be and vice versa. This is why, as you have seen, and Randy has said, in places like Italy, we are introducing bundled tariffs on prepaid. This is why we have just announced that we are, as Michel have said, enriched the value in the Netherlands. This is why, as you have seen in the U.K., there have been enrichment in the different pricing strategies for consumer contracts. I think it's a multi-year gain, but it's going in the right direction everywhere.

The next question comes from the line of Akhil Dattani at JP Morgan. Akhil Dattani - JP Morgan Chase & Co: Just a couple of quick questions, please. Firstly starting on Spain. Obviously, we're well aware of the price cuts that you've announced to the quarter. I just wondered if you could give some color on the revenue trends and how they progressed through the quarter just so we have a sense of the rate of decline as you exited the period. And then secondly, moving on to India, your organic growth rate is very healthy, in the high teens. If we look at the market as a whole at the moment, you're talking about stabilizing voice yield, but equally, we do seem to have seen some selective price increases recently. For example, today, we're hearing that Bharti has raised its pricing as well. I just wondered if you could comment on how you think that market is going to develop going forward? And whether in particular, on the 3G side, you see the ability to introduce a bit more pricing power.

Yes, I will take a bit of and very short on Spain and then pass India to Nick Read, who is here. On Spain, we don't give exit speeds or month-by-month data. We have reduced prices. We want to be, at the same time, competitive and also affordable in Spain. It's important that, of course, we manage our commercial costs consistently. I see a protracted period of pressure for us on revenues in Spain because of this lower pricing structure. But overall, in the long term, I think it's going to be -- the end of it is going to be a much better structure than what when we come in with high prices and high commercial costs. On India, I would turn to Nick. Just highlighting that the kind of pricing trend, which we have in one of the chart clearly indicates that we are in a different phase of the market. Nick, you want to be more specific?

Yes, I mean, I think you've made a clear point, which is pricing has stabilized. I mean, we were down around 11% in quarter 1 on outgoing pricing. You compare that to sort of a year ago and the declines were more like 27%. So clearly stabilizing. I think you've seen the market move into a different phase where really there's sort of 3 tiers. You've got there the strong national players, you've got a few regional players and then you've got the new entrants that are really struggling. They have to make their economics work. So you are now starting to see all players in all areas starting to selectively put up pricing and we have done that in a number of areas as well, especially on our per-second billing. And we continue to monitor and review the situation. But yes, it looks more encouraging. Akhil Dattani - JP Morgan Chase & Co: Great. Just one very quick follow-up for Vittorio. You mentioned that you're seeing some early signs of positive trends in Spain, following the price increases. I just wondered at this stage whether you can comment on whether you feel that the price cuts you've introduced are therefore enough to address the market share issues that you're destabilized?

Yes. To be precise, I think you said increases. I really said decreases in Spain, not increases. In Spain, prices are going down and have to go down a bit in order to be competitive with the fourth operator and the smaller players. I can say that we have turned a positive on mobile number portability. I think we have some churn trends, which are going in the right direction. But I would say very early signs.

The next question comes from the line of Nick Lyall at UBS.

It's Nick, UBS. Could I ask you again on Spain? Could you maybe talk a little bit about how fast those costs could come down in the Spanish market as well as to try and match the weaker revenue trends? And secondly, on the U.K. consumer, you've raised the prepaid prices in June. Could you just mention the initial reaction of consumers to that? And is it going to be a material change, do you think, to Q2, 3 and 4 revenue trends?

Perfect questions for Michel.

So the first one on Spain, so just to flag or to highlight again, I guess, that's where I'm very consistent with what was said. So first piece was to recover value in these markets with three main actions. Adding value to our existing base, meaning giving more for the prices or the option, which is paid by the consumers for the time being. Second, rebase our tariffs for new acquisitions, and that's what we have done with the XS8 pricing plan plus the integrated tariffs that we are pushing now. And third, accelerating the push on data and smartphone, which started, let's say, to give us some good signs. So that's for the commercial. In terms of costs, what we have always said is that our cost structure, except commercial spend, is quite, let's say, good in Spain for the time being. The ratio OpEx to sales is, let's say, probably one of the lowest that we have in Europe. So then, it's about commercial spend. And as far as commercial spend are concerned, of course, while we are just right now pushing smartphone, you can expect that those commercial spends will remain quite high for the next coming quarters just to make sure that we can, let's say, migrate our base from non-smartphone into smartphones. So that's for -- of course, so you can expect as what's said 3 months ago, some pressure on the revenue line and still some pressure on, let's say, the profitability due to the push on smartphones, which will pave the way for an LTE growth in the future in Spain, as Vittorio was referring to. In terms of, let's say, prepaid, I guess, that what we've seen in the market is a refresh of prepaid prices by nearly all the players, which has had, let's say, not real impact on the market dynamic in the U.K. in the past few months.

We have a question from the line of James Ratzer at New Street Research.

Had 2 questions, please. The first one was just regarding LTE in Germany. Andy, you mentioned that your running speed of 6 to 12 megabits on the network, but at the moment you've got around 27,000 customers. Do you feel as customer numbers grow, those speeds can be maintained and scaled up? And also what are your plans to roll out LTE in urban areas in Germany? And then the second question I had was regarding the chart. You've got the pie chart for revenue allocation on Slide 16, showing 18% is out of bundle. If I strip out the prepay element, suggesting about 26% out of bundle, I'm trying to reconcile that with the chart you showed at the Q4 results where you showed Netherlands 61% being in bundle. In other words, 39% out of bundle. Are we comparing like-with-like there, so Netherlands has got a very high out-of-bundle percentage? Just wonder if you can just reconcile those 2 data points.

Good to have Andy answer the LTE question while the others find the old presentation and make the comparison quickly. Go, Andy.

I mean, on the LTE side, as you say, we've got 27,000 users at the moment. The speeds are very good, and the testing that we've been doing recently gives us great confidence that we can significantly increase the number of users and maintain the sort of user experience at those speeds levels. So I think the early days of LTE are very encouraging on that front.

Yes, let me take, if I can, the second question. First, the clarification. I think that when we spoke about the Netherlands in Q4, we're talking about consumer contract and not prepay. What you are doing is something which, however, has a meaning, which is you're saying you have 18%, which is consumer contracts out of bundle, including incoming. And then you say, well, but there's also consumer prepaid, which has some kind of risk now. Technically, you're right. It's difficult to estimate how much because consumer prepaid is a combination of things. The comment we made on Italy was exactly to indicate that even on consumer prepaid, we are aware that there are and we are working on those customers for which, given the high usage on prepay, the appeal of IP-based apps could be there. So technically, you're right. It's 18% plus a part of the prepay and the part is different by market depending on the usage. But the comparison was only with contract, the one with the Netherlands.

Can I just ask on the LTE in Germany? What you're kind of plans are for rolling out in urban areas where we could think of in pop coverage, say, by the end of this year and next year, please?

I don't think we have communicated our plans. We are progressively rolling in, so from nonurban to urban. And we will use LTE, clearly more of a replacement technology for fixed access in the rural areas. And the closer you get to the urban areas, it would depend quite frankly on the density. So your comment about the maximum speed is again valid. We still are confident that even in an urban area, LTE has a pretty good performance. And so there could be an element of replacement strategy even there. But of course, while the density becomes too high and the commercial success becomes too high, then we'll have to use mixed solutions, LTE and physical access.

The next question comes from the line of Maurice Patrick at Barclays Capital.

Maurice from Barclays. I know you're focused on the voice messaging and data revenue trends. But as you move more towards integrated pricing, I guess, that distinction becomes a bit harder. Can you help us understand a bit about how you allocate on integrated pricing revenues towards messaging and data? And for how long you think it's right to keep focusing on these?

Yes, Maurice, a good question, something which we have spent some time thinking about internally. The simple answer to the question is to how we do it today, which follows various accounting guidelines, et cetera. It is essentially one or taking what the individual component cost would cost in the market if bought individually and essentially prorating the overall bundle proportionate to those. And that's sort of been the consistent methodology across the sector for a period of time. I think the question actually more going forward is what proportion of our revenues are coming from customers who are merely buying 1 product, customers who are buying 2 products or customers who are buying 3 products, i.e. data messaging and voice, i.e. integrated. And we are giving some thought at the moment to whether, actually over a period of time, we may move our reporting, so that should we do it by the sort of number of products people are buying rather than to have these well intended, but nonetheless estimated allocations.

That's good. Just a bit of follow-up on the smartphone data attach numbers. It jumped up significantly in the quarter to 55%. Was anything particularly drove that other than perhaps the U.K. being a high proportion of the total with a high allocation? Or is there anything specific there?

Well, I guess, as you pointed out, that has quite significantly increased. It's the result of a deliberated policy, which is to push data attachment rate on every single smartphone that we are selling. As what pointed out at the previous presentation, our ratio was already quite, let's say, high for a consumer postpaid and for enterprise roughly around 60% to 70%. And we are now also pushing on prepaid. So you can expect in all the countries that we will push forward these data attachment rates.

The next question is from the line of Justin Funnell at Crédit Suisse. Justin Funnell - Crédit Suisse AG: Two questions, please. I'm just wondering what impacts you believe you're seeing from the economy? Not so much Southern Europe, which you've explained, but Northern Europe markets such as the U.K. For example, your usage, your minutes of use growth remains pretty lackluster there. I'm just wondering what you're seeing, for example, on prepaid top-ups, prepaid usage and whether do you think that's a trend that could get worse. Second, I just wanted to understand a bit more what you think your smartphone penetration is of your contract base in Europe, I could estimate as much as 60%, 70% now. That seems like it's a trend that's going to slow down in terms its growth rate because most people have got smartphone. Is that something that's going to weigh on your growth rates at the group level over the next 12 months, please?

So in the U.K., more precisely, I guess, that it was proceeding [ph] the figures that we have disclosed today. We have a slight slowdown, which, let's say, we see in some of the usage many roaming and voice incoming, which has slightly slowed down in this quarter compared to the previous quarter that we can probably attribute to the macroeconomic environment, which is slightly tougher in the second quarter than it was in the first one. So I guess, it's fair to explain it that way. As far as smartphones are concerned, in the postpaid base, I guess, that our smartphone penetration is roughly around 34%, so which means on average, in Europe -- so which means that of course in some countries, we're north of 50%. I guess that in the U.K. we're probably roughly around 60%. But in some other countries, we are still much lower. So we still have huge, let's say, availability for us to push not only in the consumer contract. There is no reason why not 80% of our customers will, in 2 to 3 years, might not have a smartphone in their hands. And then when I look at prepaid -- so penetration is just over 10%, so which means that there also we have a huge opportunity. And as you have probably noticed, we just launched in the market low-end smartphone as we had also announced a few months ago, which should allow us to capture this potential of growth. So we are quite comfortable in our ability to drive smartphones in the future.

If I may, Justin -- Vittorio, here. I would like to take the conversation also at another level, which is this, I don't see the job of getting penetration of smartphones, let's say, for the sake of the argument to 80% or 90% and then it's finished. The real job is then once we are there to do the whole work of increasing the profitability, the value and the usage of the customers from what it is today, a European level, which stands more or less the third of what it is in the U.S., to something closer to that. So I see penetration as an enabler for revenue growth. But the objective clearly is revenue growth, it's not just penetration. Justin Funnell - Crédit Suisse AG: Okay. Just to clarify, that 34% number, so that's the average smartphone penetration of your contract base in your European business, is that correct?

It's correct. It's 34% on average in Europe. And as I was saying, some markets are ahead of it. And just to rebound on what Vittorio has just said, we have 1 or 2 markets such as Netherlands and U.K. where we are north of 50% and so we now think that in terms of penetration, where we should be. And as I guess, Vittorio referred to in his introductory remarks, we are now just changing our pricing in Netherlands in order to achieve even more our data allowance in our package in order to really now start to drive revenue growth within the base when the customers has already a smartphone. So the first battle was to put a smartphone in the hands of our customers. The second is now to drive ARPU up into these by, let's say, giving more data depending on the usage of our customers.

And if we look around Europe, I mean, for those of you who live in the U.K., when iPhone was launched in the GBP 35, tariff was the reference tariff. Now it's becoming a GBP 40 tariff or the GBP 42 or the GBP 45. So as I said, our job is not just penetration. Penetration is an enabler. It's revenue growth, which is the real target. And quite frankly, there is a lot of room if I compare to the U.S. or other parts of the world.

We now go to the line of Simon Weeden at Citigroup.

Can I just press this a bit more on revenue profile for the year, particularly if you're guiding to a slowdown in Turkey and I suspect a little bit more to come on those price cuts in Spain. Does that mean the second quarter might be a bit slower? Does that apply for the rest of the year as well? And in terms of the EBITDA kind of thought in a similar vein versus second half. And I wanted -- if I could ask a bit of a left field question given the focus on IP cannibalization in text and voice over IP, obviously, this needs to be done the now slightly[ph]. What is the rough bit rate on average that you're seeing on voice over IP at the moment? Obviously, it's relevant to thinking about quite how much of the data bundle VoIP might consume if people use this a lot.

I'll take the last 1, but the first 2 are for Andy, really.

Yes. Okay, so Simon, I mean, I think in your question, you probably sort of put your sort of finger on it. There's a couple of markets, Turkey, just where the growth is so high at the moment where, obviously, with the lapping of the price increases, sort of expect that to come down a little bit as we go forward and Spain, where the repricing on some of the tariffs, obviously, takes a while to ripple through. So I suspect that might slightly reduce the number in the second quarter. On the other hand, as we go through the balance of the year, we got 1 or 2 markets where the lapping effect of MTR changes a year ago like Germany. We'll start to have a beneficial impact. But it's very difficult, I think, in this business to sort of forecast to the nearest 0.2 or 0.3. But directionally, I'd say maybe a little bit lower second quarter, but then some benefits sort of will come through in the back end of the year. In terms of EBITDA, I mean, my only comment there would be that for the year as a whole, we remain comfortable that we should see a further reduction in the rate of decline of the margins. I think like last year, that will probably come through more in the second half than in the first half. So we are investing in customer growth, et cetera in the first half, so that will obviously, weigh a little bit on the margin. But the second half then, as we saw last year, should see an improvement relatively. So bottom line is profiling a little bit more to the second half but overall, still comfortable. We should see a reduction in the rate of margin erosion for the full year compared with last year.

Yes, on what you call cannibalization, I call substitution. First of all, keep in mind that we are talking about something, which is between 1% and 2% of our total data traffic across Europe. So it's -- and of course, it's much less in emerging markets. So you're talking about a small percentage of our traffic. Skype is used, for example, in Spain, by about 1% of smartphone users. So we are talking about small percentage of customers, some of them may be using it a lot. But as a general phenomenon, when you have bundles, which have like the Dutch one that we announced today or many of those that you can find in the U.K. or in Germany, with 500, 600, 1,000 SMS; 500, 600, 1,000 minutes and data included. Then, using VoIP becomes more of a feature functionality choice than a price substitution choice. So that's why I don't like the word cannibalization, and I like the word substitution. It's a free choice of a customer to substitute a service with another. But if it's priced correctly, if the operator manages it in an intelligent way, it's not cannibalizing revenue. It's substituting usage or it's going to be.

We now go on to the line of Robin Bienenstock of Sanford Bernstein. Robin Bienenstock - Sanford C. Bernstein & Co., Inc.: This is Robin Bienenstock from Sanford Berstein. Two questions if I may. Now that we -- well, about India and the U.S. The first is that you seemed to have lost more than $400 million on the table for the Indian tax recently and exiting your relationship with Ruia brothers. So I'm wondering if you're confident or have any optimism that the Indian state might recognize the gesture and whether you can give us an update on your expectations there around the tax, please. And second, with the U.S., given the recent tariff changes that we've seen, maybe that you get a distribution right sooner, even sooner than one might hoped enough. Wondering if you can say anything about how that might affect your approach to your balance sheet and whether you would need a policy or whether just a onetime payment would be enough for you to think differently about your balance sheet and your leverage.

Yes, on India, I would say you're making a link between the transaction with the Ruias -- and our main tax case. These are 2 very different transactions. One is 2 known Indian subjects, offshore transacting. The other one is a more complicated because there was an Indian subject by the Mauritius company. At some point, we judge that the -- while we think that India-Mauritius treaty should still apply and cover the situation, we thought it was practical and better to deal with these endorsers to sort out many other items or issues that we had with the Ruias in a kind of pragmatic transaction. I don't have news on the India tax case. It was been delayed the first hearing in the Supreme Court by a few days, and we remain confident that tax is not new. Whether they would be benevolent or not because of these things, I'm not so sure that there is a link between the 2. The -- I mean, U.S., there's no news. I mean, Verizon keeps doing well. They announced today their results. You will make up your mind on how they're doing. For the time being, there's no news and whatever -- whenever the time is appropriate, we will communicate what we have to communicate. Depending on what we will see, clearly, as I said many, many times, it should be an interesting meeting for our board to discuss. But no news today.

The next question comes from the line of Emmet Kelly at Merrill Lynch.

I had a couple of questions on the Southern European economies and then one on India. Firstly, if I look at the Portuguese markets, also Greece and Ireland, looks like these markets are showing quite a bit better top line trends than before. It's still negative, but quite a bit less negative than it was before. And you think we're finally seeing a little bit of light in these markets and maybe we're reaching a bottom there? And then over in Spain, you've talked about tariff cuts. Are you just focused on price reductions in Spain or is there also a broader retention effort going on? So I'm asking you if putting maybe a bit more handset retention costs into the market to retain your subscriber base. And then lastly, just on India, you've talked about a potential disposal of a small stake to comply with the ownership rules. Could you just give us an update on your latest thoughts there, whether you're thinking about IPO or maybe private equity or maybe a friendly Indian shareholder and also maybe say a few words about an Indus Towers IPO as well?

Yes, let me take the shareholder thing of India, and then Nick will cover Indus, and Michel will talk about the fortune of the smaller European countries. On the -- I think you are putting together 2 things that are fairly separate. One is what we are doing today to handle the FDI requirements of our stake there as a consequence of the transaction with the Ruias. As you would expect, we are exploring a number of solutions with local, reputable partners, and it would be premature to declare anything. I think we said it at the moment of the transaction. We will be compliant with the requirements. Second different thing is longer term, whether we are going to IPO or not, the company, there's several steps that have to happen. First of all, we have the short-term handling of this 135%. Then, we have the tax case. Then, there is the regulatory reform of the sector. And I would say that within this fiscal year, we'll probably -- or calendar year, depending on where you want to be, whether you want to be optimistic or not, it's unlikely that we will even think about IPO. So short term, we focus on the FDI requirement. India, Indus, Nick, you follow it more closely than...

Yes, so Indus, we're going through the mechanical step of demerging our Tower assets and emerging those assets to create Indus. And if you like unwind the IRU that was in place. So that's a sheer mechanical process we have to go through with the courts, and that's proceeding well though it's been a bit long. Our commercial operational performance has been strong. We have a tenancy ratio now up to about 1.9. So we wanted to get over 2. So I think we've got all the right ingredients in place and are actively considering the right timing of an IPO in the future.

As far as the Southern Europe is concerned, that's true that transact slightly better, but I would be cautious on those ones. I guess, the main explanation is coming from 2 things: first, improvement of our competitive position in those markets; and second, we've been able in some of those markets, mainly Greece, to slightly increase prices in recent months, so which has allowed us to post revenue figure, which are slightly better. Nevertheless, the macroeconomic situation remains extremely tough, and we have new austerity measures, which have been announced in Greece and in Portugal, which should still have an impact on customer behaviors and customer spending in those countries. So I would be quite cautious there. As far as Spain is concerned, as I said earlier on, the first focus is to add value to our existing base. Meaning that, of course, we have also rebased our prices for new customers. But we are trying to enrich the value that we give and we deliver to our customers and to improve our retention of our existing customers. As Vittorio has also mentioned, our churn has been reduced in the last few months, so which is a result of what we are doing also in terms of base management.

We now go to the line of Tim Boddy at Goldman Sachs.

Yes, a couple of questions. Just starting on Italy, just be helpful to get an update on how you see competitive dynamics that market, obviously, encouraging to see relatively stable underlying trends and pricing in the market. And then a smaller question. You noted at the start that mobile broadband growth has slowed 26%, which is perhaps a little surprising when you think about -- take off things like iPads. Can you just talk a little bit about what's happening with mobile broadband?

So on Italy, the competitive situation remains quite strong. We've -- mainly, Telecom Italia is still quite aggressive with some type of, let's say, very aggressive price plans which have been launched, mainly focusing on the youth in the recent weeks. Just to give you an example, EUR 6 for 1,000 texts across net and 1 gigabit of data. So we believe that those prices are probably a little bit irrational from, let's say, an economic point of view, and we'll see how it will evolve in the future. So quite a strong aggressiveness from Telecom Italia still in the market. But up to now, we have been, let's say, quite good at, let's say, managing our own customer base and maintaining our position in the market. So no main news there. Second, on mobile broadband, I would say that we are seeing a little bit of slowdown in terms of mobile broadband. We've -- some, let's say, penetration, which is still rising but more on our prepaid and occasional type of price plans, so which has an impact in terms of revenue, dilution impact on our revenue from, let's say, those type of equipments. Tablets are not yet completely there in the market. iPad is coming in Europe right now, and that would or that should pave the way for additional growth in the future.

Yes, one comment on tablets, because it's very important. I'm a great believer and personally, a great fan of tablets. However, keep in mind that tablets for the time being have a behavior, which is more similar to the one of smartphones than to the one of heavy broadband, in the sense that they are media, I would say, light-consumptions object and of course, they also work a lot on WiFi, whether they are in the home. So it's early days, as Michel have said, in Europe and the usage of the tablet is closer to the usage of a smartphone than to the usage of a mobile broadband, which, by the way, is good also because from a network perspective, it's a very manageable new thing.

We now go to the line of Jerry Dellis of Jefferies. Jeremy Dellis - Jefferies & Company, Inc.: You mentioned in the slide part that 25% of consumer contract revenue is now on integrated plans. Just wondering whether you can comment on how customers are behaving as you move them across to those integrated plans. Are they generally spending more as you move them across since you are trading them up, presumably, to a smartphone at the same time? Or is there an element of tariff optimization associated with that migration? And then the second question, please, just related to the data numbers that you highlighted, particularly your smartphone penetration number. It looks like in the last financial year, smartphone penetration in Europe was typically increasing at a couple of percentage points every single quarter. But that slowed a bit in this quarter. I just wondered why that was sort of happening. It seems possibly a little inconsistent with the comments that we should expect a bit more margin pressure in H2 -- in H1 than H2 because of associated commercial investments. Just want to understand that, please.

I'll take the first half of the question, which is the broader part, I think, on smartphone economics and data economics and then pass the more commercial question to a combination of Andy and Michel, probably, Andy, more. The effect of the transition to smartphone, I think we said, the beginning was the EUR 2 to EUR 10 thing. I think we are confident in saying that we are exactly in this range, actually exactly in the middle of this range. It's difficult to say exactly the behavior, because as you would expect it takes time, the usage in Europe is pretty smaller than, for example, in the U.S., but clearly goes up and goes up slowly but regularly. A number of changes in the availability of content, video and in general, richer experiences are actually going in the direction of making us confident, more confident that usage will keep going up, which is why tier pricing is very important. Customers will be alerted when they are at 90% -- are alerted actually when they are at 90% of their usage and they would be offered the opportunity to trade up. And this is the whole strategy. It will take time. Keep in mind, as I said, the average usage in Europe is about 1/3 of what we see, for example, in the U.S. So that's a promising future to go. More choices, more operating systems, lower costs of devices will improve over time. The economics, we see a very good success of the -- what's the name? Smart, the Vodafone Smart, it's EUR 99 in retail. Fantastic touchscreen, good experience, customer pay a little bit less than on a fully fledged iPhone or fully fledged Samsung. But of course, the economics are very good for us. So going in the right direction over time and monitored very closely. Michel or Andy, actually, in terms of forecast and...

Yes, I mean, Jerry, we've gone up 1% to 2% per quarter. This was more 1% than 2%. I think you can't just take individual quarters completely in isolation, and there's been more focus on making sure that where we are investing, we are getting the highest quality of customer that we can possibly get, and we've been very focused upon that. So that may have a slight impact on the number of devices, but nonetheless, should be good for the top line and equally, it will mean that we have, actually, slightly more to get to the better customers. So I don't think you should read anything untoward in the numbers that are here over a period of time. This is moving definitely in the right direction, but we are very focused on the right economics to make sure that we are getting the best out of it that we can do.

And we now go to the line of Robert Grindle at Deutsche Bank.

Why do you think we have the very high data attach rates in the U.K.? I'd think to think we're a bit hip over here, but is that just the reason? Is it possible, also, to know what European data volumes did in total in the quarter growthwise? And then just since you flagged your largely completed disposal program and the strong balance sheet, any new thoughts about sort of acquisitions in areas where you might be interested in picking up assets rather than just selling assets?

Take the last one, and I'll let the comment on U.K. for somebody. But I'm not sure I really understood what the question was about. On the disposals versus acquisition question, I don't think the 2 things should be linked. We had a strategy, which we set out in September '09 to handle our minorities and other assets in the kind of orderly and sequenced way. The sequence has worked. That does not mean that because of that, we need to look now with different eyes at things. We continue to look at everything, which is consistent with our geographic strategy, the 3 areas and consistent with our Supermobile plus total communication strategy, and is, of course, capable of delivering returns in line with our M&A policy. So we are pleased that we have sequenced well and got the right values out of our assets. But that does not mean that we had never stopped looking at opportunities or we will look at opportunities in different ways.

So 2 things as far as U.K. is concerned. In the U.K. in the previous quarter, BlackBerry were not accounted for in data attachment rate, so which means that we have had a big jump this quarter because we have rectified this, let's say, this piece, mainly the enterprise space. So that's why you see this type of jump. Second, U.K. has been one of the few markets with Netherlands within which we have pushed the data attachment rates earlier than later. So that's the reason why this rate is higher than in other countries. So that's for U.K. You had a second question, which was on growth rate of data in Europe, so which is still growing year-on-year, which is still growing year-on-year by roughly around 20% and which is a slowdown compared to the previous quarters, which is also the reflect of what we have always said, of course, all the measures which had been taken in order to manage the traffic within the network, and second, the fact that now, the growth is mainly coming from smartphone more than from mobile broadband. And as Vittorio was referring to Europe, the usage in smartphone is slightly lower than in mobile broadband. By the way, that's quite a good news, which means that today the traffic is going more or less the same speed as our revenue. So which from an economic point of view is, obviously, paving the way for an healthy growth in the future.

Okay. We'll now go on to the line of Nick Delfas of Morgan Stanley.

Just quick 2 follow-ups on things that have already been asked. On the Q2 outlook, I guess, there's some sensitivity over the 1% to 4% revenue range, and I guess, that with the worse Spanish and Turkish performance, you could challenge the lower end of that. So I guess, that will be rectified in the end of the year. But presumably, that one quarter dip is not a big deal, I just wanted to understand your views on that. And secondly, a lot of the inmarket consolidation opportunities, which you've talked about in the past are in Southern Europe. I'm just interested in your perspective on whether you'd be willing to allocate more capitals on Europe today or what would need to change in order for you to think about that.

I'll take the first one there, Nick. The 1% to 4% was an annual number over a 3-year period. It wasn't an endeavor to forecast any particular quarter or month or week of the year. For sure, we're likely to be at the lower edge or back. In the nearer term, we still got some recessionary impacts. We've still got the MTR cuts. But for the year as a whole, I think we should be in the range, and certainly, taking a 3-year period, we would believe that, that is perfectly achievable.

In market consolidation, first of all, I can see something also outside of Southern Europe. So it's not just necessarily Southern Europe. And quite frankly, we know very well those environments. As always, we will look with discipline whenever these things pop up at revenue synergy and cost synergy, knowing that cost synergies are pretty sure and we know how to handle, and revenue synergies, clearly, especially in a difficult macroeconomic environment, we have to be discounted somewhat. But at the end of the day, we are pretty confident that we know very well all environments, and we have demonstrated that we are disciplined. And when we don't see value or enough value to be created, we take different positions. Even recently, I think we have displayed that.

We now go to the line of Lawrence Sugarman at Royal Bank of Scotland.

Firstly, just going back to the very helpful pie chart on the mobile service revenue mix. You described 30% of revenues come in from enterprise. I've seen the majority of that is contracted. But I would also think that some of it is usage based, and there maybe some opportunity within an enterprise customer, I assume, for some substitution. Perhaps, you could give it a little bit of color on that. And secondly, within the service revenue split, looking at the growth rate differences between the fourth quarter and Q1, the line that changes the most is other service revenues. And I assume that a significant proportion of that revolves around a slowdown in roaming revenues. Perhaps, you could give a little bit of an idea as to how that's shaping up between countries and whether that trend will continue aggressively as we progress through the next year.

Yes, let me take the first question. In enterprise, clearly, you have a split inbound or outbound. However, it's less relevant in commercial terms than in consumer because the moment where you define, if you want, whether you have the customer, you don't have the customer, given the fact that there is a difference between the payer and the user, is when you negotiate the contract. And then the pressure is quite frankly, not what's up of the fibers of this world. The pressure is just to lower the cost. More and more large companies are going into a broader contrast where we include data, we include roaming, we include other things. But it's not, at least, not directly, a pressure coming from the migration to IP apps. It's a broader pressure coming from just competitiveness in the sector. In that sense, our sales force, our presence, our relationship with these companies is much more important than the technological evolution. And the consumer segment is different because, clearly, every user is also the chooser and is also the payer. So it's a very different dynamics. Andy, on the Q4, Q1 other services, for sure, roaming is...

Yes, the roaming is a little bit lower than in previous quarters. Obviously, that's in part to the price reductions in that space. Clearly, equally, we're coming into a sort of summer period now. So one would expect that to pick up a little bit. On the other hand in there, I think we got wholesale revenues as well, which actually have been generally sort of on an increasing trend over the period of time. So I think it's probably those 2 aspects, which are the most prominent within that number.

We now go over the line of Ottavio Adorisio of Societe Generale.

A long time waiting for the questions. So I've got 3 questions if I may. A couple is just follow-up. The first one is on the Indian tax case. But hearing what you replied to the first question, it looks that there's no change in your thinking about that the particular liability. But if you look at the accounts, at least in the statements you put out today, there is a change in the language as you dropped this sentence where you used to say that the group is not liable for any withholding tax, though it's liable to be made to an agent sort of Hutchison, that you kept that sentence for 3 years, and now you dropped. Is change in thinking your position there? The second one is on the VoIP side. Now you said that you haven't seen a lot of substitutions but also looks that [indiscernible] stop the use of VoIP on a number of data packages in prepaid. That probably explains why the low usage of VoIP. Therefore, my question would be what would be the strategy if net neutrality would be more widely enforced in markets such as the Netherlands where the presence of an aggressive infrastructure based operator risk impacting your churn if you would increase prices. And the third one is just a clarification. If you can quantify the CapEx increase in Germany?

Ottavio, I'm sorry you had to wait and that's why you are entitled to 3 questions. I suppose there's the only 2 that others have. And Andy, why did you drop a sentence?

Yes, I apologize for that. Let me just -- hopefully, to be clear on this, and I think Vittorio partly covered this earlier on. We have had 2 sort of separate issues. One, separate in terms of the party with whom we are contracted, the country which the transaction took place, et cetera. So in terms of the -- as it puts in the asset situation, we have agreed an exit arrangement there with some withholding tax, which will now be paid. And that basically, is all going through the system. In terms of the tax case that has been around for some period of time, which is due to go into the Supreme Court in the next few days, on that one, our view remains completely unchanged. The facts compared with the law, we are very comfortable, our advisory is comfortable that we should not have an exposure there. And that is the issue that is going to be the basis in the court case that's comes up very shortly. So there isn't -- I will check on -- not actually quite familiar which sentences we have left out there, but I will check it. But substantively, there is absolutely no change in our positioning on the core tax case that goes to the Supreme Court fairly shortly.

Yes, on the VoIP question, I mean, I have just to reiterate what I said before. First of all, on net neutrality, the European interpretation of net neutrality, i.e. that you can discriminate between different services, but you cannot discriminate between providers of the same service. I think we are fine with it. Clearly, the Dutch interpretation has been more extreme. And that we are concerned that if you let the usage of some customers subsidize the usage of others, eventually, you can distort the market. We will live with it. We will load with value like we announced this morning in the Netherlands. The existing packages, the reality is that the more we go into big bundles, the less people care about the economic element of VoIP, and they care more about the functionalities. So our job is to make sure that the economic element is not a concern, i.e. that there are big bundles and big offers and big promotions in prepaid and big bolt-ons that can take away the economic concern, and then work, either ourselves or in cooperation with third parties to provide good communication platforms, address books, social integration of different communication platforms and so on. So it's a 2-pronged strategy: on the pricing side and on the functionality side. CapEx in Germany...

On the CapEx, obviously, there's always some phasing points. Because, let's say, on a quarter-to-quarter, you can phase from one to the other. I probably would flag that whether it's sort of, it's likely the LTE piece and also an IT project for enterprise delivery, which have probably have this growth impact on the first quarter.

So let me -- sorry, just to add 2 things to Michel's point. First of all, actually, the last year's first quarters was abnormally low. Over the GBP 6 billion we spent in the year on CapEx, only GBP 1 billion was in the first quarter, so it was a quite a low period. And secondly, of the GBP 200 million increase, I'd say roughly 1/3 of it is Germany, 1/3 of it is South Africa, 1/3 of it is the rest of the group put together. So directionally, that I think answers your question. Does that answer your question?

Oh, yes, it has.

Okay, the next question comes from the line of Adam Rumley at HSBC.

Could you comment on how happy you are with the recent developments in terms of tier pricing structures across the industry? And I guess, specifically, how you're finding the competitive pressure from rivals like Three, who are sticking with all-you-can-eat plan?

Yes, I have to say, overall, I am pleased the way things go. We have -- and again, I'd like to take for Vodafone the credit. We have indicated ahead of time what was the right way to go. We have moved, and in most markets, I would say with different timing, which as it is always the case. The kind of the general pricing structure is going in the right directions. I also think that as it is always the case with competition, you always have competitors, especially smaller competitors that have different pricing policies. Fine, I mean, we'll see how their networks and their technology and their commercial machines will be able to cope with it. But for the time being, we haven't seen really any major disruption. Of course, if and when we see market reactions that could be unfavorable to us, we will react commercially in the most appropriate way. But I would say structurally, I think things are going in the right direction. Michel, do you?

No, agreed.

Okay, we now go over to the line of Will Draper at Espirito Santo.

Just a quick one on CapEx. You overspent by a couple of hundred million in this quarter compared to last year. If the run rate and the profile of your CapEx for the rest of the year follows the profile that it followed last year, you will spend more than GBP 6.2 billion that you've guided. I mean, I appreciate that's partly success-driven and all for good reasons. But do you feel that's a possibility that you could spend a little bit more this year than you were initially planning?

Let me give you a little bit of a philosophical answer here, and then Andy will probably repair the damage that I make. I am not really obsessed with GBP 166 million, which is I think the right number, GBP 166 million, no, 0 whatever. GBP 1 million more in a quarter, as long as I'm sure that it's going in the right strategic direction, i.e. data. I mean, the fact that South Africa spends more on transmission, being the leaders in absolute of broadband in the country is not a concern. It's actually a good thing. The fact that in Germany, we spend on LTE, having a greater customer experience and a great success confirms that Supermobile strategy is right. The fact that we catch up in India in certain areas where we had invested in the last year. So in terms of line-by-line CapEx management, I have no doubt that my colleagues and Michel and Nick are here with me, are doing a very good job at making sure that the money goes where the returns are. This is kind of the philosophical answer. Now the guidance answer, Andy?

Despite all of that, we said before that we expect this year, we'll have a similar levels of spend overall. I think the issue is much but more about the phasing. Last year we had 1 of the GBP 6 billion in the first quarter. We actually had 35% of the total year spend in the last quarter of the year. And frankly, that was very back-end loaded. And I think we'll see a more even phasing this year. And as Vittorio says, it will be very targeted to where we can make the returns.

And my confidence comes from the fact that I know, because in was in Michel's job and I see how Michel and Nick work, that we have a pretty robust and fact-based allocation system for capital that goes at the very granular level of detail.

We have time for one more question, and that question is from the line of Morten Singleton, an investor.

I've got several very quick questions. Several of them follow-ups to early ones. On the LTE in Germany, I think you mentioned a 6 to 12 megabits in up to speed. Can you give us an average? On the Patrick's question on the allocation of the revenue in bundles, you've given us some good insight there. But I wondered if you could tell us if that allocated basis was on the basis of the whole volumes or the maximum volumes of the various products in those bundles or on some kind of average utilization of those bundles. Within the U.K., I just wanted to find out whether you had seen any impact associated with the bank holidays in this quarter and the wedding, which seems to have an impact on a number of people's U.K. base results. And just finally, going to the pie chart on Slide 16. Again, I'm assuming that the reason the consumer prepaid doesn't come into your reckoning as an issue is because there's no real data attached associated with that, so your suggestion might be that you would get incremental data revenues to compensate for any shift to IP over the top solutions. Or any comments you might have on that one?

Let me take the last question and let Andy deal with the royal wedding, the bank holidays and the allocation. Sorry and those -- the other one. What was the other one? The LTE thing, the average speed, yes. What I really said was slightly different from what you said. The reason why we look at consumer prepaid in a different ways because consumer prepaid is a vast ocean of low usage, occasional usage, medium usage and in some cases, some countries also high usage. I have to reiterate, we cannot treat consumer prepaid as one thing. There are high-usage customers that, for example, in Italy, that will need to be managed exactly in the same way as we manage contracts, i.e. the bundles. There would daily bundles, weekly bundles, whatever it's going to or whatever it is already. But at the end of the day, the dynamics of migrating these customers into richer platforms with richer experiences on data, on voice and then SMS would be exactly the same as contract. And then you have kind of occasional users, or low-end users, which don't use data today, and for those that would be more similar to, I would say, whatever, the Indian prepaid customers or the Egyptian prepaid customers. So it's not that there's no attachment rate there. There is an attachment rate issue, but it has very different dimension. It's not for 100% of that slice of that pie. Andy, royal wedding and other impacts.

I honestly don't think the royal weddings, public holidays, volcano lag effects or whatever had any particularly material impact upon the progression of the trends in the quarter. So I wouldn't be too concerned by that.

Allocation impact, we allocate based on the equivalent price of...

Sorry, yes, so slightly unclear on your question there, sorry. Can you just...

Yes. It was in terms of the volumes. So when you put out a bundle, you might have, say, 100 minutes, 1,000 text, what have you. Do you allocate the revenues you generate from those contracts on the basis of the maximum value of each of those of services within the bundle or on the basis of the average usage of consumers within the bundle?

On the former. So if you were to go out and buy 1,000 texts, what would it cost you rather than how much of it you end up using, which gets horrendously complicated. So it's on the headline level rather than the usage, the proportionate usage thereof.

Okay, and then there was just the average LTE speeds question.

Nine.

Okay, I'll now have the conference back to you, Vittorio.

Yes, thank you very much, operator. Thank you all for your questions. Again, a good quarter. Revenue growth, strong in data and emerging markets. We have achieved our disposal targets, and we are progressing with our shareholder remuneration plans. We continue to maintain CapEx and deliver strong cash flow. We reiterate the guidance for the year. These are the main topics for today. Thank you so much for your attention and a good weekend to all of you. Thank you, operator.

Thank you. This now concludes our call. Thank you all very for attending. You may now disconnect your lines.