Is Vodafone Group plc Spending With No Hope Of Sales Growth?

Vodafone’s (LSE: VOD) (NASDAQ: VOD.US) much-touted Project Spring infrastructure project is supposed to turn the company’s fortunes around.

The project will see the company spend £19bn throughout Europe on new infrastructure, increasing connectivity throughout the continent and making Vodafone a dominant regional player. Management believes that this will restart the company’s sales on the continent.

Making progressvod

According to Vodafone’s management, Project Spring is already progressing well. Indeed, within the company’s interim management statement, released on the 25th of July, management revealed that Vodafone’s 4G mobile coverage had increased to 52% within Europe. Since September alone this coverage had increased by 20 percentage points. 

What’s more, the company reported that the quality of its network across Europe was improving. During the nine months to July the number of dropped calls fell by 1.2 million per day. 

Project Spring is now around 25% complete and Vodafone is on track to complete the project on time, and on budget. Overall, it is expected that by March 2016 Vodafone’s European 4G coverage will be around 91%. 

But Europe is not the only region where Vodafone is investing for growth. Within India, Vodafone is aiming to have 95% 3G outdoor coverage in targeted urban areas over the next three years and within South Africa, the group added around 470 4G sites and 290 3G sites in the last three months alone.

Demanding data

Unfortunately, Vodafone is having to undertake these investments in order to keep up with peers and meet the rising demand for data. 

For example, within Europe, according to figures supplied by Vodafone, over the past six months the amount of data used per smartphone in the region has risen by more than 25%. In addition, the number of users with both a 4G device and 4G plan has risen from 36% to 49% over the same period. With over half the population still without a 4G capable smartphone, Vodafone has plenty of room to grow.

That being said, some analysts have started to question whether or not Vodafone’s strategy will pay off. In particular, according to a report put together by investment bank, Morgan Stanley, regarding the state of the European mobile telecommunications market:

“…in the six major European mobile markets there is little correlation between data consumption and average revenue per user, suggesting the industry’s reliance on pushing data may have been misjudged…”

Calling into question

These findings do call into question Vodafone’s spending plans, £19bn is a lot of cash, even for a giant like Vodafone. Still, there’s no denying that due to Vodafone’s size, international exposure and established presence, the company is going to be around for a long time yet.

As a result, the company is a great share to stash away in your retirement portfolio and forget about. Any great investor will tell you, all portfolios should be well diversified with a selection of good quality stocks that you can rely on, allowing you to sleep soundly at night.

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Rupert Hargreaves has no position in any shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.