Vodafone Working on 5-Year Plan to Return Telco to Profitability; Fitch Downgrades Vodafone to BBB+

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By Vittorio Hernandez | August 7, 2014 9:04 AM EST

A former Olivetti facility, now occupied by Vodafone, is seen in Ivrea April 2, 2014. Picture taken April 2, 2014. To match Special Report ITALY-ECONOMY/SUBMERGING REUTERS/Giorgio Perottino (ITALY - Tags: BUSINESS)
A former Olivetti facility, now occupied by Vodafone, is seen in Ivrea April 2, 2014. Picture taken April 2, 2014. To match Special Report ITALY-ECONOMY/SUBMERGING REUTERS/Giorgio Perottino (ITALY - Tags: BUSINESS)

In an attempt to convince former customers to return as well as existing clients to keep their accounts, telecom giant Vodafone has spent close to $1 billion investment in the past 12 months on 4G for its Australian market.

The amount, however, is slightly lower than Telstra's annual allocation of $1.2 billion to improve its network and SingTel-Optus's plans to spend $1.2 billion for its mobile and fixed-line networks.

Inaki Berroetta, chief executive of Vodafone Hutchison Australia, said he is crafting a 5-year plan for the company to return to profitability. He believes most Aussies no longer think of the company's problems.

In the past 24 months, more than 2 million Vodafone customers cancelled their accounts after it suffered from a network meltdown in 2011. In June, customers of Vodafone and Optus failed to make calls, send SMS or download data for a few hours due to a widespread outage.

As a result of the last outage, another 137,000 customer left Vodafone, reports The Sydney Morning Herald. The exodus prevents the telco from meeting Vodafone's aim to report positive subscribe growth by mid-year, which former chief executive, Bill Morrow, hinted.

And yet, another blow to Vodafone is the downgrade by rating agency Fitch of its mother company in the UK's Long-Term Issuer's Default rating to BBB+ from A-. At the same time, Fitch removed Vodafone from its Rating Watch Negative and gave the telco a Stable Outlook to its Long-Term IDR.

Fraser McLeish, research analyst of Credit Suisse, said that while Vodafone is improving its performance, the telco is still grappling with problems over its brand. He added, "It's invested a lot of money in the networks and does seem to be narrowing the gap ... But it's still got substantial brand issues following their network problem. It needs to stabilise that base and start growing revenues again."

To convince mobile phone users that the Vodafone service is now better, the telco released the following advert in May.

YouTube/Adverts & Short Films 

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A former Olivetti facility, now occupied by Vodafone, is seen in Ivrea April 2, 2014. Picture taken April 2, 2014. To match Special Report ITALY-ECONOMY/SUBMERGING REUTERS/Giorgio Perottino (ITALY - Tags: BUSINESS)
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