Vodafone open to higher network spending after two-year boost

By Kate Holton

BARCELONA (Reuters) - Vodafone is open to keeping network spending above its traditional levels once its two-year booster programme has ended if it needs to respond to customer demand and competitor moves, its chief executive said.

Vodafone, the world's No. 2 mobile operator, said this month that it would spend an extra 7 billion pounds on its network in the next two years to put it in pole position for when the economy recovers.

The British group usually spends about 6 billion pounds a year on its network but Chief Executive Vittorio Colao told a Morgan Stanley conference in Barcelona that he could keep spending higher - or reduce it - depending on how his competitors respond.

"We are convinced that this is the right moment, to be very strong in two years time is the right thing to do," he said. "Our current plan is to do a big boost then return to the normal level.

"But we could come down at a higher level (after the two years). Also if tomorrow there is a new macro crisis ... and we think this (investment) was necessary for four years down the road and not two years, then we could go lower."

"It is, if you want, a big tap that we can open and close to some extent."

Strong growth in data consumption by smartphones, tablets and other devices means network quality is becoming more important in the fight to win and keep customers.

Vodafone believes an expected economic recovery in its core markets of Europe in a few years time will coincide with an increase in the amount of data consumers want to use, making network quality a big factor in how customers choose which operator they take.

With that in mind, Vodafone has decided to plough some of the proceeds from the $130 billion sale of its stake in U.S. company Verizon Wireless into infrastructure in a programme called Project Spring.

It will spend the 7 billion pounds by March 2016 - a billion pounds more than originally planned and a year earlier than forecast.

Colao said that within five years he expected the one-time mobile-only company to be able to offer consumers across Europe a combined offering of mobile and fixed-line services, with the group planning to either buy, build or going into partnership with others to access fixed-line assets.

In order to lure customers, he is also keen to offer content such as music and sports clips through partnerships with media groups, but Colao made clear he did not want to become a content owner because the costs tended to only ever increase.

Since announcing the sale of its U.S. arm in the world's third biggest deal, investors have started to question whether Vodafone could itself become a bid target now that it will be so much smaller.

Bankers have told Reuters that AT&T is looking for targets in Europe, with Vodafone the leading candidate because it would provide instant scale across the region.

Asked about his thoughts on a deal, Colao said all he could do was focus on improving his own assets.

"You must implement the best strategy for the assets you have and that is what I think we are now clearly doing," he said.

"Then if somebody comes and says you have really beautiful assets ... then that is a statement that has value for everybody."

(Additional reporting by Leila Abboud; Editing by Louise Ireland)