Vodafone and Europe: Investing for the future Contents Introduction 1 Vodafone’s economic contribution to the EU 2 Driving macro-economic growth 4 Vodafone’s 12 EU markets 22 Introduction to Vodafone 4 Czech Republic 22 Transforming businesses and public services 6 Germany 23 Investing and innovating for the long term 8 Greece 24 Network innovation 9 Hungary 25 Our overall contribution to Europe’s economy 11 Ireland 26 Contributing to public finances 12 Italy 27 Malta 28 Generating employment, enhancing skills 14 Netherlands 29 Valued employees, value-adding employment 17 Portugal 30 Romania 31 Europe’s challenge 18 Spain 32 UK 33 A future less certain 19 The way ahead 21 Appendix 34 KPMG key notes and assumptions 34 ‘Vodafone and Europe: Investing for the future’ has been produced by Vodafone Group with assistance from KPMG LLP (“KPMG”). KPMG supported the development of this report and produced the economic analysis contained within it – including the assessment of Vodafone’s contribution to the EU in terms of Gross Value Added, employment and investment – drawing on data gathered from Vodafone’s local EU operating businesses, Group functions and external sources. Further details of the analysis undertaken are provided in the report itself and the ‘KPMG key notes and assumptions’ section on page 34. Vodafone and Europe: Investing for the future 1 Introduction growth Driving macro-economic The first call on the Vodafone network was made in London on 1 January 1985. Thirty years later, mobile and digital communications have transformed the lives of hundreds of millions of Europeans in ways our early pioneers could scarcely have imagined. Europe was the crucible in which the modern mobile industry first took shape. Within a decade of that mobile phone call in London, Europe’s largest networks, services and devices companies had become world leaders, driving technological innovation, enhancing skills employment, Generating enhancing productivity and investing tens of billions of euros in building the digital infrastructure that underpinned European economic performance and public services. It is a different picture today. Much of the value in our industry is now created across the Atlantic – nine of the top ten largest telecoms and technology companies in the world are based in the United States – or in fast-growing emerging economies, particularly China. Europe was the While European citizens’ demand for faster and more ubiquitous data connections crucible in which continues to grow exponentially, the colossal capital expenditure programmes required to meet that demand have proven to be challenging from an investor the modern perspective. Macro-economic decline across much of the eurozone – combined with, in some areas, the consequences of past regulatory policies – has brought mobile industry about a sharp reduction in return on capital over the last seven years. That has been first took shape. exacerbated further by market structures which remain fragmented between member states – despite almost 15 years of efforts to establish a single European market in Today, Europe faces telecommunications – together with the absence of harmonised rules on spectrum, Europe’s challenge challenge Europe’s a serious challenge consumer rights, copyright, data protection, cyber security and many other areas critical to operating at scale in a global digital economy. Europe, therefore, has a serious challenge. A policy environment characterised by ever-diminishing incentives to invest in digital infrastructure is one that could cause great harm to European lives and livelihoods for years to come. That is particularly the case at a time when other regions have identified such investment as integral to long- term growth and are already well-advanced in executing against their plans. There is a pressing need for European decision-makers and the European communications industry to resolve historic disagreements and agree a new way forward; to move away from an environment characterised by short-term retail price measures and towards a new consensus underpinned by considered, long-term industrial strategy designed to stimulate and support billions of euros of investment. Fortunately, the new European Commission led by President Jean-Claude Juncker has identified as a priority the need to reboot Europe’s digital strategy. We welcome the Commission’s commitment to bring forward swift and ambitious measures to rebalance 12 EU markets Vodafone’s policy approaches, pursuing important changes in areas such as content portability, e-commerce and cyber security while renewing focus on the development of robust digital infrastructure. We share the Commission’s vision of a connected digital single market that, we hope, will help return Europe to its role as a global digital leader. That strategy and vision will need to be informed by accurate and meaningful market information. To that end, we have commissioned – for the first time – an analysis of the direct and indirect economic effects of Vodafone’s activities in the 12 EU member states in which we have an operating presence. Europe needs a fair and competitive environment across all communication services. We hope this report will help inform public understanding of matters that are critical to the future prosperity of all Europeans. Vittorio Colao Chief Executive, Vodafone Group 2 Vodafone and Europe: Investing for the future Vodafone and Europe: Investing for the future 3 Vodafone’s economic growth Driving macro-economic contribution to the EU +50% increase in 4 years in €21.5bn FY2013/14 our investment in our capital investment EU businesses in EU since 2008 €23bn being invested in our networks and services between 2014 and 2016 Investing and innovating for Generating employment, enhancing skills employment, Generating 170,000 €2,400 the long term direct and indirect jobs average spend on training in the EU and development per employee €20bn spent on acquiring 4 EU fixed-line businesses in 25% the last 3 years of middle managers globally are women 42% Generating €13.2bn €10.5bn employment of our direct contribution indirect contribution employees and enhancing to the EU economy Driving to the EU economy in the EU are women skills macro- 22% economic €23.7bn challenge Europe’s growth Total contribution of global to the EU economy leadership team are women €1.9bn direct taxation paid to 1,400 98% EU governments graduates, apprentices of the people we and interns each year employ in the EU are EU nationals Contributing to €240,000 public finances €6.8bn €4.4bn total taxes and indirect taxation in contribution per EU employee fees paid to EU the EU to the wider EU economy governments 12 EU markets Vodafone’s €0.4bn direct non taxes paid €20.8bn paid to EU governments for spectrum licences since 2000 Vodafone and Europe: Investing for the future 4 Driving macro-economic growth Driving macro-economic Generating employment, enhancing skills employment, Generating Generating employment, enhancing skills employment, Generating Europe’s challenge Europe’s Driving macro- economic growth Introduction to Vodafone Vodafone was created in Europe, of Europe. In the early 1980s, European leaders demonstrated great foresight in supporting a common approach to interoperable wireless communications across borders. Rapid adoption of the GSM standard in the 1990s made Europe the world leader in 12 EU markets 12 EU markets Vodafone’s Vodafone’s mobile communications for two decades. This – together with the liberalisation of Europe’s telecommunications markets in the 1980s and 1990s – helped facilitate Vodafone’s expansion across the European Union and beyond, entering markets previously dominated by incumbent operators to offer greater competition and consumer choice. Vodafone and Europe: Investing for the future 5 Vodafone’s 4G coverage levels in our 12 EU markets We now operate mobile networks in 12 EU member states: growth Driving macro-economic the Czech Republic, Germany, Greece, Hungary, Ireland, Italy, Malta, Netherlands, Portugal, Romania, Spain and the United Kingdom.1 Our network and services have contributed to Europe becoming the region with the highest mobile penetration rate in the world % at 78% at the end of 2014, higher than the United States at 72% 91 2 65% and markedly higher than the global average of 50%. % The number of individual subscribers to mobile services 38 in Europe stood at 579 million at the end of 2014, up from 354 million in 2004.3 More than 125 million of these 2013 2014 2016 target are Vodafone customers, including 24 million business customers. We continue to expand our mobile networks across Europe. Generating employment, enhancing skills employment, Generating More than 125 million Our 4G services now reach 65%4 of the population across enhancing skills employment, Generating people in Europe rely the 12 member states in which we operate, up from 38% on Vodafone’s mobile a year ago. In parallel, data consumption on our networks continues to networks and services, increase rapidly. 4G now accounts for 26% of all data traffic in including 24 million our European markets compared to 17% a year ago. business customers Number of Vodafone mobile customers by EU market (000s) Europe’s challenge Europe’s Q3 FY2014/15 Ireland Netherlands 2,048 UK 5,180 19,853 Czech Republic Germany 3,238 31,515 Hungary 12 EU markets 12 EU markets Vodafone’s Vodafone’s 2,670 Romania 8,016 Italy 25,507 Portugal Spain Greece 5,207 14,811 5,050 Malta 309 1. References to our European markets in Vodafone financial results statements include our 12 EU countries of 2. GSMA Intelligence data, Market Penetration, unique subscribers, Q4 2014 operation and Albania. As this study examines our economic impact in the 12 EU countries in which we operate 3. GSMA Intelligence data, European unique mobile subscribers, Q2 2004 to Q4 2014 mobile networks, Albania is not included in the analysis 4. Based on delivering speeds greater than 1 Mbps outdoors Vodafone and Europe: Investing for the future 6 Number of Vodafone fixed-line broadband We have also expanded far beyond our roots in mobile.