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The firm's shares fell by almost 5 percent by lunchtime, after Vodafone said that it had increased subsidies for mobile handsets in Japan to better compete in the market there. Competition in the mobile phone sector for high spending customers has reached cut-throat proportions, but investors seemed wary that Vodafone may be returning to its old ways by subsidising handsets well below their cost price in a bid for new customers.
J-Phone, the Japanese subsidiary of Vodafone, said that the increase in subsidies fitted within its normal annual budget plans and that it intended to bring subsidy levels down eventually.
The reassurances did little to calm investor worries and in early trading, Vodafone shares hit a four and a half year low at STG0.88 with 300 million shares changing hands -- a quarter of the entire London market's volume. The shares recovered slightly by lunch.
It is worth noting that telecom in general were suffering in London, where the market as a whole was down two percent, with Orange, O2 and Deutsche Telekom all almost three percent lower, just after 1pm GMT.
Mobile operators have been using subsidies for years to sell mobile handsets, but the trend more recently has seen them shift away from the practice as the market becomes saturated with existing mobile owners, who are difficult to pinch from other operators. Instead, companies like Vodafone are now trying to make more money from current customers, especially by selling data services.
But the rate of subscriber growth is slowing in Japan and recent subscriber numbers actually fell 35 percent to 422,200 in May from the previous month. Although J-phone in particular has been gaining momentum in Japan's mobile market, it only gained 140,200 new users in May, down on April's 173,400.
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