Vodafone, the world's largest cellphone operator by revenue, has doubled its cost cutting target to 2 billion pounds ($3.33 billion) by 2012 to counter fierce competition in India and Europe.

Vodafone reported first-half revenue and profits in line with forecasts and repeated its earnings guidance for the year, but analysts said the decision to raise the savings target by a billion pounds reflected weak underlying trading.

Management looks to be doing well in controlling the levers it can to sustain performance in spite of the cyclical and structural issues, Collins Stewart analyst Morten Singleton said. There was no good news in the top line, however, with the organic metrics showing deterioration on Q1.

European rivals Deutsche Telekom, Telenor, KPN and TeliaSonera all reported higher than expected earnings thanks to cost cuts, and Deutsche would not venture an outlook for 2010 due to economic uncertainty.

Shares in Vodafone were down 1.7 percent at 135.6 pence late in London, which analysts pinned on the 2.1 percentage point decline in the group earnings margin, due to competition in India and a turnaround plan in Turkey.

On an organic basis, group revenue was down 3 percent.

It is clear that for the time being, Vodafone is scaling down, battening the hatches and set for a period of difficult growth prospects, with austerity a necessity, Daiwa analyst Michael Kovacocy said.

Vodafone's initial 1 billion pound cost-cutting scheme was launched last November, with completion due by 2011, but the company accelerated that in May due to saturation in Europe and slowing growth in emerging markets.

On Tuesday the company, whose shares have underperformed the FTSE 100 .FTSE by 13 percent this year, said it would deliver that programme a year ahead of plan.

The original cost-cutting scheme was part of the group's strategy to switch focus to improving performance and cash generation from its previous plan of growth by expansion.


We have made strong progress with our strategic priorities, in particular in mobile data and cash generation, Chief Executive Vittorio Colao said. We have confirmed our guidance for the full year, despite the uncertainties.

In Europe services revenue fell 4.5 percent on an organic basis due to economic weakness and increasing competition.

Previously difficult markets such as Spain and Italy showed signs of improvement, as did Turkey after a turnaround plan.

India, a key market for Vodafone where a pricing war has broken out, delivered service revenue growth of 20.5 percent and 14.1 million new customers, slightly better than expected.

But margins there declined 4.4 percentage points due to price cuts and an expansion into rural areas.

Vodafone's two main rivals, Bharti Airtel and Reliance Communications, both recently reported weak earnings due to the price war.

They also gave a downbeat outlook in recognition that four new firms were due to start operations in India this year.

In total, Vodafone reported first-half earnings before interest, tax, depreciation and amortisation (EBITDA) up 2.9 percent at 7.5 billion pounds, in line with expectations.

It reported half-year revenues up 9.3 percent at 21.8 billion pounds, also bang in line with the Reuters poll of 12 analysts.

This was never going to be a first-half recovery story, and we saw nothing to change our thesis, Bernstein analyst Robin Bienenstock said. On the contrary, better-than-expected European revenues is particularly positive. We expect more in the second half.

($1=.6002 Pound)

(Editing by Greg Mahlich/Will Waterman)