Vodafone , the world's largest mobile phone firm by revenues, reported a slight decline in quarterly organic sales in line with muted expectations and reiterated its full-year outlook, lifting its shares on Friday.

The first of Europe's major telecoms carriers to update the market this quarter reported revenues that largely mirrored wider economic developments, with strength in India and South Africa mostly compensating for weakness in Europe.

Organic service revenue fell 2.1 percent in the quarter to end-June but reported group revenue rose 9.3 percent to 10.743 billion pounds ($17.74 billion), thanks to positive currency effects and a higher stake in South Africa's Vodacom .

Vodafone shares rose 3.6 percent to 121.1 pence by 0830 GMT, lifting the European telecoms index <.SXKP> 1.4 percent.

Vodafone said it would update the market in November on its progress in cutting 1 billion pounds of costs. It said in May it would speed up its cost-cutting plan.

We have a relief rally. They delivered in line. They reiterated their guidance and said: 'Wait until November and we'll deliver a good cost-control story,' said analyst Mike Kovacocy of Daiwa Securities. It's looking like it's going to be one tough slog for the rest of the year.


Vodafone has guided for adjusted operating profit of between 11-11.8 billion pounds for its fiscal year to end-March 2010, after making 11.8 billion pounds in its last fiscal year.

The forecast assumes rates of 1.12 euros and $1.50 to the pound. Currently, the pound is at $1.46 and 1.16 euros, and has been strengthening.

Chief Financial Officer Andy Halford told journalists on a call: We are very comfortable still with our guidance range. Nothing surprised us in the first-quarter numbers.

Low expectations also prevailed at U.S. carrier AT&T's results announcement on Thursday. The company pleased the market with a drop in quarterly profit that was less steep than expected and flat sales.

Vodafone added 8 million customers in the quarter, taking its proportionate customer base to 315 million. Verizon Wireless, its U.S. joint venture with Verizon Communications , had 1.1 million net customer additions.

Free cashflow rose 21 percent to 1.896 billion pounds, while the company's net debt at June 30 stood at 31.2 billion pounds.


Vodafone's revenues were also hit in some markets including much of Europe, where it makes about two-thirds of its sales, by regulators' cuts to mobile termination rates, which operators charge each other to connect incoming calls.

These now account for about 12 percent of Vodafone's sales.

Like all carriers, Vodafone is struggling to milk more revenue out of saturated markets in Europe and North America. It has branched out ambitiously into India and parts of Africa, where many people have yet to buy their first phone.

Vodafone's South African sales grew 5.2 percent on an organic basis, but the rest of Africa was patchier, with Egypt strong but Democratic Republic of Congo and Tanzania weak.

Vodafone said the focus was on squeezing more out of markets in which it is already present, and not on entering new markets.

Our primary focus is on squeezing all the pips we can out of our businesses, Halford said. Over a period of time, we may cautiously look at other things.

Speculation has been rife that Vodafone among others may be interested in acquiring parts of Kuwaiti mobile operator Zain's African operations, which Zain is considering selling.

($1=.6053 Pound)

(Editing by Simon Jessop and Marie Maitre)