Britain's Vodafone returns to quarterly sales growth

By Kate Holton

LONDON (Reuters) - Britain's Vodafone (VOD.L) posted a rise in quarterly sales for the first time in nearly three years on Tuesday in the clearest sign yet that Europe's mobile market is edging towards recovery.

The world's second largest mobile operator has been hit hard by the constraints on consumer spending in its big European markets and by regulator-imposed price cuts. But on Tuesday it finally forecast 2016 core earnings growth on an organic basis following seven straight years of declines.

The full-year results follow updates from the likes of Telefonica (TEF.MC) and Deutsche Telekom (DTEGn.DE) which also showed signs of gradual, if slow, improvement.

Vodafone, which has 446,000 mobile customers in countries ranging from Albania to Ireland, Qatar, India, South Africa and New Zealand, saw small improvements in Italy, Spain and Portugal while its biggest market Germany remained weak because mobile phone bills there fell.

"We have seen increasing signs of stabilisation in many

of our European markets, supported by improvements in our commercial execution and very strong demand for data," Chief Executive Vittorio Colao said.

Shares in the group slipped 1.6 percent in early trading, pulling back from a 9 percent rise in just over two months as investors anticipated better results.

Analysts believe the European mobile market is set to stabilise in 2015 and 2016 and should return to top-line growth after that, helped by demand for the more expensive fixed-line fibre services and superfast 4G mobile connections.

They believe Vodafone should be well placed to reap the rewards after it embarked on a programme to bolster its mobile speeds and either build or buy superfast fixed-line broadband networks.

"We have significant opportunities ahead of us, with only 13 percent of our European mobile customers using 4G, and our market share in fixed services only a fraction of our share in mobile," it said.

Vodafone reported a rise in fourth-quarter organic service revenue of 0.1 percent, which followed 10 quarters of declines. It also forecast a range for 2015-16 core earnings of 11.5 billion pounds to 12 billion pounds, which would indicate core organic earnings growth.

The group said it also intended to grow its dividends per share annually after a 2 percent rise.

Analysts at Citi said the results and guidance were in line with forecasts. "We see the positives as probably not quite positive enough to keep the stock moving up today," they said.

(Reporting by Kate Holton; Editing by Paul Sandle and Sophie Walker)