FY25 Annual Report SASB disclosure

The telecommunications sector is characterised by a high level of competitive intensity, with many alternative providers giving customers a wide choice of suppliers. In each of the countries in which we operate, there are typically three or four mobile network operators ('MNOs'), such as Vodafone, which own their own network infrastructure, as well as several resellers that procure network services from MNOs on a wholesale basis.

Operators face significant investment cycles in the context of ever-increasing levels of demand for network capacity and deflationary prices. Where industry costs are expected to increase, it is part of the competitive process that operators individually start to consider their options. Operators, including Vodafone, need to ensure they are able to keep up with the increasing need for further investment in network infrastructure to enable societies to remain connected, as well as the increasing prices being passed on from their vendors and suppliers (e.g. energy providers, network equipment manufacturers) in the current inflationary environment. The options available to operators include cost saving initiatives, such as entering into active and/or passive network sharing arrangements, acquisitions of attractive businesses belonging to other operators and adjustments to commercial practices, including pricing.

Fixed telecoms markets in most countries are still dominated by the historic incumbent operator (typically the former state-owned operator), in particular at the wholesale level. Access to many wholesale services from the incumbent, such as fixed access and leased lines, is still regulated in most countries.

Despite the inherently complex nature of the telecommunications sector and the rapidly changing market dynamics, there have been relatively few examples of anti-competitive behaviour or accusations made against Vodafone in recent years.

Historically, in cases where Vodafone was found to have engaged in anti-competitive conduct, penalties were relatively low.

Whilst there were no fines imposed by competition authorities against Vodafone in FY23, a complaint was lodged with the German Federal Cartel Office by 1&1 against Vodafone Germany. 1&1 is an MNO in Germany and a relatively new entrant. It entered into an agreement with Vantage Towers in December 2021 for Vantage Towers to supply a certain number of towers, including an initial target by end of 2022. For a variety of reasons, the initial target has had to be delayed to the end of 2023 and 1&1 has submitted a complaint to the German competition authority (Bundeskartellamt). 1&1 is arguing, in particular, that Vodafone Germany has leveraged its relationships with Vantage Towers to prevent Vantage Towers from delivering under its contract with 1&1 with the goal of frustrating 1&1's rollout to gain a competitive advantage. The investigation is still at a very early stage.

During FY23, there were also a number of developments with regard to competition law matters (investigations and/or litigation) that had originated in previous years.

Portugal

Online search advertising (Google Adwords): In July 2020, the Portuguese Competition Authority ('PCA') issued a Statement of Objections to Vodafone and other Portuguese telecommunications operators. The PCA alleged that the operators had entered into an anti-competitive agreement to limit competition in advertising on the Google search engine which, in turn, restricted competition in various retail telecommunications markets. Vodafone Portugal is vigorously defending itself and submitted a written defence and evidence in support of its case to the PCA in October 2020. The investigation is ongoing and the PCA has recently notified Vodafone Portugal of its decision to extend the deadline for concluding its investigation until the end of 2023.

Pay TV advertising (TV adverts): In August 2020, the PCA initiated an investigation on the basis of news in the media regarding the joint commercialisation and implementation of a 30-second advertising spot before Pay TV content by Pay TV operators MEO, NOS, Vodafone Portugal and Accenture. Prior to launching the service, the parties had joint meetings with the PCA to present the project and to address possible competition issues. In December 2021, the PCA issued a Statement of Objections accusing the Pay TV operators of anticompetitive conduct. Vodafone Portugal is vigorously defending itself and submitted a written defence and evidence in support of its case to the PCA in March 2022. The investigation is ongoing.

UK

Phones 4U litigation: In December 2018, the administrators of former UK indirect seller, Phones 4U, sued the three main UK mobile network operators ('MNOs'), including Vodafone UK, and their parent companies. The administrators allege a conspiracy between the MNOs to pull their business from Phones 4U thereby causing its collapse. The first trial on liability took place in May-July 2022. Vodafone vigorously defended the claim, and is waiting to receive the judgement, which is expected to be issued in 2023. Further information about this case is provided in the Group's Annual Report for the financial year ended 31 March 2023 on page 199.

We use various tools and techniques to measure our customers' user experience on our mobile and fixed access networks. Part of our approach involves the use of independent third-party benchmark providers who conduct regular active field-testing on our behalf in the markets where we operate.

Mobile networks

Vodafone uses the industry-recognised benchmark provider to perform annual testing of all our mobile networks in the markets where we operate. The testing tool is equipped with 5G-capable devices to measure the 5G network performance where available. In locations where 5G coverage is not deployed, the tests are executed using the 4G networks. The testing configuration is defined to represent the achievable customer experience.

The regional averages presented above are calculated by combining the results of the Vodafone markets in scope using the size of the customer base in each market as a weighting factor. The weighted average sustained download speeds for Europe include all our markets in Europe, as well as VodafoneZiggo and Turkey. The average sustained download speeds for Africa reflect data from Vodacom (South Africa).

Fixed networks

Similar to the Mobile measurement methodology, Vodafone engages with independent third-party benchmark companies to regularly test typical customer experience on our Fixed networks.

Active probes connected to Vodafone customers' routers and internet switches perform regular speed tests to ensure a statistically valid sample across the most penetrated speed tiers/propositions in each market. Network performance is measured to the closest content delivery network for each customer.

Download speeds, defined as data throughput in Mbps, are observed over a 24-hour period and reported as an average according to the underlying access technology, either xDSL or FTTH/Hybrid Fibre Coaxial technologies.

The regional averages presented above are calculated by combining the results of the Vodafone markets in scope using the size of the customer base in each market as a weighting factor. The weighted average sustained download speeds for Europe reflect data for Italy, UK, Spain, Portugal, Greece and Romania only.

Zero-Rating

The practice of zero-rating is where an internet service provider does not 'charge' an end-user for access to specified content, applications or websites over the internet. In other words, where an end-user accesses zero-rated content, applications or websites, it does not count towards their data allowance.

Given the benefits it can bring to end-users, Vodafone does zero-rate certain content and services, but only if the zero-rating complies with the prevailing guidance, regulations and laws in the country it is offered. Vodafone offers zero-rating in two common use cases:

Zero-Rated Tariffs

In some markets, where many consumers are increasingly choosing unlimited tariffs, the use of zero-rating is becoming less common. However, for those customers choosing tariffs with finite data allowances, zero-rating offers on specific categories of application or use-case can provide more certainty, as they can use the covered applications without worrying about their data allowance.

Vodafone has therefore offered tariffs that include zero-rating since 2015. These offers were always designed with the prevailing net neutrality rules and guidance in mind. For example, to ensure we adhered to the principles of transparency and openness, any partner that met defined objective and transparent criteria was able to have their content zero-rated as part of our offer. Additionally, to ensure we did not restrict the 'openness' of the internet, end-users were only able to access the zero-rated traffic to extent they had a remaining data allowance, meaning they were never in a position where they could only access the 'zero-rated' traffic (i.e. there was never a 'walled garden' internet experience).

These offers were reviewed by multiple national regulatory authorities since their launch and, whilst certain adjustments were made over time to ensure compliance with the prevailing guidance, they were deemed compliant under the Net Neutrality framework in the EU.

However, in September 2021, the Court of Justice of the European Union ('CJEU') issued three judgements that stated that any price-differentiation practice, including zero-rating, that was not application-agnostic was not considered compliant with the EU's Net Neutrality Regulation. Whilst the detail on how these judgements shall be applied in practice is still under review by the European Body of Regulators ('BEREC'), it is accepted that, in the EU, all operators, including Vodafone, will ultimately be required to phase out zero-rated commercial offers in the EU.

The CJEU's judgements and any associated guidance issued by BEREC are not directly applicable outside of the EU. For example, the UK regulator has indicated that Vodafone may continue to offer its zero-rating tariff in the UK on the basis that it was designed to comply with the key principles of net neutrality.

Public Good Zero-Rating

Zero-rating can also be a means to support social good, for example by allowing unrestricted access to content and applications that subscribers rely on. In this sense, zero-rating can be used to enhance data democratisation.

For example, DreamLab is an application that has been developed by the Vodafone Foundation and Imperial College London. The app helps support cancer and coronavirus research by using the processing power of smartphones to help analyse complex data while the device is charging but going unused (typically overnight). In recognition of the societal benefits that this sort of 'crowd-sourced' scientific research brings, this application was zero-rated by Vodafone.

In addition, Vodafone zero-rated a number of websites, applications and services for the public good during the COVID-19 pandemic - for example, in Ireland we zero-rated certain government-identified health and education resources, in Greece we zero-rated various education websites to facilitate the government's online-learning policy during the pandemic, and in the UK we zero-rated access to health resources. In the Czech Republic, a public good zero-rated pass was introduced, called "Pass for Good", which gave access to health resources, amongst other applications. In Turkey, we also zero-rated remote education and health applications and platforms, on request from public authorities. Post-pandemic, a number of these practices have -- been phased out following discussion with the relevant authorities, but a limited number of practices remain in place.

In some of our markets, the practice of zero-rating such public good services is something that is even becoming mandatory, where the authorities have determined that the zero-rating of essential state and emergency sites provides social benefits. For example, in South Africa, the assignment of high demand spectrum to Vodacom SA in 2021 came with social obligations, including zero-rating mobile content provided by designated Public Benefit Organisations, including gov.za websites. This obligation will apply from as and when the digital migration process in South Africa is completed and operators are able to access the acquired spectrum.

In light of the recent CJEU judgements on zero-rating, telecommunications operators are now waiting for further guidance on whether this will impact public good zero-rating withing the EU. We are actively engaging with our stakeholders and regulators (including BEREC) to emphasise that zero-rating for social benefits is a positive practice.

Content Blocking

As noted above, one of the key principles of net neutrality is that internet service providers should not unjustifiably discriminate against certain traffic, which would include blocking content.

However, operators are permitted to block content under certain circumstances, for example where required under law. This has been of particular relevance to operators in relation to the recent orders issued by the European Union to block content associated with specified Russian media operators. It was confirmed by BEREC that action to block such websites would not be in conflict with the net neutrality principles, and Vodafone has therefore taken action to block the content of these media operators, subject to safeguards required by our internal policies to ensure legality and proportionality of the requirement.

Innovation under Net Neutrality

We are committed to ensuring an internet that is open to all, and where end-users control their experience on the internet.

At the same time, we are seeing substantial changes across the internet value chain, and there is now a significant diversity in terms of the networks, devices, content and types of user. As a result, we are increasingly seeing demand:

• From consumers for different tariff options and packages that best suit their needs;
• From business customers in relation to specific business services, which require guaranteed speeds and quality;
• From content providers, who require their content (such as metaverse or connected mobility applications) to be delivered with a guaranteed quality; and
• From connected devices, which also rely on specific quality parameters.

This demand for differentiation will continue to increase, as end-users seek to make use of the opportunities presented by edge computing and 5G network slicing, which allow for differentiation within networks. Therefore, the ability to provide such differentiated services and commercial propositions will encourage operators to invest in their networks and offer innovative services to businesses and customers, which will in turn help bridge the digital divide.

Vodafone strives to ensure that new and existing services and propositions that take advantage of the latest technologies comply with the prevailing rules and guidance on net neutrality. However, whilst existing guidance, for example from BEREC, has indicated that use cases based on 5G and edge computing can comply with the net neutrality regulation, there remains a degree of uncertainty as the regulations were designed before these technologies were in active use. We continue to work with regulators and policymakers to ensure a clear, unambiguous and innovation and investment-friendly interpretation and application of net neutrality principles is applied across our markets.