The mega-deal is back – and that may not be good news for Vodafone

Outlook It was only a few months ago that Vodafone was the toast of the City after stuffing investors' pockets with billions of dollars from the sale of its shareholding in Verizon Wireless in the US.

Unfortunately, the hangover from the post-deal party has set in quicker than anyone expected.

Those same shareholders are now facing up to reduced revenues as the company invests in turning around what remains. The absence of deal froth and the Verizon cash cow has cast an unflattering light on that.

Vodafone, it's true, has a vibrant emerging markets business growing at a decent clip. Unfortunately, it is shackled to a European operation that seems to embody all of the Continent's vices and none of its virtues. It's old, sluggish and in decline, with Italy playing the role of problem child.

That decline more than cancelled out the growth that Vodafone has been enjoying in sunnier territories like India. Moreover, the disease of the multi-billion pound write-down is still hanging around with some £6.6bn lopped off the value of several European businesses.

It's not pretty. Vodafone still made £5bn of operating profits, but the results were disappointing even when set against expectations that were not overly high.

Project Spring is what the telecoms giant calls its plan to blow a Mistral through its businesses. The investment programme, along with various economic and regulatory pressures, is going to crimp revenues through next year. However, there will be grounds for optimism further out if customers start to notice an upswing in quality of service compared with rivals.

The problem is that right now investors are just having to cross their fingers and hope for the best. The visibility that analysts would like just isn't there. It might not turn up until at least a quarter of the way through next year.

The dividend is still pretty good, as things stand, but memories of the Verizon mega-payout are fading fast and Vodafone will need to show green shoots soon.

AT&T may be gone for now, but the AstraZeneca-Pfizer dust-up demonstrates that the mega-deal is back. With pensions outside the public sector now reliant on the stock market, UK investors need quality companies like Vodafone to succeed.

Unfortunately, if a temporarily depressed Vodafone becomes the target of a US predator, it may struggle to mobilise the sort of support received by AstraZeneca.