Vodafone Update & Implications of New US Alliances
Quarter was fine, German profit pressure remains, the US carrier direct-to-device joint venture, and why the satellite-sovereignty leg of the thesis just got stronger
The short version
Vodafone delivered FY26 at the upper end of guidance and, for the first time in years, put a multi-year target back on the table. The stock fell on German profit guidance - understandable. The market is paying for the quarter and getting the strategic optionality for free. The more important news for Vodafone came from the US, where the three largest carriers agreed to build a neutral, carrier-controlled direct-to-device (D2D) satellite platform whose architecture (predominately low bandwith spectrum) fits AST SpaceMobile and sidelines Starlink. They did so just as Starlink’s exclusivity with T-Mobile runs out and weeks ahead of their SpaceX IPO. That is a preview of the fight heading to Europe in 2027, and Vodafone is increasingly on the right side of it. (They also stand to materially financially benefit from their ASTS investment should this logic hold.) The multi-year thesis holds, and the satellite leg of it is stronger than it was a month ago.
Key points:
The print was not the problem. FY26 landed at the top of the guided range on both profit and cash. The selloff was about Germany, where management was explicit that profit keeps falling into FY27.
FY27 consensus falls high single digits. FY27 guidance sits above FY26 on both adjusted profit and adjusted free cash flow, the UK synergy ramp is contracted and visible, and management chose to reinstate a medium-term double-digit free-cash-flow growth ambition. Given the track record of this management team, they should get the benefit of the doubt, for now.
The satellite optionality barely registered. Not one analyst question and not one management sentence on the call touched AST SpaceMobile or the European JV. In the results deck it appears as a single line on a portfolio timeline. The market is valuing it at roughly zero.
The US carriers drew the blueprint. AT&T, Verizon and T-Mobile’s new D2D venture pools low-band spectrum into a neutral, multi-provider wholesale platform. Low-band cellular broadband from space is AST’s lane, not Starlink’s.
Starlink got boxed. Its one-year T-Mobile exclusivity lapses in June. Rather than let Starlink expand to all three networks, the carriers built a layer they control. The same week, the FCC handed Starlink its own exclusive nationwide spectrum, which sharpens the single-point-of-control worry rather than easing it.
Europe is the main event. Deutsche Telekom’s CEO has said plainly he will not let Starlink become a “kingmaker.” The EU’s 2 GHz satellite-spectrum licenses expire in May 2027, and Brussels wants a sovereign, European-controlled answer. The Vodafone and AST joint venture is built to be exactly that.
1. The quarter and the guide: what is actually moving
FY26 itself was clean and close to a non-event for the thesis. Group service revenue growth held above 5% in the fourth quarter, profit grew at the top of the guided range, and free cash flow extended the upward trajectory of the past three years. Della Valle opened the call by calling this “a new chapter” and “a simpler and stronger business,” and the framing is fair. The portfolio is now scaled in every market it keeps, the balance sheet is repaired, and the dividend is rising again under a progressive policy.
The print is not what moved the stock. Shares fell roughly 6% on the day, and the reason was entirely forward and entirely German. Management was candid that German profit will decline again in FY27. As Della Valle put it, “we expect EBITDA to remain under pressure in Germany,” with the mobile market “fundamentally unchanged” and the price reset of the past two years still flowing through the base. Germany is the largest single profit pool in the group, so a guided decline there sets the tone regardless of what Africa or the UK do. That is the bear case, and it is real. It is also already known, already guided, and already in the price.
FY27 guidance sits above FY26 on both adjusted profit and adjusted free cash flow. The UK is the visible swing factor: FY27 is the first year of meaningful VodafoneThree synergies, the cost savings are contracted rather than hoped for, and UK capital spending peaks this year and falls thereafter. Africa just posted its strongest service revenue growth in close to two decades, and the emerging-markets businesses are managed for euro growth. Net of the German drag, the group still guides higher.
The more telling signal is what management chose to do with the multi-year outlook. After years of refusing to give one, they reinstated a medium-term ambition of double-digit organic free-cash-flow growth. A reinstated long-range target is a statement about conviction in the floor. Asked directly why now, Della Valle pointed to a fully transformed portfolio operating “only from strong scaled position” in every market. So the risk around the forward numbers is lower than it was a year ago, not higher. The downside, Germany, is identified and bounded. The upside, UK synergies plus Africa plus capital spending rolling off, is contracted or structural. And the satellite optionality is not in any of those numbers at all.
2. The US carriers drew the blueprint, and it is AST’s
On May 14th AT&T, Verizon and T-Mobile, three bitter enemies, announced an agreement in principle to form a joint venture for satellite-based D2D. The stated purpose is to end wireless dead zones by pooling scarce spectrum, building shared ground infrastructure, and writing common industry specifications so satellite operators can plug into terrestrial networks in a standard way. The carriers call it a “technology-neutral innovation platform.” T-Mobile CEO Srini Gopalan framed it as a way to “make it easier for satellite operators to deliver a broader range of direct-to-device experiences.” Both AST SpaceMobile and Skylo welcomed the announcement.
Look past the neutral language and the architecture is specific. The venture is built around pooling low-band cellular spectrum, aggregating traffic to avoid a fragmented market, and routing satellite traffic into each carrier’s own core network so the customer experience never changes. It is a design in which satellite is an extension of the terrestrial network, and the carriers, not the satellite operator, own the standard and the customer.
That is AST SpaceMobile’s design. AST describes its own system as a cell tower in space. The radio access network stays on the ground, the satellite uses the operators’ existing low-band spectrum, and traffic hands straight down into the carrier’s core. It does not impose a proprietary routing layer. Low-band broadband to an unmodified phone is the one thing AST is purpose-built to do, while Starlink’s direct-to-cell service has leaned on dedicated mid-band and, increasingly, its own satellite spectrum. AT&T and Verizon already hold definitive commercial agreements with AST and are strategic investors, and AST shares jumped on the news. The carriers built a platform whose specifications happen to match one provider’s network.
The honest caveat is that the JV is officially technology-neutral and names no provider. It courts multiple operators, and Skylo’s endorsement is a reminder AST is not the only candidate. T-Mobile, importantly, is not an AST customer; its satellite partner is Starlink. The implicit-AST read is an interpretation. But it rests on the physics of low-band spectrum, on the two carrier relationships AST already has, and on the architecture the venture describes, not on hope. And the fact that T-Mobile, Starlink’s own partner, chose to join a neutral multi-provider platform is itself the signal.
3. Starlink, boxed
The timing is the whole point. T-Mobile’s exclusivity on Starlink’s US D2D service runs one year from commercial launch, which means the window that tied Starlink to a single US carrier lapses soon. That was the moment Starlink could, in theory, have expanded to AT&T and Verizon.
Instead the three carriers built a venture they jointly control. T-Mobile, Starlink’s own launch partner, chose a neutral multi-provider platform over deeper dependence on one satellite operator. The practical effect is to push US D2D through a carrier-governed layer in which no single provider sets the terms.
The contrast sharpened the same week. On May 12th, the day of Vodafone’s results, the FCC cleared EchoStar’s spectrum exit and assigned a large block of mobile-satellite spectrum to SpaceX. For the first time Starlink holds a contiguous, exclusive-use nationwide D2D spectrum position of its own. Pair that with Musk’s recurring public musings about a “Starlink phone” and Starlink evolving into a full mobile carrier, and the question every operator now has to answer becomes obvious. Is the satellite layer something you rent, or something you are feeding? The US carriers answered by building their own. That answer travels.
4. Bent pipe versus black box
Strip away the commentary and the entire debate reduces to one engineering choice.
AST’s model is a neutral relay, a bent pipe. The operator keeps its spectrum, its subscribers, its core network and, critically, its data. Traffic originates and terminates inside the operator’s own network and its own jurisdiction. AST sells wholesale capacity that extends coverage without inserting itself between the operator and the customer. Control of the network stays with the operator by design.
Starlink’s model is a vertically integrated proprietary stack. SpaceX builds the satellites, owns the constellation, increasingly owns the spectrum, and runs processing on the satellite itself. For a mobile operator the relationship looks closer to roaming onto, or reselling, someone else’s network. It works, it is first to market, and it is efficient. It also creates a dependency, on a counterparty that has openly mused about becoming a carrier itself.
For a commercial buyer, neutral versus proprietary is a question of pricing power and who owns the customer. For a government or a regulator it is a question of who controls a strategic communications layer and where citizens’ data physically sits. That second framing is the one about to dominate Europe.
5. Europe is the main event
Deutsche Telekom is the cleanest read on where Europe is heading. DT brought Starlink Mobile to Europe, and yet its CEO Tim Höttges has been strikingly blunt about the limits of that relationship. On DT’s most recent earnings call he told investors: “I do not want to throw my destiny into one hand, nor do I want a Starlink which is a kingmaker of the destiny of our businesses.” He has said DT will work with other D2D providers, and has noted that “the Starlink people are very aware about the political role and the power we have as a brand in Europe.” His framing is a network of networks, with satellite as one input and never a single dependency.
That is the trojan-horse concern, stated by a CEO who is himself a Starlink customer. A service sold as a complement can quietly become a dependency, and a US-controlled proprietary stack embedded in a European operator’s coverage map is a strategic exposure no matter how friendly today’s commercial terms look. Höttges is not refusing Starlink. He is refusing to be captured by it, and he is signaling that he wants a credible alternative to exist.
The regulatory clock makes this urgent. The EU’s 2 GHz mobile-satellite-service band, the spectrum best suited to D2D, sits under licenses that expire in May 2027. The European Commission has to decide whether to renew the incumbents or run a fresh selection process, and it has signaled real wariness of a straight auction, on the grounds that the cash-rich bidders are mostly American and an auction risks handing European spectrum to US balance sheets while crowding out European players. Brussels has said it wants to favour European players and weight the outcome toward sovereignty and security.
Two facts about that process belong side by side. AST SpaceMobile has made an explicit pitch for the band, backed by a European constellation plan and a German operations center. Starlink did not respond to the EU consultation at all. A company that did not engage when Brussels asked the question is not well placed to be Brussels’ answer.
This is why the US story is a preview rather than a sideshow. In the US, EchoStar’s spectrum flowed to Starlink and the carriers responded by building a neutral layer they control. In the EU the equivalent decision is still open, and the bloc has both the motive and the mechanism to steer it toward a European-operated, sovereignty-aligned vehicle.
6. Why this is a Vodafone story
Vodafone sits on the right side of both the financial and the strategic ledger.
Financially, Vodafone is one of AST’s largest and earliest backers. On AST’s own account, Vodafone has invested three times and holds over $1bn of AST stock, alongside a commercial framework that runs into the next decade. As AST re-rates, on the US JV, on an FCC authorization clearing commercial US service across a constellation of up to 248 satellites, on a partner roster of nearly 60 operators covering more than 3 billion subscribers, and on a take-or-pay backlog of around $1.2bn, Vodafone’s stake marks up with it. AST is still pre-commercial, with first-quarter revenue of $14.7m against full-year guidance of $150m to $200m, but it is funded through deployment on roughly $3.5bn of cash. The point is that this is real balance-sheet value that no Vodafone model currently carries.
Strategically, the larger asset is the joint venture. Satellite Connect Europe, the 50/50 Vodafone and AST venture once known as SatCo, is now operational. It is headquartered in Luxembourg, run from a control center in Germany, staffed by a dedicated European management team, and building ground stations across Germany, the UK, Spain and France. It is a wholesale vehicle. It sells sovereign D2D capacity to European operators rather than competing with them, and it carries a five-year mutual exclusivity with AST across Europe and Africa. It has already drawn agreements from operators including Orange and Telefónica, signed roughly ten new partners at Mobile World Congress, and, on AST’s disclosure, fielded interest from operators in 21 of the EU’s 27 member states. AST president Scott Wisniewski has been blunt about how far ahead the broadband-first service tier sits relative to earlier text and emergency offerings, calling the gap “apples and aircraft carriers.”
Put the pieces together. Europe needs a satellite connectivity layer. Its regulators and its largest operators have made clear they will not accept a US-controlled proprietary stack as the only option. The EU’s defining spectrum decision lands in 2027. And Vodafone has spent the past year quietly assembling the one vehicle purpose-built to be the European, sovereignty-preserving, neutral-wholesale answer, alongside the technology partner whose architecture the US carriers’ own blueprint implicitly endorses. This is the defensive telco playing offense, in concrete form, and it is currently valued at close to nothing.
7. Thesis holds…
… and on balance it is stronger than it was a month ago.
The multi-year thesis rests on two legs. The first is the restructuring story: a simpler, scaled Vodafone whose cash flow compounds. Management reinstated a multi-year growth target, and the one genuine weak point, Germany, is identified and already in guidance. The second leg is the satellite optionality, and that leg strengthened materially. The US carrier JV validated AST’s architecture, the regulatory and competitive dynamics in both the US and the EU moved AST’s way, and Vodafone’s own vehicle for Europe is up and running.
The risks are still real and worth stating plainly.
AST execution is the largest. The deployment plan is aggressive, around 45 satellites in orbit by year-end, and it depends on a launch cadence split between Blue Origin’s New Glenn, recently grounded after an anomaly, and SpaceX’s Falcon 9. Some independent analysts doubt the year-end target, and first-quarter revenue of $14.7m implies a steep second-half ramp. A material slip pushes the JV’s revenue to the right.
The US JV is genuinely technology-neutral. It names no provider and courts several. If Skylo or others take meaningful share, the implicit-AST read weakens.
The EU outcome is undecided. Brussels has not chosen between renewal, auction and beauty contest, and the process can run past 2027. A sovereignty-weighted outcome favours the Vodafone and AST vehicle, but it is not guaranteed.
Vodafone’s near term is genuinely soft. German profit falls again in FY27, the German mobile market is not yet repaired, and the derate reflects real pressure, not imagined pressure. The optionality does not pay the dividend. The operating business does.
And Starlink is formidable. First to market, but with a superior offering versus what AST’s satellites can support. However, they now own spectrum, and effectively unlimited capital. Boxed in the US is a structural read, not a victory.
None of this breaks the core point, which is asymmetry. The share price already carries the German drag and carries almost none of the satellite optionality. The risks above are reasons the option could be worth less than the bull case. They are not reasons it should be worth zero.
Bottom line
The market spent the last week marking Vodafone down for a German profit decline it had already been told to expect. On the same day the FCC redrew the US satellite-spectrum map. Two days later the three largest US carriers sketched an architecture that fits Vodafone’s satellite partner and sidelines that partner’s main rival. Deutsche Telekom’s CEO has said out loud what every European operator is now thinking, and the EU’s defining spectrum decision is about a year away. Vodafone owns half of the vehicle built for that moment. You are being asked to pay for the quarter. The option comes with it.