By Kate Holton LONDON (Reuters) - Vodafone (L:VOD), the world's second-biggest mobile operator, nudged its full-year earnings forecast higher on Tuesday as improving demand in its big European markets and an investment push into new products helped reduce a drop in revenues.
Faced with increased competition from entertainment groups and fixed-line providers, Vodafone also said it plans to launch a broadband and TV service in its home market to compete with rivals who offer a wider range of products.
The news sent its shares up 4 percent in morning trade, making it one of the top gainers in the FTSE 100 Index.
"There is growing evidence of stabilization in a number of our European markets," said Chief Executive Vittorio Colao.
"Our two-year, 19 billion pound investment program is well underway, and customers are beginning to see the benefits."
Vodafone, traditionally a pure mobile player, has embarked on a program to either build or buy fixed-line superfast broadband networks across Europe to enable it to compete with rivals offering mobile contracts alongside television, broadband or fixed-line deals.
Colao told reporters the group would launch a consumer broadband offering with a TV package in Britain supported by its Cable & Wireless fiber network which it currently offers to enterprise customers. It will also use the BT (L:BT) network for those areas where its own infrastructure is not present.
Analysts said the move into more services such as fixed-line telephony, TV and faster 4G mobile as part of the Project Spring network upgrade, had helped the overall results.
The update echoes Dutch rival KPN (AS:KPN), which in October showed revenue and profit falling at a slower than expected pace as its strategy of investing in faster networks started to bear fruit.
"This solid set of numbers represents progress, and with only 6 percent of European customers on 4G and Project Spring barely begun, the moment that Vodafone can report positive service revenue growth has probably moved forward," Citi analysts said.
Vodafone reported second-quarter organic service revenue, which strips out items like handset sales and currency movements, down 1.5 percent, compared with the near 4 or 5 percent falls it recorded in the last six quarters. It also beat the consensus expectation of a fall of 2.8 percent.
It now expects its full-year core earnings to be between 11.6 billion pounds and 11.9 billion pounds, compared with the previous guidance of 11.4 billion to 11.9 billion pounds.
It increased the interim dividend by 2 percent.
(Reporting by Kate Holton; Editing by Guy Faulconbridge and Clara Ferreira Marques)