* Vodafone confirms full-year target of flat profit at best
* TeliaSonera lifts margin target as savings bear fruit
* Cost controls the top priority in slowing economies
(Wraps Vodafone, TeliaSonera results)
By Georgina Prodhan and Veronica Ek
LONDON/STOCKHOLM, July 24 (Reuters) - European telecoms carriers, so far relatively unscathed by recession, risk disappointing investors soon unless they keep cutting costs, quarterly reports from Vodafone and TeliaSonera showed.
The first of Europe's major players to publish second quarter numbers, Vodafone reassured on Friday by reiterating its full-year forecast after upping the pace of cost-cutting in the quarter to end-June, while TeliaSonera said its tight grip on costs would lead to higher margins this year.
Telcos have proved resilient in the economic downturn as businesses and consumers have continued to find communications indispensible, but even so spending has been cut to a minimum and the benefits of lucrative roaming charges have been curtailed by regulators and by a reduction in travel.
Mature markets in western Europe and North America where there are more phones than people hold little scope for growth, and even operators like Vodafone and TeliaSonera, which have been relatively aggressive in emerging markets, will find it hard to compensate.
Vodafone, the world's biggest mobile telecoms group by sales, makes 70 percent of its revenues in Europe.
'ONE TOUGH SLOG'
"The company is now a stagnant or declining enterprise and it's all about cost control," said Mike Kovacocy, telecoms analyst at Daiwa. "It's looking like it's going to be one tough slog for the rest of the year."
Expectations are modest: Vodafone's reiteration of its forecast for flat profits at best, and a 2 percent quarterly decline in organic revenues, were enough to push its shares up more than 2 percent on Friday.
Even at that, the company accompanied its guidance with the caveat that it was based on rates of $1.5 and 1.12 euros to the pound and would be updated in November to reflect updated assumptions for foreign exchange.
Each percentage point of increase in the euro-sterling exchange rate would cost Vodafone 60 million pounds in adjusted operating profit, it said, while a 1 percent increase in the dollar/sterling rate would cost it 40 million pounds.
Vodafone said it was on track to achieve more than 65 percent of its 1-billion-pound cost-saving target this fiscal year, which ends in March 2010, and said it would update the market on progress in November.
It gave no profit figures on Friday.
"Their job is going to be to strip out as much cost as possible and deliver a good presentation to the investor community in November with respect to their cost control," Kovacocy said.
A NEW COST BASE
TeliaSonera, the Nordic region's top telecom operator, delighted the market by delivering a 13 percent increase in core profits excluding one-offs, ahead of sales growth of 9 percent that was driven by developing markets.
TeliaSonera Chief Executive Lars Nyberg told a conference call:"We have totally changed the way we operate this company in terms of costs... I think we're at the beginning of the journey, because we will always have to work with costs."
The company's shares rose 6.8 percent by 1245 GMT after TeliaSonera raised its core earnings margin target for the year, saying its efforts to lower costs and capital expenditure -- which include 2,900 job cuts so far -- would pay off.
"Things are going better because the cost-cutting is working. They're not exactly getting any help from the economic environment," said one analyst, who asked not to be named.
Norwegian operator Telenor and Belgium's Mobistar, majority-owned by France Telecom, said earlier this week they were also cutting their capex targets.
Raymond Yu, mobile analyst at research firm Ovum, said: "When the top-line revenue numbers fall, you have to look at cost-cutting, especially in those markets where you're not going to see much customer growth, like in Europe."
"They've all come out to say cost-cutting is top priority at the moment."
Vodafone shares were up 2.3 percent while the DJ Stoxx telecoms sector rose 0.8 percent, outperforming a flat overall market.
(Editing by John Stonestreet)