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Vodafone is to axe 400 jobs and outsource a stack of IT posts as part of sweeping plans to reduce costs. The changes are designed to save around £500m a year as Vodafone battles to keep a lid on spiralling costs.

Exactly how many IT jobs are at risk remains unclear. Vodafone is already talking to potential outsourcing partners, although a spokesman for the firm declined to name any names.

In a statement today, Vodafone said it planned to "implement further methods of reducing its costs including outsourcing, advancing its shared services efforts, and reducing overheads".

"In line with this approach, Vodafone has taken the decision to outsource its IT Application Development and Maintenance activities with likely savings of approximately 25 to 30 per cent within three to five years against current annual costs of £560m.

"Group overheads will also be reduced, resulting in operating expenditure savings and an expected reduction of more than 400 positions in the corporate centre and ensuring an appropriate balance between group and local management of activities," it said.

News of the massive shake-up came as Vodafone reported a whopping pre-tax loss of £14.9bn for the year to the end of March, compared to a profit of £7.3bn last year. The record loss comes as Vodafone took a massive hit of £23.5bn as it wrote down the value of some of its assets.

By far the biggest was a £19.4bn write down of its Germany operation - a hang over from when it bought out Mannesmann back in 2000. Voda also revalued its Italian operation downwards by £3.6bn while its Swedish business chalked a £515m write down.

Together, these write downs are the "primary reason" for the firm's pre-tax loss to the year to March.

At the same time, revenue increased from £26.7bn to £29.4bn.

While Vodafone is actively looking to reduce costs, it is also seeking to find new areas of growth and has given more details about providing customers' "total communication needs", including broadband and internet. It has created a new business unit devoted to "new businesses" which will include extending Vodafone's telecoms services to the home and office "to meet customers' growing voice and broadband data service needs, including the provision of DSL".

Vodafone Germany is looking to launch a bundled mobile product with broadband in the autumn, while the UK is set to follow suit within the next 12 months. However, Vodafone has made it clear that it does not intend to buy a broadband ISP in the UK as part of this strategy, but instead plans to resell existing services.

Analysts say Vodafone is now "paying the price for reacting too slowly to the changes in the global telecoms industry".

Informa Telecoms and Media chief research officer Mark Newman said: "The only way Vodafone can increase the profitability of its businesses in countries such as the UK, Germany and Italy is to firstly cut costs by looking at staff or outsourcing, and secondly, through expansion into new areas such as broadband and internet telephony.

"We believe that they will do both of these. To expand into broadband and internet telephony their preferred option will be to acquire existing ISPs such as Tiscali or Bulldog in the UK or grow the business from scratch."

In a statement, chief exec Arun Sarin said that alongside issues such as competition and regulation, "our environment is changing".

"Our customers' needs are evolving as technology changes provide far greater choice in services. Furthermore, we are seeing changes to the competitive landscape as not only incumbent operators are seeking to offer fixed mobile convergence, but also new internet based players are seeking to expand their communications offerings. We need to ensure we continue to leverage Vodafone's unique customer franchise and continue to outperform our competitors."

"We have restructured the Group and updated our strategy and we will seize the opportunities provided by new technologies to continue delivering innovative services to our customers," he said.®

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