• Operator hints it could challenge O2′s exclusive deal with Apple
• Growth in emerging markets offsets slide in European revenues

Vodafone has added to speculation that O2′s exclusive deal to supply the iPhone in the UK may soon be up for grabs by suggesting that it would like to offer Apple’s smartphone to more of its own customers.

Andy Halford, chief financial officer of the world’s largest mobile phone operator, told reporters this morning that Vodafone was keen to supply the iPhone across more of its empire. It currently sells the device in 11 countries but not in the key European markets of Germany, where it is stocked exclusively by T-Mobile, or the UK.

“It’s a good product and we would love to have it in the portfolio in more countries,” said Halford, speaking after Vodafone published first-quarter results that showed the continuing impact of the recession and intense competition in its core European markets.

There has been intense speculation in recent weeks that T-Mobile, Orange and Vodafone are trying to muscle in on O2′s exclusive deal with Apple in the UK. T-Mobile is going so far as to buy the device in other markets where it is freely available without being tied to one operator and shipping it back to the UK in order to sell it to customers who are considering defecting to O2.

Halford also said Vodafone likes the idea of merging its businesses in underperforming markets with other players in order to reduce costs. The company, which last month merged its Australian business with local rival 3, is understood to have been approached by bankers at JP Morgan about the possibility of a merger in the UK with fourth-placed T-Mobile.

Asked about Vodafone’s attitude to so-called in-market consolidation, Halford said: “The concept of putting two business together with very obvious cost synergies … is one that we like.”

“There are other markets where we think more consolidation would be a good thing,” he added, alluding to the UK.

Much of Vodafone’s recent acquisition activity, however, has been in emerging markets such as India and Africa. In the latter, Vivendi recently halted talks about a potential $10bn (£6bn) acquisition of Zain, which has operations across the continent. Asked whether Vodafone would be interested in Zain, Halford said: “Our primary focus is on squeezing all the pips we can out of the existing business.”

Recession takes its toll

Vodafone announced today that first-quarter revenues rose 9.3% to £10.7bn, roughly in line with analysts’ projections. Splitting out currency effects and acquisitions, organic service revenue was down 2.1% due to weakness across most of Europe as a result of the continuing economic recession. That poor performance was offset somewhat by solid results in Italy and continued growth in emerging markets, especially India.

Overall, the company achieved first-quarter free cash flow of just under £1.9bn, up 21.2%, as it continued to rein in costs. It added a total of 8 million new customers in the quarter – taking its base to 315.3 million – although most of that growth was in India, where is gained almost 7.7 million.

Revenues in Europe were £7bn, down 4.4% on an organic basis, and the only growth markets for the company were Italy and the Netherlands. The company, which flagged at its full-year results in May that the recession would hit the business, admitted that revenue in the second quarter will be affected by regulatory price cuts in the UK and a drop in the money it makes from international roaming as fewer people go on holiday. In some European markets, such as the UK, it has abolished roaming rates altogether.

Within its core European business, Spain continued to be a major problem with revenues down 8.1%, while in the UK revenues of just under £1.2bn were down 4.7% on an organic basis. The firm said this was due to “intense competition and economic pressures; the latter resulted in reduced discretionary spend which led to customers optimising bundle usage, higher prepaid inactivity and lower roaming revenue”.

Vodafone lost customers across three of its four main European markets – Germany, Italy and the UK – with its British operation seeing 159,000 defect. It now has 18.6 million UK customers, making it number two behind O2.

Reports overnight suggested that Vodafone plans to charge people who call the swine flu hotline set up yesterday for NHS patients in England. A spokesman for the company, however, stressed this morning that it is not charging for calls to the 0800 number, in line with rivals Orange, O2 and T-Mobile.

Meanwhile, Vodafone’s Turkish business, which has taken far longer to turn around than the company had hoped, continued to struggle, with service revenues down 11.2% at constant exchange rates, driven by a 26.8% decline in outgoing voice revenues.