Are Europe’s mobile operators turning a corner? For prophets of a forthcoming capacity crunch on mobile networks there was plenty to ponder in Vodafone’s annual results, which were released today. In its mature western European markets, the multinational operator forecast that the volume of traffic generated by data services will grow only 70% in the year to March 31, 2011, compared with 100% in the previous fiscal year.

This surprising slowdown seems to be due to new data plans increasingly been associated with smartphones, rather than laptops. Vodafone said the 8.2 million PC connections on its western European networks generated 85% of the growth in data volumes in the year to March 31, whereas the 12 million smartphones using the same networks generated 15% of the growth in data volumes. From here on in, Vodafone anticipates smartphones will account for an increasing share of data subscriptions, hence the slowdown in traffic growth.

This is a significant shift because mobile operators probably aren’t making much, if any, money on traffic generated by laptops – some commentators argue that mobile operators should try and shift as much PC-generated traffic as possible on to fixed networks via WiFi. That would free up more mobile capacity to serve more smartphone users each paying for a data plan.

Keeping Capex Up

In any case, Vodafone seems sanguine about the huge surge in PC-related data traffic volumes. It maintained that utilisation of its networks in western Europe is still low and averages only 38% in the busiest hour of the day. To achieve that, Vodafone has kept capital spending in Europe at about 3.3 billion pounds a year even though the underlying trend in its service revenues has been downwards. The U.K.-based group added 3,500 new cell sites in western Europe in the year to March 31.

In the current fiscal year, Vodafone plans to maintain group capex spending at about 6.2 billion pounds. Some of this will be used to boost peak downlink speeds in hot spots (presumably the 7% of cells averaging over 90% utilisation rates in the busiest hour) to 43.6 megabits per second.

Of course, Vodafone has to keep its hot spots humming because, with voice revenues continuing to fall in western Europe, data services are its future. If its network were to regularly slow to a crawl in busy periods in airports or rail stations, it would surely lose customers to rivals.

Vodafone said one of its goals in western Europe is to lift the proportion of revenues generated by data services (including SMS) to 50% in the year ending March 31, 2013 from 34% in the most recent quarter. It also aims to increase smartphone penetration among its customers from 11% to 35% over the same period.

If frugal smartphones, rather than extravagant laptops and netbooks, do drive much of the future growth in mobile traffic, then perhaps mobile operators can turn a handsome profit on data traffic and invest sufficient sums to avert a capacity crunch. But it may not be as simple as that. Firstly, mobile operators need to learn the dongle lesson and price data plans for iPads and other over-grown smartphones carefully.

Secondly, the dongle-netbook boom may still have legs. Netbooks are now significantly cheaper than high-end smartphones and students and other people in rented accommodation are going to find it more convenient to get a mobile dongle and a data-plan than a fixed-line subscription. So, we may yet see another surge in sales of PC-related data plans and traffic volumes, as a second wave of netbook users jumps online.