As it stands, its businesses aren’t growing. Vodafone’s largest market, Germany, saw its customer base fall and organic revenue shrink 1.3 per cent year on year in the first quarter. Spain also saw customer numbers drop, while organic revenue dropped 3 per cent. Italy saw a stabilisation of its customer base, but revenue was down 1.6 per cent. All these markets saw price rises, and consequently all have seen a churn in their user bases.

Admittedly, these figures are an improvement on the year-on-year rates posted in the previous quarter. But the problem is similar in all these markets: too much competition and not enough return on capital.

In Germany, there is also a unique problem – a TV regulation change. Vodafone can no longer negotiate group deals with housing associations; TV deals now need to be done with individual households. Broker Numis says this puts €800mn (£689mn) of revenue at risk from January next year.  

The higher customer churn coupled with the rising cost of energy has been undermining Vodafone’s cash flow. Last year, adjusted free cash flow fell 11 per cent to €4.84bn. It is expected to drop another 32 per cent this year to €3.3bn. Despite last year’s fall, Vodafone managed to maintain its full-year dividend at 9¢ a share, which required €2.5bn of dividend payments.

However, Clive Beagles, co-manager of the JOHCM UK Equity Income Fund (GB00B95FCK64), believes it would be irresponsible to keep handing this much back to investors. “We expect it to cut its dividend… this is what it should do: companies should only pay dividends that are affordable,” he told the IC earlier this year.

Numis doesn’t think Vodafone will be able to cover its dividend payments with its free cash flow alone in the years ahead. However, the broker believes the company will still maintain its dividend over the next three years. That alone is an attractive prospect given Vodafone’s forward dividend yield of over 10 per cent, but hasn’t stopped the broker branding it “uninvestable” until it can reverse its declining profits.

Beagles’ continued faith in the company centres on a belief that markets will eventually be allowed to consolidate by the regulators. Vodafone is itself trying to consolidate, too. It made €8.7bn from disposals last year, which it used to decrease its net debt by 20 per cent to €33.4bn. The sales included phone mast business Vantage Towers, Vodafone Ghana and Vodafone Hungary. New chief executive Margherita Della Valle is likely to continue the process started by predecessor Nick Read.

As well as raising funds through disposing of businesses, Vodafone is also cutting back on staff. In May it announced it would be laying off 11,000 staff, equal to around 10 per cent of its workforce. Investors won’t get all this cash returned to them: if the company’s proposed merger with Three UK goes through, the combined group has promised to invest £6bn over the next five years in 5G networking. However, in the long run, the synergies should boost Vodafone’s UK profitability. The deal will be a key test of the regulatory mood. A 2016 merger between O2 and Three was blocked on competition grounds; the need for network investment at least gives Vodafone a stronger argument with the Competition and Markets Authority.

Recent share price weakness has made the company’s dividend yield look particularly appealing, but there is only so much cash it can return to shareholders if its profitability keeps falling. Consolidation is key. It won’t be able to keep paying out to the same extent otherwise.