British telecom giant Vodafone Group PLC (VOD.US) reported its latest earnings on Tuesday, revealing a return to growth in its key German market after years of decline. This turnaround follows the addition of German telecom operator 1&1 AG as a major wholesale customer in its largest market.

The company stated that its organic service revenue in Germany grew 0.5% year-over-year in Q2 FY2026, reaching €2.74 billion (approximately $3.2 billion). This performance exceeded Wall Street expectations, which had forecast a 0.4% improvement after a more than 3% decline in the previous quarter.

1&1 AG, a major German telecom provider (fixed-line and mobile operator) under United Internet Group, is both a new player building Germany’s fourth 5G mobile network and a crucial wholesale and national roaming partner for Vodafone in the region.

Vodafone’s overall service revenue rose 5.8% YoY in Q2 FY2026, also surpassing market expectations. For the first half of FY2026, total revenue increased 7.3% to €19.61 billion, slightly above consensus estimates. Supported by strong performance in Germany, service revenue climbed 8.1% to €16.33 billion, while adjusted EBITDAaL grew 5.9% to €5.73 billion in Q2.

Shares of Vodafone surged as much as 5.5% in early London trading and 3% in U.S. pre-market trading following the better-than-expected results.

CEO Margherita Della Valle has been executing an ambitious turnaround plan for over two years, focusing on simplifying operations and divesting non-core assets. The company has exited telecom businesses in Italy and Spain and completed a major merger with CK Hutchison Holdings Ltd.’s Three in the UK.

With these divestments, investor attention has shifted to Germany, Vodafone’s largest market, which had been dragging down service revenue due to heightened competition and regulatory changes that led to millions of customer losses. Notably, a German law prohibiting landlords from bundling TV packages with rent contracts caused Vodafone to lose about half of its customers in this segment.

Vodafone confirmed that the impact of this regulatory shift has now fully subsided. Additionally, wholesale performance improved significantly as around 12 million 1&1 customers migrated to its network infrastructure.

The company introduced a new "progressive" dividend policy, raising this fiscal year’s payout by approximately 2.5%. Management also upgraded its FY2026 outlook, expecting profit and cash flow to reach the upper end of guidance—adjusted EBITDAaL between €11.3 billion and €11.6 billion and adjusted free cash flow between €2.4 billion and €2.6 billion.

The merger with Three in the UK reduces the number of major telecom operators from four to three—a long-sought consolidation in Europe’s telecom sector to drive scale and sustainable growth. Vodafone and Three pledged to invest around £11 billion in the UK over the next decade, with integration efforts already underway.

Beyond Germany, Vodafone continues to rely on strong growth in its African telecom business, Vodacom Group Ltd., which reported its largest profit jump in over a decade.