Vodafone Group warned the City yesterday that this year's profits would be around the bottom end of its forecast range because of weaker-than-expected equipment revenue and tough economic conditions. Traders savaged the company's stock, wiping about £10bn off its market value.

The company's shares, which are among the most widely held in the UK, tumbled nearly 15% on the London Stock Exchange soon after the trading update was posted. They later closed 20.25p to 129p, a loss on the day of 13.5%. The shares sank to their lowest closing level since October 2006 and topped the Exchange's FTSE-100 fallers' board.

The news from Vodafone knocked confidence in the European telecoms sector and dragged down shares in Spanish rival Telefonica and Ericsson, the Swedish mobile phone equipment supplier.

Vodafone, the world's biggest moble phone provider, predicted that this year's revenue would hover around £39.8bn because consumers were delaying buying new phones. The company said its Spanish operations took a hit from falling customer spending and fierce competition while its voice service revenues in the UK were depressed by the darkening economic climate.

"We are beginning to see an impact from the current economic environment which is greater than we expected," outgoing Vodafone chief executive Arun Sarin told investors and analysts on a conference call.

Collins Stewart analyst Mark James said telecoms companies had shown remarkable resilience to date to the macro-economic slowdown, but Vodafone had kicked off the telecoms results season with a reminder that nobody was immune.

The blizzard of negative news comes exactly one week ahead of the departure of Sarin, who will hand over to his deputy chief executive Vittorio Colao after five years in charge.

"The chief executive officer would not have wished for these numbers as a swansong, nor the accompanying share price performance," said Richard Hunter, an analyst at Hargreaves Lansdown.

Other City telecoms experts said the the biggest single cause of Vodafone's woes was an unexpectedly sharp fall in the Spanish market, where large numbers of immigrant construction workers who had been Vodafone customers left the country as the housing market collapsed.

"The Spanish and UK telecoms markets, resilient to the economic slowdown to date, finally look to have cracked," said James at Collins Stewart.

"It seems likely that earnings expectations, regardless of management's statements, are likely to get scaled back."

Vodafone said it said seen smaller but similar effects in other countries and said it was hard to tell how much it had been hurt by the econ-omy and how much by competition. "Clearly, both factors are there," said chief executive-designate Colao.

Vodafone said European service revenue rose 15.7%, driven by strong foreign exchange, but at an organic level, it was down 0.2% with Spain suffering the most.

On the brighter side, the group added that group sales jumped by 19.1% to £9.8bn in the three months to the end of June, compared with the same period of 2007.

Sales from its Emerging Markets, Asia-Pacific and Affiliates division surged by 30.5% to £2.64bn, pushed ahead by Indian revenue growth of 50%.

The group's customer base swelled by 8.5 million to 269 million people in the quarter.

The strong showing in emerging market provided evidence that Sarin's strategy of seeking new markets in Africa and Asia was paying off. Vodafone moved into developing economies to offset flagging sales and fierce competition in maturing western markets.

Vodafone left its capital expenditure plans unchanged for now, but indicated it had no urgent need to expand network capacity in response to higher demand for third- generation services such as video or Internet browsing.

"For the time being, we are well within our capacity limits," Colao said on the conference call.

Elsewhere in the sector, Telecom equipment maker Ericsson reported better-than-expected second-quarter earnings and reiterated it expected a flat mobile infrastructure market this year, but its shares could not escape Vodafone's pull and fell more than 8% at one point.

"The hard-tested Ericsson share is falling significantly today not due to the results themselves, but that Ericsson's customer, Vodafone, is out with a significant forecast downgrade," Jyske Bank said in a note to clients.

Margins at the Swedish company's key business in telecoms networks faced continued pressure as new roll-outs, rather than more lucrative upgrades to existing networks, made up a surprisingly large share of its business in emerging markets.

Ericsson had singled out the high share of new networks in its sales mix as the main reason for a collapse in third-quarter earnings last year, which led to a run on its shares.

Dutch-based KPN, Norway's Telenor, Nordic operator TeliaSonera and Belgium's Mobistar and Belgacom are all due to report quarterly results later this week.