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| Friday, 01 June 2007 | |
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A financial snapshot of the world’s most far-ranging mobile operator. Its strategy is working and yet is doomed if any one of three critical levers fail to crank up revenue. If all three stiffen and lock, it’s bye-bye…
Vodafone is riding high. This week’s results would be hard pressed to set a Californian pine forest alight at the height of summer, but this has not stopped investors wading into the company’s stock with something close to gay abandon. Of course, this is not a mass march into the Vodafone shares; it a lumbering of the institutions who cannot afford to be underweighted on the world’s second-largest mobile ‘giant’. The result is a trading price of 160p as of yesterday, a year’s high up 45% from a 52-week low of 110p. True, disposals in mature markets and their accompanying costs have now worked through Vodafone’s massively extended intestines. Yet the company’s avowed strategy of chasing opportunities in emerging markets does not come cheap. The US$10bn deal with Essar in India is still weighing heavily in the digestive tract. One must also wager that Vodafone is poised to spend more in China, specifically China Mobile, if and when 3G is greenlighted there. Starting price there for anything beyond tokenism is another US$10bn. Vodafone this week also signalled that it is ready to purchase the 50% in South Africa’s Vodacom currently held by Telkom. That would likely cost another US$8bn. Back in its hinterland, things are more prickly for Vodafone. The need to drive forward ARPUs in mature markets is beginning to sound like a broken record. Not even an early adopter would download a broken record. Nor almost any audio, video or information service that the giant currently prepones despite endless slews of sludgy market uptake. An added threat here is the loss of cream-lined roaming revenues. Vodafone is not alone in acting like a profiteering opportunist on this issue, but as the largest operator of its type you would expect it to be hurt hardest. Expect elsewise. One benefit of Vodafone’s global expansion is that increasing numbers of its customers are based in countries beyond the EU or travelling to those countries from the EU. The wringing of hands, wailing and shrieking are a sham. Vodafone is engorging itself on this roaming business. Try making a London-Mumbai call. You had better seal the deal. Broken down A crude analysis of Vodafone would pan out thus: • cement a presence in emerging markets; • drive ARPU through non-voice services in mature markets; • retrench windfall revenues from non-competitive businesses (eg roaming). A crude destruction of this model would be as follows: • setbacks from emerging markets as governments in China, India and Africa redraw the commercial boundaries around cellular; • failure (again?) of multimedia service models; • tougher European, unilateral and non-EU action on excessive roaming charges. If you have faith in the first three bullet-points, all is right with the world. If you subscribe to the last three, sell the stock before it collapses back to 110p. It is at that point that AT&T, re-emerging as a global monster in fixed and wireless services, will buy Vodafone. It will swallow it with the same beguiling mixture of smugness and surprise with which a frog swallows a dragonfly. Gulp. Jim Chalmers |
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