Vodafone has announced its full year results and has said it will reduce acquisitions activity.
Vodafone, the world’s largest mobile operator, today announced its results for fiscal 2000-2001. It saw an 82% rise in EBITDA to GBP7 billion. However, overall loss was GBP8.1 billion compared with GBP1.3 billion profits the year before, thanks to writing off goodwill from major acquisitions. CEO Chris Gent said the firm will now focus on margin improvement and cash flow growth, rather than customer growth and market share.
This sounds like an end to Vodafone’s acquisition spree. However, if the company stops buying now, it is left with a dilemma in three of its largest markets. In the US, it owns 45% of leading operator Verizon Wireless; in France it owns around 33% of second-largest mobile operator SFR; and in Japan, although it owns the majority of third-largest operator J-Phone’s capital, it does not have control.
Vodafone shouldn’t tie up cash in firms it cannot manage; just one reason is the reported fight between Vodafone and Verizon Wireless’ 55% owner, Verizon Communications, over which 3G standard to use. If Verizon chooses a CDMA2000 network as opposed to the more popular W-CDMA, Vodafone customers elsewhere will not be able to use their phones in the US. One of the major advantages of having a global network, namely interoperability and roaming capabilities, would be lost.
The only sensible moves are to sell out, or to buy in deeper. Despite today’s announcement, buying in deeper might still be the best option; Japan and the US in particular present huge revenue opportunities. It also wouldn’t go against what Vodafone has said. The firm won’t expand into new geographical areas – but taking control of Verizon and J-Phone wouldn’t contradict this.
Vodafone has also said that it will focus on North America rather than the south, and that Japan is a key area. This makes a bid for control of J-Phone – or even for control of Verizon Wireless (whose parent company has worse debt problems than Vodafone) – look even more likely. The acquisition trail may not be over just yet.
