Vodafone is to pay $3.5 billion in cash for the Eastern European assets of Telesystem International Wireless, a holding company based in Montreal, Canada. Specifically, Vodafone is acquiring 79% of Romanian mobile phone group Mobifon (it already owned 20% of the operator), and 100% of the rapidly growing Czech wireless operator, Oskar Mobil.
Vodafone will also assume $900 million of debt, it said, valuing the total deal at approximately $4.4 billion.
It is true to say that Vodafone is a mobile goliath, with 152 million customers in 26 countries around the world. Despite this, it is struggling to maintain strong growth levels. It expects mobile-phone revenue growth of less than 10% in the year ending March 2005, with the same rate predicted for the following 12 months.
The problem is that Vodafone operates in fairly saturated markets. For example, market penetration averaged more than 90% in western Europe at the end of September, and has climbed to more than 100% in Italy, Sweden, Greece and Portugal, according to BNP Paribas research.
However, the acquisitions in eastern Europe allow the Newbury, UK-based operator gain access to markets that are experiencing rapid growth, compared to the saturated markets of western Europe. Indeed, the assets it has acquired are said to be growing three times faster than the rest of the Vodafone group.
Prague-based Oskar Mobil is the third ranked mobile operator in the Czech Republic, and has a customer base of 1.83 million, up from 1.55 million last year. This gives it a market share of 17%, in a country in which mobile phone penetration stands at 105% – higher than the United Kingdom.
Romania’s MobiFon on the other hand is the better growth prospect for Vodafone, as it controls 48% of the domestic Romanian market, and ended the year with 4.91 million subscribers, up from 3.46 million at the end of 2003. Only 47% of Romanians currently own mobile phones (up from 33% a year ago), statistics that clearly show the potential this market can offer.
The move into eastern Europe is Vodafone’s first significant play after February last year, when it entered a $41 billion plus bidding war for the US mobile operator AT&T Wireless. In the end, Vodafone lost out when it was outflanked by Cingular Wireless, which offered a cash bid of $40.7 billion, plus $6 billion of debt. Actually, Vodafone’s executives had gone to bed thinking that their $40 billion bid had won the day, only to wake up to discover that the rival bidder had made a last-minute offer.
That defeat left Vodafone’s US strategy in tatters, with its only presence in the world’s most valuable market coming from its joint wireless venture, Verizon Wireless, where it holds a minority stake.
Following the defeat, Mr Sarin has had to balance shareholder demands for higher returns, with the clear need for the giant to invest in new markets. Many shareholders had been very unhappy at Mr Sarin’s decision to bid so aggressively for AT&T Wireless, which was a relatively poor performing operator in the United States.
Meanwhile, the sale of Telesystem’s last two divisions is probably its final act. The holding company had once owned an ambitious portfolio of mobile phone and paging businesses that stretched from eastern and western Europe to Brazil, Mexico, India and China. It had been able to purchase those assets after it raised more than $1 billion in stock and bond sales in the late 1990s, when investors snapped up phone securities.
However, the bursting of the dotcom bubble in 2000 meant that cash ran dry. Its UK-based mobile phone service business for corporate customers (Dolphin Telecom) filed for bankruptcy in 2001, and the company was forced to sell off most of its assets as it struggled to cut debts, restructure and reassess its strategy.
