London, April 5 (Bloomberg) Wireless service providers don't come any bigger than Vodafone. At the ...
London, April 5 (Bloomberg) Wireless service providers don't come any bigger than Vodafone. At the end of last year, the carrier had more than 78 million subscribers on every continent except Antarctica, and when penguins start sporting cell phones, Newbury-based Vodafone probably will be there to sign them up as well.
Vodafone makes no secret of the fact that it wants to stay king of the wireless hill, and it's betting on third generation to help do this. It is a gamble that may backfire, according to some analysts.
In addition to the approximately $20bn it spent last year on European UMTS licenses, Vodafone has spent, or has agreed to spend, another $25bn in cash or stock during just the last five months on six global expansion deals.
Vodafone acquired a new interest in, or increased an existing interest in, five more operators, China Mobile (2%), Swisscom (25%), Japan Telecom (25%), Brazil's Iusacell (34.5%), Spain's Airtel (52.1%), and agreed to buy Ireland's Eircell. Those companies join a long list of other Vodafone stakes, including Germany's D2 Mobilfunk (99.2%), Sweden's Europolitan (71.1%), the Netherlands' Libertel (70%), Greece's Panafon (55%), Portugal's Telecel (50.1%), and of course, its widely-publicised 45% partnership with Verizon in Verizon Wireless.
According to a recent Bear Stearns equity research report by a wireless research team in London, Vodafone's latest expansion activity is simply the result of good timing and aggressiveness.
"Over the past three months, while other operators have been struggling to repair damaged balance sheets, Vodafone has seized the advantage and continued to expand," wrote Bear Stearns Wireless Analysts Fanos Hira, Jerry Dellis, Paul Harper and Jeremy Hudson.
Last year, Vodafone completed a $180bn hostile takeover of Germany's Mannesmann AG. It was the ravenous Vodafone's largest acquisition since it was formed in 1983 as a joint venture between the UK's Racal Electronics and the American telecom Millicom. The company now has more than 29,000 employees around the world.
According to CEO Chris Gent, even Vodafone does not expect to keep growing its subscriber base at 50% plus per year. At a Merrill Lynch telecom conference in New York last month, Gent said that Vodafone's near-term strategy is to focus more on revenue growth through the introduction of higher profit "new data services" in order to increase the company's average revenue per user (ARPU.)
"In the next year, the priority will be margin improvement and flow growth, rather than customer growth and market share," Gent said.
Bear Stearns estimates that Vodafone's annual subscriber growth rate will drop to 16.3% in 2002; 8.4% in 2003; 5% in 2004, and only 3.4% in 2005. By then, Bear Stearns figures that Vodafone will have about 113 million subscribers worldwide.
The likely decline in its subscriber growth rate makes Vodafone's bet that higher profit data services, enabled by a third generation buildout, will take off in the next few years that much more critical, said Phillip Townsend, chief telecom analyst at Arnhold and S Bleichroeder in London.
However, Townsend, an admitted iconoclast who goes against the grain of most of his fellow telecom analysts, is not bullish on third generation at all. In fact, he predicts that not only Vodafone, but the other carriers who have spent huge amounts on spectrum will need to be bailed out by their respective governments when they fail to recoup their investments.
Townsend argues the conventional consumer market will not adopt the expanded third generation products, the mobile internet, streaming video, and so forth, all that quickly. Perhaps in seven years, but more like 10 years, much like colour television took nearly a decade to supplant black and white TV, Townsend predicts. By that time, many of the spend-happy telcos will face bankruptcy, he adds.
As one analyst said: "The investments are there. The contracts have been signed. The business plans have been developed. Now they have to make sure the customers come running. And that's the big question. What is the compelling business case to consumers to actually use these services?"
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