Mobile operator's executive carousel spins into action again as its Innovation unit closes its doors

October 16, 2006

7 Min Read
Vodafone Upheaval Continues

The executive name-plate changer at Vodafone Group plc (NYSE: VOD) must be working overtime these days as the global wireless carrier seems intent on changing its top team more often than teenagers replace their handsets.

The latest big name packing his personal items into a cardboard box is Thomas Geitner, the former Vodafone CTO who became head of the carrier's New Businesses and Innovation Unit on May 1, with responsibility for the Mobile Plus strategy. (See Vodafone Shuffles the Deck.)

The aim of the unit was to "focus on converged and IP services in order to deliver new revenue streams as Vodafone seeks to provide innovative services to its customers," a critical area of development for any large mobile operator.

But Geitner is leaving at the end of 2006, and will not be replaced. In addition, the Innovation Unit is being scrapped, with its activities, including those related to the carrier's entry into fixed broadband, devolved into "parts of the organization closer to the customer," says Vodafone. (See Vodafone's Board Changes.)

Vodafone says this move will simplify its business. The Innovation unit was one of only three principal business units, so now it has just two: "Europe" for the carrier's business in Western Europe, and "EMAPA" (Eastern Europe, Middle East, Africa, Asia/Pacific, and affiliates), which manages all other territories, including emerging markets. (See Vodafone Unveils New Strategy.)

The shakeup doesn't appear to be the result of disappointment with the Mobile Plus strategy. Following a recent briefing about Vodafone's business in Italy and Spain, analysts were positive about the impact of Mobile Plus, and about Vodafone's prospects in general. The team at Lehman Brothers stated in a recent research note that Vodafone has "made good progress with its Mobile Plus strategy over the last few months" by launching new services for retail and enterprise users, including wireless and fixed broadband. (See Vodafone Uses Ericsson HSDPA, Vodafone UK Offers DSL, and Vodafone Italy Uses Lucent.)

And the swift decision to close the unit makes sense, reckons Ovum Ltd. analyst John Delaney. "We think that closing the Innovations division is the right move. It always felt a bit odd," he writes in a research note, adding that focus areas such as fixed/mobile convergence and mobile advertising "vary so much by country that working on them at a centralized, global level seems like the wrong approach."

The Mobile Plus strategy is now the responsibility of the Europe unit, headed by Vittorio Colao (we'll come back to him in a minute), while the development of "new business opportunities and key partnerships" will be the responsibility of a "Group Strategy and New Business" function that is the responsibility of Alan Harper. That makes sense, as Harper is already Vodafone's director for Group Strategy and Business Integration.

Geitner's departure isn't the only change in Vodafone's personnel roster in the past year, a period that has seen the carrier's share price slip more than 11 percent on the London Stock Exchange to 130 pence today.

And the revamp hasn't been restricted to the carrier's staff list. The mobile giant -- 2005 revenues of £29.4 billion (US$54.6 billion) and 187 million customers (US187 million) as of June 2006 -- has undergone a dramatic overhaul of its global portfolio, service offerings, and partnerships in the past year. (See Vodafone Posts Results.)

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The People
Geitner isn't the only head of a Vodafone principal business unit to have announced his departure recently. Bill Morrow, named as head of Europe at the end of May, resigned in July to return to California for family reasons.

He was replaced by Colao, who started work at Vodafone last Monday, October 9. Colao is no stranger to Vodafone, as he was responsible for the carrier's business in Southern Europe before he left in 2004 to become CEO of Italian publisher RCS MediaGroup. As well as running Europe, Colao is also the new deputy CEO, replacing Sir Julian Horn-Smith. Naturally, that makes Colao the odds-on favorite to become Vodafone's next CEO, with some industry pundits suggesting that move up the ladder will come sooner rather than later. (See Vodafone Names Euro Chief.)

The current CEO, Arun Sarin, has had a rough ride in the past year, and was even in danger of being voted out of his job by shareholders earlier this year. (See Vodafone CEO Faces Showdown and Sarin Survives.)

He survived, though nearly 10 percent of shareholders voted against his reinstatement as CEO. And following a year that has included outlook revisions, and ongoing disgruntlement among some investors about the carrier's M&A policy -- including Sarin's insistence that he won't sell Vodafone's 45 percent stake in Verizon Wireless -- his medium-term future is in doubt. (See Pressure Mounts on Vodafone CEO, Vodafone Rings Warning Bell, and Verizon Reportedly Close to Vodafone Deal.)

Now Sarin is working with a new chairman, as Sir John Bond took over from Lord MacLaurin at the end of July.

Completing the people circle at Vodafone is Steve Pusey. With Geitner vacating the CTO position earlier this year, Pusey was poached from Nortel Networks Ltd. in August to take that role. (See Vodafone Nabs Nortel Exec.)

The Portfolio
Rewind a year and you would find a slightly different Vodafone in terms of its global portfolio. And some of the M&A decisions made in the past 12 months have increased the pressure on Sarin.

In December 2005 the carrier announced the acquisition of Turkey's No. 2 mobile operator Telsim . The Turkish market still has tremendous prospects for growth, but some analysts and investors balked at the price tag of $4.55 billion. (See Vodafone Buys Telsim Assets.)

Investors were appeased in March, though, when Vodafone announced the sale of its Japanese business for $13.9 billion, with $10.5 billion of that flowing straight back to shareholders as a cash dividend. (See Vodafone Cashes In on Japan.)

The big deal that some investors were crying out for was the sale of the Verizon Wireless stake. Various media reports suggested that talks had been held, and that Verizon Communications Inc. (NYSE: VZ) had even suggested some numbers close to $50 billion to buy out Vodafone's stake.

But Sarin has held firm, stating on more than one occasion that he regards the stake as a strategic investment that is increasing in value. The holding continues to be an anomaly, though, as it is Vodafone's only CDMA business in a global GSM portfolio, and, as a minority stake, it jars with Vodafone's policy of having management control over its assets.

That policy led to a further divestment in August, when Vodafone offloaded its 25 percent stake in Belgian mobile operator Proximus for €2 billion ($2.5 billion). (See Belgacom Buys Proximus Stake.)

Since then, the carrier has acquired ihug , a fixed-line broadband access ISP in New Zealand. (See Vodafone NZ Buys IHug.)

That's a move that fits in with Vodafone's new strategy of offering fixed broadband along with mobile services.

Strategy and Partnerships
Earlier this year, Light Reading wrote about the impending move of major mobile operators into the fixed-broadband business. (See Mobile Giants Size Up DSL.)

Not long afterwards, Vodafone unveiled its DSL aspirations, and it has since announced bundled mobile/fixed broadband service offerings in Germany, where it still owns fixed-line operator Arcor AG & Co. KG ; in the U.K., where it is partnering with BT Group plc (NYSE: BT; London: BTA); and in Italy, where it has hooked up with Fastweb SpA (Milan: FWB). (See Vodafone Unveils Convergence Plans, Vodafone UK Offers DSL, and Vodafone, FastWeb Team Up.)

Those aren't the only new relationships Vodafone has forged this year, though. It has been striking a number of significant outsourcing deals, most notably with Electronic Data Systems Corp. (EDS) (NYSE: EDS), IBM Corp. (NYSE: IBM), and Amdocs Ltd. (NYSE: DOX). (See Vodafone Outsources to IBM, EDS and Amdocs Lands Vodafone Deal.)

Elsewhere, the carrier has been cementing key relationships with the biggest names in software and the Web 2.0 world. (See Vodafone, Google Team and Vodafone, Microsoft Team.)

And Vodafone has been working ever more closely with Chinese vendor Huawei Technologies Co. Ltd. , especially in terms of handset supply and branded device developments. (See Huawei Supplies V'fone Phones and Vodafone Brands a Handset.)

But it's not just a device relationship. Huawei has also won infrastructure business in Europe from the operator, leading some industry executives to speculate that, behind the scenes, such deals might help Vodafone break into the Chinese market in the future. (See Huawei Wins V'fone HSDPA Deal and Vodafone Czechs Out Huawei.)

Vodafone has also just caused a storm in the U.K. with a revamp of its retail outlet strategy, switching allegiance away from Carphone Warehouse Group plc (London: CPW), which is now a DSL competitor. (See Vodafone Swaps Resellers; Carphone Stock Falls and Carphone Faces Broadband Hiccups.)

— Ray Le Maistre, International News Editor, Light Reading

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