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Gent's Last 3G Stand

Light Reading
LR Mobile News Analysis
Light Reading
5/27/2003

Vodafone Group plc's (NYSE: VOD) decision not to write off its £11 billion (US$18 billion) cost of UMTS licenses in the U.K. and Germany has been received by the market as a possible attempt for chief executive Chris Gent to bow out on a high (see Vodafone Loses Less).

Despite a loss of £9.8 billion ($16.1 billion) due to the revaluation of assets acquired from the likes of Arcor, Groupe Cegetel, Grupo Iusacell S.A. de C.V., and Japan Telecom Co. Ltd., Gent holds that the company has turned in an “excellent performance.” Core earnings this year rose 26 percent to £12.7 billion ($20.7 billion), up from £10.09 billion ($16.5 billion) a year earlier. The company expects next year’s revenue to grow by a further 10 percent.

Attention was fixed, however, on Vodafone's choice to buck the growing trend of writing down the value of 3G licenses (see 3G Farce Stings mmO2). In a conference call, Gent stressed the company’s belief that following suit would be an unnecessary move.

“We’ve done the impairment review on exactly the same basis as [mmO2 plc], and we’ve come to a different view, based upon the fact that we are in a much stronger position than they are,” he told analysts. “It’s as simple as that. [Our] businesses are generating very strong free cash flow and we don’t see any justification for writing off" 3G investments.

Analysts believe today’s moves can be interpreted as a concerted effort for Gent to leave on a positive note, despite the company’s current debt levels. The chief executive steps down in July with a reported final pay package of £5 million ($8.2 million); he will be replaced by former AirTouch CEO Arun Sarin (see Vodafone Names New CEO).

“It was like a farewell speech with the emphasis on past achievements,” IDC’s Paolo Pescatore tells Unstrung. “It wasn’t something I am used to hearing at similar events. Sarin made little comment -- this was clearly Gent’s day.”

“The writedowns mentioned were the result of Gent’s acquisition strategy. Writing off the 3G licences as well would have been a pretty sour note for him to leave on,” says Phil Kendall, director of global wireless practice at Strategy Analytics Inc.

Kendall adds that the carrier may at some point need to reevaluate this decision. “Today’s moves give the incoming guy a bit of breathing space. Sarin can come in and make a sweeping change by deciding to write down their value, and will in return receive a pat on the back from the financial community.”

Gent concluded today’s results announcement by emphasizing the company’s commitment to 3G following its aggressive license hunt, with plans to introduce the service in the U.K. by the “end of this financial year.” Meanwhile media reports suggest that Vodafone (or "Voodoo," as some sources close to Unstrung label the company) will next month sell its entire stake in the fixed-line phone business of Japan Telecom to U.S. investment fund Ripplewood Holdings. The ¥260 billion ($2.22 billion) deal is in line with Vodafone’s decision to divest non-core assets and focus specifically on the wireless market.

The group's shares fell 3.6 percent to £1.21 ($1.98) as a result of today’s developments.

— Justin Springham, Senior Editor, Europe, Unstrung

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