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Pressure Mounts on Vodafone CEO

Ray Le Maistre
3/13/2006
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If Vodafone Group plc (NYSE: VOD) CEO Arun Sarin is a fan of the U.K. football (soccer) scene, he'll be watching his back today.

Why? Because this morning he received what is perceived by British football coaches to be the kiss of death -- a vote of confidence from his chairman.

The public message of support from Vodafone chairman Lord MacLaurin of Knebworth (honestly) follows months of mounting pressure on the CEO from investors and analysts over the company's long-term strategy, especially regarding Vodafone's extensive international holdings and speculation about internal wrangling. (See Vodafone Mulls Japanese Sale, Vodafone Rings Warning Bell, and Vodafone Sticks With Verizon.)

In his short statement, Lord MacLaurin said: "I want to make it clear that I and the Board are totally supportive of our Chief Executive, Arun Sarin, as he takes the Company forward in changing and challenging times. Any other suggestion is completely untrue."

In the murky world of soccer management that would translate as "start clearing your desk, sonny."

Sarin, though, isn't packing his kit bag. In fact, he appears to be on the offensive. Last week he saw off chief marketing officer Peter Bamford, regarded as one of the obstructive Old Guard. (See Vodafone's Bamford To Leave.)

And now another perceived opponent, Sir Christopher Gent, Sarin's predecessor as CEO, has quit his role as honorary lifetime president, a non-executive position. Coincidentally, Lord MacLaurin felt it necessary to publicly protect Sir Christopher back in 2002 when he was under fire in the media. (See Sticks & Stones May Break My Bones….)

According to media speculation, Gent has been unhappy at Sarin's handling of Vodafone's international strategy and the potential dismantling of the empire he built up, and has been campaigning against the current CEO and his supporters. But Sir Christopher, in his resignation statement, refutes the allegations outright, dismissing suggestions he has been fueling internal unrest.

"It has been alleged that I have used the position [as Life President] to interfere with the company and obstruct current management. These allegations are without foundation… If there is a 'whispering campaign' or 'conspiracy,' which I very much doubt, then I am not party to it."

He adds: "When I was an executive at Vodafone, relationships within the company and at Board level were characterized by openness and trust. We were mercifully free of company politics and blame culture. I do not wish to be subject to a disinformation campaign intended to manipulate the press. Furthermore I do not want any misunderstanding of the role of Life President to be used in a way that might detract from Vodafone’s future prospects."

He ends, though, with a small kick to the nether regions of the current management. "Nothing would give me greater pleasure than to see Vodafone recover from its present difficulties."

News of Gent's decision, viewed as one step towards greater management unification, helped Vodafone's share price rise by 4.75 pence, nearly 4 percent, to 129.5 pence on the London Stock Exchange , valuing the operator at £78.2 billion (US$135 billion).

Robin Hearn, an analyst at Ovum Ltd. , reckons Sarin inherited an almost impossible task from Gent. "The job of bringing all those disparate elements of the Vodafone empire together in an increasingly competitive and challenging climate has been much more difficult than any of the Vodafone management, now or then, would have ever thought," writes Hearn in a research note.

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digits
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digits,
User Rank: Light Beer
12/5/2012 | 4:02:03 AM
re: Pressure Mounts on Vodafone CEO
If Verizon makes Vodafone a buyout offer it can't refuse, where does that leave Vodafone in North America? What are its options?

This must be a major headache for Sarin -- Vodafone is a GSM operator without a GSM presence in the US.
telecom_guru
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telecom_guru,
User Rank: Light Beer
12/5/2012 | 4:02:02 AM
re: Pressure Mounts on Vodafone CEO
They buy T-Mobile you ninny!!!! GSM in the USA...dah
materialgirl
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materialgirl,
User Rank: Light Beer
12/5/2012 | 4:02:01 AM
re: Pressure Mounts on Vodafone CEO
They are in a joint venture now. Dump it for big bucks, and joint venture with Cingular with a big roaming deal in Europe. Then they get the unified coverage they really want, still with joint vendure status. Cingular is a lost dog anyway, their service stinks and they continue to lose market share. Perhaps VOD can use their deep knowledge of internal ops at Verizon wireless to sweeten the deal.
slideruler
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slideruler,
User Rank: Moderator
12/5/2012 | 4:01:59 AM
re: Pressure Mounts on Vodafone CEO
Sorry to burst this bubble, but the money involved in terminating roaming calls for Verizon customers through a "roaming deal" is table scraps compared to the subscriber-based services that are rolling out & driving large chunks of new ARPU (ask VeriSign, Cibernet or Syniverse). V must "own" a significant subscriber base of its own in order to have exposure to the revenue growth upside in the US - plain and simple.
materialgirl
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materialgirl,
User Rank: Light Beer
12/5/2012 | 4:01:56 AM
re: Pressure Mounts on Vodafone CEO
Dear Slideruler:
Don't confuse revenues with profits. I doubt many of these high bandwidth offerings will be that profitable for the carriers because they cannot charge commensurately for the added bandwidth usage. In addition, content providers or ISVs will take their share of new services ARPUs, leaving relatively little behind.

If these factors keep pushing service providers into the role of bit pipe providers, why not just own traffic at the choke points, and profit from that?
slideruler
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slideruler,
User Rank: Moderator
12/5/2012 | 4:01:45 AM
re: Pressure Mounts on Vodafone CEO
MG - I disagree.

Here are some facts to consider with respect to your hypothesis:

1) There are three basic measures that analysts review to determine the value of a wireless carrier: Net Subscriber Adds, Monthly/Annualized Churn (%) and ARPU (the "R" in ARPU stands for revenue by the way). In the case of Cingular as an example, these values are: 1.8MM, 2.1% and ~$48 respectively. Losing 50MM subGăÍs ARPU (shared) and spectrum foothold in a key market like the U.S. in exchange for a great roaming deal would not go over well at the shareholderGăÍs meeting, IMO. I would expect the sale of the AsiaPac properties to come into play in a trade/purchase if a deal is done.

2) The value added services that will primarily drive ARPU growth over the next 12-24 months are almost entirely within a carrierGăÍs control (ie. they do not require outside content providers to deliver them). These include: Messaging, Push to Talk, Data services (UMTS/HSDPA), Pre-paid Go phones and ringtones (which are purchased in quite economic quantities from a myriad of providers). Gaming & music have not seen high levels of take for the mobile carriers as of yet. Also, when you are a carrier with over 150+ MM subs, you can drive an exceedingly painful bargain with the content providers, believe me.

3) Roaming is a tiny portion of a carrier's revenue G㢠using Cingular again as an example, only 3.7% of total revenues came from roaming in 2004 (from other carriers). This dropped to 2.5% in 2005. Total roaming $ from all sources (internal & external) is <8% of total wireless subscriber revenue. Roaming rates are dropping like a stone due to competitive pressures and alternative access methods (see below). In addition, a carrier has no control over the roaming revenue component G㢠if Cingular cut a new deal with another GSM carrier in the future (O2, TMobile, Orange), that revenue would instantaneously drop to zero.

4) Internet voice and Go phones are eliminating any remaining roaming revenue opportunities. Take a look at the number of international business people lined up to buy Go Phones in LHR Terminal 3 (Departures level across from the Starbucks) and you will get the idea. Look at what is going on in hotel lobbys around LHR and the City - subscribers are using their Skype (VoWIP) phones and VoIP landline to communicate. This will only accelerate. So - exactly what "choke points" were you referring to?

If Vod does indeed sell their interest in Vwireless - and they very well may - expect them to make an ownership play with another carrier in the US G㢠or better yet, a three way trade with DT, including some Asian interests that also sends Beckham to DC United. Finally donGăÍt forget that Arun Sarin Găúgrew upGăą in the U.S. Wireless business (PacBell, Airtouch) G㢠I would be greatly surprised if the global strategy did not include the US in a significant way.

My -˙0.02

Cheers,
SR.
mrbhagav
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mrbhagav,
User Rank: Light Beer
12/5/2012 | 4:01:33 AM
re: Pressure Mounts on Vodafone CEO

Excellent points, Sliderule.

The ongoing sale of Vod's japanese assets, which incidentally Vod broke quite well with sheer lack of strategic vision in a tricky market, is clearly intended to give Mr. Sarin some breathing room, take the lid off the pressure pot and provide some leverage with talks with VZ.

I am inclined to think that their U.S. exit is inevitable and will be a painful one for both parties for different reasons. If they indeed decide to re-enter, which I believe to be a necessary strategy for them, it will certainly not be through a JV; not after this experience! It will likely be through a controlling stake or an outright acquisition of a mid-tier wireless operator that is struggling in an increasingly competitive and saturating U.S. market. Someone guessed T-Mobile...s/he may not be too far off. It may also be a trading chip with DT.

On the other hand, they may find, over the next 2-3 years, their Asian investments (like Bharti) delivering higher ROI than any other region in the world, which may lead to further consolidation and capital outlays in those regions. After all, the U.S. market is still unproven for bandwidth-hog applications like video and music, especially compared to many parts of Asia that is feeding ever-hungry mobile addicts over increasingly capable networks.




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