Vodafone boss quits after turnaround failures, share price gloom

Company bosses are occasionally said to live or die by the share price. If that adage is true, then Nick Read's survival as Vodafone's CEO had looked in doubt for a good chunk of his four-year tenure at one of Europe's largest telcos. Valued at about 148 pence sterling when he took over in October 2018, Vodafone had slumped to 91.14 when the London Stock Exchange closed last Friday. The news out this morning is that he will quit at the end of the year, staying on as an adviser until March.

"Nick Read's departure is no massive surprise – he had come under growing pressure from disgruntled shareholders amid disappointing stock performance," said Kester Mann, the director of consumer and connectivity for analyst business CCS Insight, in comments emailed to Light Reading.

How will Read be remembered? As a likeable and jovial man, no doubt – one who as Vodafone's previous chief financial officer could engage with financial analysts on the minutiae of the balance sheet, helping them to plug the holes in their spreadsheet forecasts. But all his blokey charm and financial acumen could not compensate for a lack of vision about what Vodafone should be.

Gardening leave? Vodafone CEO Nick Read quits at the end of this year. (Source: Vodafone)
Gardening leave? Vodafone CEO Nick Read quits at the end of this year.
(Source: Vodafone)

That hardly made him look out of place in a sector where visionaries are as rare as men who have walked on the moon. What really did for Read was the underperformance in some of Vodafone's most important markets and a recent failure to pull off the mergers and acquisitions that might have produced more competitive players. Mann said "deals in targeted markets such as Spain, Italy and Portugal have so far proved elusive."

The biggest deal of his CEO career was the €18.4 billion (US$19.4 billion, at today's exchange rate) takeover of Liberty Global operations in Germany and several eastern European countries, finally completed in mid-2019. He had inherited this deal from Vittorio Colao, Vodafone's previous CEO and Read's former boss, eventually steering it past German opponents. Yet for all the talk about the commercial advantage it would give Vodafone, Germany has subsequently been a drag on results. After local management changes, there were small signs of improvement in the September-ending quarter but not enough to prevent Vodafone's share price from dipping further.

Vodafone share price in London (pence sterling)
(Source: Google Finance)
(Source: Google Finance)

Chief telecom moaner

The biggest deal Read actually initiated was the carve-out of Vodafone's towers into a separate entity branded Vantage Towers – a transaction befitting a number cruncher. The rationale was that a spin-off would unlock value. Read had noticed the attractive multiples attached to infrastructure, and the new entity could be publicly listed. But under his plans, Vodafone will end up with co-ownership of assets once deemed too strategically important to sell, and co-ownership is not control. Nor is it clear why potential customers would favor Vantage over a fully independent towerco whose owners are not also rivals.

Read was a contender for the title of chief telecom moaner, regularly complaining about the poor investment returns in Europe's telecom markets while insisting to analysts that authorities were becoming less resistant to mobile mergers. His resignation does not look auspicious for the potential tie-up between Vodafone and Three in the UK, announced just a few weeks ago. Wouldn't Read have stayed – at least a bit longer – if he thought UK authorities were about to bless that deal?

Like many of Europe's big telcos, Vodafone remains heavily leveraged, carrying about €45.5 billion ($48 billion) in net debt, a figure around 2.7 times its annual earnings for the last fiscal year. Net debt is now also about €16 billion ($16.9 billion) more than Vodafone's market capitalization on the London Stock Exchange. The Vantage deconsolidation will improve the various multiples, but rising costs will put further pressure on margins next year. Vodafone's electricity bill alone rose 11% for its most recent fiscal year, even though its energy use fell.

Technology gambles

The jury is still out on some of the controversial decisions Read made on the technology side. Amid a regulatory backlash against China's Huawei, one of Vodafone's favorite vendors, Read swung behind open RAN, a set of interfaces that would supposedly allow operators to combine products from different suppliers more easily.

The apparent hope was that open RAN would cultivate specialists and prevent the market from turning into an Ericsson and Nokia duopoly. Yet Vodafone is wrestling with the complexity of a 2,500-site Huawei swap-out in the UK, and it still needs to figure out what it does with thousands of other Huawei sites. Open RAN seems like a risky bet on unproven technology.

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The software overhaul of Vodafone's technology department is a related gamble. It is attempting to hire thousands of software engineers, cutting its need for contractors and external systems integrators. There is even optimism that some engineers could be unleashed on the development of new revenue-generating services. But competition for talent is fiercer than ever, and software expertise is not bought cheaply. What's more, Johan Wibergh, the chief technology officer behind the program, is also quitting the company.

All this puts Read's eventual successor in a difficult position. His job will fall to Margherita Della Valle, Vodafone's chief financial officer, until a full-time replacement can be found. Mann points out that a new CEO "will face the same tough inbox, with geopolitical uncertainty, rising costs, tough regulation, strong competition and questions over return on investment for the sector high on his or her agenda." The recruiters will have their work cut out.

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— Iain Morris, International Editor, Light Reading

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