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3G/HSPA

Vodafone Eyes Emerging Acquisitions

Vodafone Group plc (NYSE: VOD) CEO Arun Sarin said today at the company's India Investor Day event that he has his eye on emerging markets in Asia and Africa for possible investments or acquisitions, while Qatar awarded the operator a mobile license.

Vodafone's EMAPA business unit -- which includes operations in Eastern Europe, the Middle East, Africa, and Asia/Pacific, as well as the operator's U.S. associate Verizon Wireless -- accounts for roughly 25 percent of Vodafone's revenue. Vodafone reported revenues of £17 billion (US$35 billion) for the first six months ending September 30, 2007, of which the EMAPA unit reported revenues of £4.3 billion ($8.8 billion). (See Carrier Scorecard: Vodafone and Vodafone Reports H1 Results.)

But Sarin put his emerging markets marker on the table today and said that he wants the EMAPA business unit to contribute one third of Vodafone's revenues "in the coming years." That growth will happen organically as well as by acquisition.

"We are likely to be investing, but investing in a sensible way," said Sarin. He said there were "one or two" countries in Asia where the operator would like to extend its footprint. Sarin also said he would like to increase the operator's exposure to Africa, but "how we do that is unclear."

Vodafone's basic criteria for an attractive emerging market with investment potential are low mobile penetration, strong economic growth, and a large population. (See Top Ten: Emerging Markets Carriers.)

The operator is already expanding in the Middle East. In Qatar, telecom regulator ictQATAR announced today that Vodafone, with its partner Qatar Foundation, won the second mobile license in the country after submitting the highest bid in the second round of auction. (See Seven Bid for Qatar License, Qatar Shortlists Mobile Cos, and VOD Wins Qatar License.)

Vodafone won the Qatar license over rivals, which had entered the bidding with their own consortiums including AT&T Inc. (NYSE: T), Etisalat , Mobile Telecommunications Co. (MTC) , and Verizon Communications Inc. (NYSE: VZ).

While Sarin would not reveal how much Vodafone has invested in the joint venture with Qatar Foundation, he said he was pleased with the news.

"This is a very important asset in the Middle East where we are expanding very prudently," he said.

Other growth initiatives for Vodafone's existing emerging market footprint include exporting Kenyan mobile operator Safaricom Ltd. 's successful M-Pesa SMS-based money transfer service. Vodafone owns 40 percent of Safaricom through a joint venture with Telkom Kenya . (See Safaricom Intros M-PESA.)

More than 1 million Safaricom customers use the M-Pesa service since it launched nine months ago in February, and customers have transferred more than £40 million ($82 million) to people within the country.

Paul Donovan, CEO for the EMAPA region, said that the service has had a "demonstrable effect on churn." Vodafone plans to roll out the M-Pesa service quickly to other markets and will focus first on launching the service in India. The operator is also working on setting up an international money transfer service.

Donovan also claimed that Safaricom is the most profitable company in East Africa, and that the operator is trying to IPO by the first half of next year.

But in China, where Vodafone owns a 3.27 percent stake in China Mobile Ltd. (NYSE: CHL), Vodafone is braced for change. The Chinese government is expected to restructure the telecom market next year.

Sarin stressed that Vodafone was a "willing participant" in the restructuring, but the ultimate decision is out of the U.K.-based operator's hands.

"The Chinese government will tell us what role they want us to play," said Sarin. "We want to make sure that we participate in China and do it in a positive and responsible way without having to put a lot of new capital to work in China."

In other words, Vodafone wants to invest in markets like China, but on its own terms.

— Michelle Donegan, European Editor, Unstrung

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