Vodafone Unveils Convergence Plans
CEO Arun Sarin also addressed the issue of M&A, in particular the speculation about the future of Vodafone's 45 percent stake in Verizon Wireless. (See Verizon Reportedly Close to Vodafone Deal.)
He said that, following the sale of the company's Japanese business, Vodafone will "look at which assets belong with us, and which belong with others. The U.S. business is performing very well, and its incremental revenue share is increasing. Every time we look at it, it has outperformed, and that trend is likely to continue. Vodafone is a very happy shareholder" in Verizon Wireless. (See Vodafone Cashes In on Japan.)
As for Verizon Wireless statements suggesting that the onus lies with Vodafone regarding any sale of its stake, Sarin stated: "I don't feel the ball is in our court at all. The board will always consider shareholder value."
He added: "We are very happy with the portfolio we have, and we don't have a big M&A agenda," but if there's a great opportunity to be had from an acquisition, "we'll take it."
Sarin and other executives talked about the potential growth offered by emerging markets, in particular the opportunities in Turkey, where the company recently acquired Telsim . Vodafone has also made investments in India, Romania, and South Africa. The CEO said that, in general, emerging markets were growing at three times the rate of developed markets. (See Vodafone Buys Telsim Assets, Vodafone Buys Bharti Stake, and Vodafone Looks Beyond Europe.)
And Paul Donovan, the executive in charge of emerging markets, noted that while average revenue per user (ARPU) is often lower in these territories, the margins can often be higher, and competition less intense: "There is great potential in these markets, especially where fixed telephony is weak or underdeveloped."
But future acquisitions will be tied to strict criteria, noted the CEO. They must enhance an existing local or regional presence, offer a clear path to overall control of the asset, and provide a return on investment within three to five years.
The big headline loss of £21.8 billion ($40.9 billion) was due to asset write-downs of £23.5 billion ($44.3 billion), which the carrier had warned about earlier this year. (See Vodafone Rings Warning Bell.)
But annual revenues, at £29.4 billion ($55.4 billion), and operating margins for the fiscal year to March 31, 2006, beat analyst expectations and the company's guidance, and the carrier announced it will return £9 billion ($17 billion) to shareholders later this year, with £6 billion ($11.3 billion) of that coming from the sale of the Japanese business. That's in addition to the annual dividend of 6.07 pence per share, higher than expected and nearly 50 percent higher than last year.
Vodafone also announced it is cutting costs by cutting 400 jobs from its headquarters -- mostly in marketing and group services -- and boosting its reliance on outsourcing various IT systems and data center tasks, a move it hopes will save it up to £200 million ($377 million) in operating costs by 2007/2008.
The carrier is also reengineering its backhaul capabilities, with the latter expected to save more than 10 percent per year in some countries. Vodafone currently spends £280 million ($528 million) a year on backhaul from its base stations to its core network.
And in addition to creating new services bundles to help boost revenues, Vodafone is looking to cash in on the growth of the online advertising market. "We'll be creating advertising revenue streams [to take advantage of] the emerging online advertising model" that has been successful for the likes of Google and Yahoo. "We intend to develop this over the next one to two years," said Sarin.
— Ray Le Maistre, International News Editor, Light Reading
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