Vodafone (LSE: VOD) (NASDAQ: VOD.US) is one of the world’s largest telecommunications companies, its services include voice, messaging, data and fixed broadband. It was the company that made the first ever mobile phone call in 1985 and its acquisition of Germany’s Mannesmann AG in 2000 doubled the size of the group — making it the world’s largest mobile telecommunications company at the time (this title now belongs to the 75% state-owned China Mobile).
Vodafone is also happy to relinquish another few league places this year as it offloaded its 45% stake in Verizon Wireless to US telecoms group Verizon Communications, the USA’s largest mobile operator, in one of the biggest deals in corporate history which brought in £84bn for Vodafone.
The company returned £54bn to its shareholders, retaining the remainder for acquisition and investment opportunities. The deal was not so much a well-planned strategy but an accidental adventure that the Vodafone chief executive Vittorio Colao told BBC News: “We got an offer that we thought was in the interests of our shareholders to accept — at the end of the day it’s as simple as that.”
Having slid down the telecom giant league tables, Vodafone still boasts over 411 million customers, 90,000 employees and it operates through various partnerships in nearly 30 countries. Its current market capitalisation is £50bn and it has worldwide revenue of £43.6bn.
Which Way Is Up?
Its long-term strategy now seems unclear; as more and more analysts bail on the share, it is also looking increasingly risky. Despite promising shareholders dividend growth of more than 8% for the year 2013/14, and further growth annually thereafter, returns from its £7bn investment project in cable infrastructure is not expected to deliver returns until FY18/19. This raises questions over where this cash will come from, particularly with European revenues in freefall.
Limits on charges, implemented by legislators across Europe, is forcing the sector to look further afield for revenue growth. There is, however, growth from an expanding array of mobile broadband-based services accessed by an ever-rising number of smart devices. Vodafone has made its intentions clear to seek acquisitions in the machine to machine technology arena including the lucrative mobile payment system segment — the mobile wallet — and move further into the broadband, fixed-line and television services.
Could A BSkyB-Vodafone Alliance Kick BT Out Of The Game?
There is presently no standalone company with all the assets and, going forward, collaboration is key to market dominance. Speculators are keen to pair Vodafone and BSkyB. BSkyB is the market leader in pay television, and a joint enterprise between Vodafone and BSkyB would challenge BT for broadband and entertainment market share.
A takeover of the most profitable satellite network in the world would certainly propel Vodafone back up the leaderboard, and put it in touching distance of ruling the telecom world again.
