Shareholder unrest at Vodafone as investors press for Verizon sale
Vodafone, the world's largest mobile phone operator, received growing criticism from investors last week after releasing disappointing key performance figures for the fourth quarter. The company is still paying a dividend, but last year made a loss of over £4bn.
The group results showed strong organic revenue growth of 8 per cent in 2005, despite falling revenues in key markets such as Germany, Italy and Japan. Strong competition from rivals and tariff cuts imposed by regulators meant that Vodafone's average UK customer spent 15 per cent less in 2005 than it did the year before.
Investors are pressing Vodafone to sell its 45 per cent stake in US mobile operator Verizon, thought to be worth between £25-30bn. Although Verizon is amongst the fastest growing of Vodafone's businesses it operates a different technology platform to the rest of Vodafone's assets and due to its minority stake, Vodafone is unable to exploit its powerful brand in the US market. Arun Sarin, Vodafone's chief executive, points to the fact that the group's stake in Verizon has grown by £11bn since 2003, but analysts claim that there are no cost synergies in the deal, and the cash should be returned to shareholders.
Vodafone spent over £6bn on acquisitions in 2005, buying stakes in existing operators in emerging markets including India, South Africa, Turkey and Eastern Europe. Vodafone's globalisation strategy moving into the fast growing emerging markets in order to offset shrinking margins in its core European businesses is unique amongst its peers. The company's failed £21.3bn bid for AT&T Wireless in 2004 has attracted suggestions that Arun Sarin has been too quick to make deals and ask questions later, to the extent that Vodafone is now a fragmented portfolio of separate stakes in companies, rather than a true unified, global mobile operator.
Vodafone's 3G operations, which are at an early stage, have been highlighted as a rare success. The technology allows email, web browsing and music downloads on handsets, and although it represents only represent 3% of Vodafone's customer base, the average revenue is 15 per cent higher compared to the equivalent 2G user. Vodafone has found other means of boosting revenues, such as virtual operators (e.g. Virgin use T-Mobile network), and is looking to outsource a significant part of its IT infrastructure with potential cost savings of £300m.
Mr. Sarin has to do something soon to restore investor confidence, but with calls for him to step down after only 3 years, he might to pull off something special to keep his job.
