Vodafone Expecting to Report Record Loss

Vodafone is expected to announce a record annual loss of US$37 billion this week as the company writes down the value of its investments in Germany. The figure exceeds the US$25 billion loss that Vodafone reported back in 2002. It should be noted that underlying cash profits before the write down are still expected to reach US$20 billion.

The company is however expected to announce significant job cuts to help curb rising operating costs. It is expected that some 500 jobs will be lost, mainly in the UK along with increased outsourcing of services.

The company is also expected to outline plans for moving into the Internet Service Provider market in order to compete with France Telecom which is merging the UK operations of its mobile network, Orange and the ISP, Wanadoo. Whether the company will launch its own ISP, or buy an existing company should be made clearer.

A potential bid for the UK based Cable & Wireless would offer Vodafone some interesting opportunities.

C&W is currently in some financial turmoil, making an acquisition cheaper for Vodafone who would then gain a sizable number of medium size business clients to whom they can sell Fixed-Mobile services. C&W also owns the ISP, Bulldog which despite considerable investment in Local Loop Unbundling it still hemorrhaging cash and not gaining customers. Putting it into the Vodafone stable would give the company access to a sizeable customer base and enable the ISP to finally start recouping its infrastructure investments. Finally, C&W has a string of mobile operations, mainly in the Caribbean which would give Vodafone a way to build out its brand and operations in countries with strong roaming revenue potentials.

As usual, the issue of Vodafone's 45% stake in Verizon Wireless will be high on the agenda. With Vodafone now acknowledging that market size and scale is more of a regional issue, the justification for holding onto its US investment is looking weaker. Interestingly, if the company refocuses on "regionalisation" especially in Europe - a sale of Verizon Wireless could provide the free cash to join in Sebastian Holdings bid to split up France's Vivendi and take control of its mobile subsidiary, SFR.

Vodafone has consistently said that it would be interested in SFR if that asset were to become available.

Vodafone will also be making a special distribution of approximately US$11 billion to shareholders shortly after its AGM to be held in July - the results of the sale of Vodafone Japan to Softbank earlier in the year. That should help lift some of the pressure on Arun Sarin that has been building over the past year with ongoing battles in the boardroom and concerns over the direction Vodafone is taking."

Posted to the site on 29th May 2006