Mobile Broadband, M&A to Top Colao's Agenda at Vodafone

LONDON (Dow Jones) -- Top of Vittorio Colao's agenda when he takes over the reins of Vodafone Group in July will be driving wider adoption of mobile broadband and deciding which assets to buy in Asia and Africa, as the world's top mobile phone operator looks for ways to preserve global growth.

"Mobile broadband is the top priority," said Jessica Ekholm, analyst at research firm Gartner. Vodafone has invested heavily in the technology, which lets users browse the Internet from their phone or laptops via the cellular network. Vodafone is betting that growth in that segment can help it offset declining voice revenue in mature markets.

So far, the signs are good. In the past year organic data revenue jumped 41% to 2.2 billion pounds ($4.3 billion) , driven by growth in business e-mail and computer connection cards. Vodafone now has 2 million mobile Internet customers.

Next for the company to tackle is expanding mobile broadband to markets like India, where the potential growth is enormous, said Ekholm.

No big strategic changes

The appointment of Colao on Tuesday to succeed Arun Sarin at the helm of Vodafone hardly came as a surprise to analysts and investors. The 46-year-old Italian executive, who currently runs Vodafone's European operations, had been tipped to become top dog since he was poached back to the firm from running media giant RCS in October 2006.

At the time, Sarin was just emerging from a bruising fight with shareholders about his decision to make large purchases in emerging markets and his refusal to consider selling the group's stake in Verizon Wireless. The board's decision to bring back Colao was seen as both an endorsement of Sarin's strategy and a wise move to ensure succession.

Colao, who has been Sarin's deputy chief executive for the past 19 months, is unlikely to bring about drastic changes, analysts said Tuesday.

"Given that Vittorio Colao was Arun Sarin's deputy, it will be business as usual at Vodafone," said Emeka Obiodu, an analyst at Global Insight.

"The strategy is not likely to change a lot," added Gartner's Ekholm.

Sarin in a conference call with analysts also made it clear, saying the strategic process was "fundamentally a board thing" in which Colao had been involved since he came back to Vodafone.

He added that he didn't believe the world had changed so much that Vodafone needed to change its strategy. And the company's results on Tuesday, when it reported a record profit of more than $13 billion, are a testimony to the strength of that strategy.

Global Insight's Obiodu noted, however, that Colao would not be able to rest on his laurels.

"Colao will have to make some audacious moves to cement his legacy on the big V," the analyst said.

Need for more deals?

Among the first big decisions Colao will face is whether to acquire more assets in Asia and Africa.

"While the acquisitions that have already been made have fared well, Vodafone may need to up the ante to gain more assets for guaranteed future growth," said Obiodu.

Vodafone has recently been mentioned as interested in assets in Bangladesh and Vietnam.

The company reiterated on Tuesday that it would like to raise its 50% stake in Vodacom, South Africa's largest mobile operator.

"Our view is that our African strategy is to get control of Vodacom and then build up our footprint country by country," Sarin said, stressing that Vodafone would not lose sight of its "very disciplined approach to M&A."

Paul Donovan, CEO of Central Europe, Middle East, Asia Pacific and Affiliates, hardly gave more detail, saying the company is interested in "large markets with low penetration" and is keeping a close eye on China.

The problem is, so is everybody else.

At the Telecoms Finance Middle East conference in Dubai last week, executives from major operators in the region lamented that interesting emerging-market assets are few and prices have become exorbitant. But the need to add scale is such that the likes of Etisalat and Orascom Telecom in the Middle East and Reliance Communications (RLCMY) are bound to compete ruthlessly with Vodafone for assets up for grabs.

"Emerging market deals still provide the best return on investment in terms of subscriber numbers, average revenue per user and value-added services," said Gavin Smith of the law firm Linklaters.

"In a year or two for us simple subscriber growth at home will become very challenging so we need to add scale," said Ghassan Murad, head of mergers and acquisitions for Bahrain-based operator Batelco.

How Colao navigates this ever-evolving M&A landscape will likely give the first indication of how he intends to run Vodafone.

(END) Dow Jones Newswires

Posted to the site on 27th May 2008