After unveiling plans to move Vodafone beyond its mobile-centric past, Arun Sarin declared himself as “the right man to lead the company”, adding that he had the board’s support.
Vodafone’s chief executive may have bought himself some valuable time, but disgruntled analysts and investors appear to be somewhat underwhelmed by the long-awaited strategy statement.
The plan will involve Vodafone becoming a self-declared “Mobile Plus” company after warning of slower revenue growth, lower profit margins and reduced free cash flow.
Mobile Plus, which will try to get customers to ditch their fixed-line phones in favour of mobiles, will first be tested in Germany.
Telecommunications companies are desperately trying to get to grips with the dizzying pace of change affecting their industry. Vodafone is having to cope with fierce competition, regulatory pressures and new technologies such as voice over internet protocol, or VoIP, and wireless fidelity, or WiFi.
Most telecoms companies, including Vodafone, have concluded the future lies in offering bundles of services grouped around fixed broadband, also known as digital subscriber lines. “We need to do whatever it takes to satisfy our customers’ needs,” said Mr Sarin.
Vodafone Germany’s Zuhause service ensures that customers are charged at fixed-line rates when they use their mobiles inside their homes. In the autumn, the service will be expanded to digital subscriber lines, so customers will be able to chose bundles of services based around broadband over landlines.
Mobile Plus also involves better integration of customers’ mobiles and personal computers. For example, Vodafone is working with Microsoft, the US software company, to deliver instant messaging to mobiles.
Finally, Mobile Plus will seek to generate revenue for Vodafone through advertising. Thomas Geitner, head of Vodafone’s new businesses initiative, said the advertising might be focused on TV available on mobiles.
Mobile Plus is supposed to provide Vodafone with 10 per cent of its revenue, or £3bn based on its 2006 results, in three to four years time.
Meanwhile, Bill Morrow, head of Vodafone’s European operations, promised “aggressive” cost cutting to counter slowing revenue growth. Vodafone is outsourcing some of its IT functions, and centralising supply chain management to avoid past duplication in its operating businesses.
About 400 jobs are to be cut at Vodafone’s UK headquarters, partly because more marketing will be done in local markets, but Mr Sarin declined to say what the impact of the outsourcing would be on headcount.
Andy Halford, Vodafone’s chief financial officer, said a combination of better management of operating and capital expenditures would deliver annual savings of between £550m and £700m ($1,035-$1,317) in its European operations from 2008.
Vodafone wants its businesses in emerging markets to be its revenue growth engine in the medium term after buying mobile operators in the Czech Republic, Romania and Turkey last year.
However, it is damping down expectations of another acquisition spree.
The group is introducing tougher performance hurdles round its acquisition activity, and Mr Sarin admitted that the purchase of Turkey’s Telsim for £2.6bn would have been “right at the edge” of the new criteria.
Mr Sarin has taken another break with Vodafone’s past by explicitly abandoning the ambitions of Sir Christopher Gent, his predecessor, for a global empire of businesses. “We are not attempting global execution,” says Mr Sarin. “We are going for regional and local execution”.
Mr Sarin, who announced a sale of Vodafone’s Japan business in March, enthused about the strong performance of Verizon Wireless, the US mobile operator in which Vodafone has a 45 per cent stake. But he refuses to rule out selling its US stake.
However, Mr Sarin said Vodafone was interested in gaining control of SFR, a French mobile operator in which it owns a 44 per cent alongside French media group Vivendi “at the right price”. He said the company would be prepared to countenance a lower, BBB+ credit rating to secure control.
James Barford, analyst at Enders Analysis, questioned the logic of Vodafone offering high-speed internet access over landlines. He said most major European markets were already well served by existing broadband providers.
“My concern with the broadband effort is that it will distract the company,” Mr Barford said.
Meanwhile, one of Vodafone’s top-10 shareholders has criticised Mr Sarin, saying the strategy statement should have been produced nine months ago.
“He is buying time for himself,” said the investor. “He has bought inertia, ie not enough to make people move to push him out, but no one is positive.”
But a smaller shareholder said the strategy was “a developing work in progress”.
“Perhaps the company needs a visionary,” said the investor. “My feeling is Arun Sarin is more a growth manager than a visionary.”