Vodafone CEO eyes growth in India, China and even the US
Saturday, 6 October 2007
Arun Sarin's quest to overhaul Vodafone's (NYSE:VOD) wireless empire is far from over.
With Vodafone's U.S. stock up nearly 30% in 2007 and near six-year highs, though, Sarin and shareholders already have reaped rewards for what he's done so far.
Sarin, named chief executive in 2003 as Vodafone's business model faltered, has invested $28 billion to expand into emerging markets including India, Turkey and Africa. At the same time, he's exited slow-growth markets in Japan, Belgium and Switzerland.
The 52-year-old head of the U.K. wireless carrier also aims to make Vodafone a bigger player in China. And Sarin has hopes of growing Vodafone's business in the U.S., where it owns 45% of Verizon (NYSE:VZ) Wireless and where, he says, he would love to own all or some of the 55% held by Verizon Communications (NYSE:VZC) VZ, if the opportunity arose.
Sarin's main strategy is to increase Vodafone's presence in countries that are driving regional economic growth and gain a majority stake in the right companies.
Vodafone has had minority shares of a sizable number of companies, and that has been its Achilles' heel, analysts say. But Sarin has hammered out deals that give Vodafone majority stakes in wireless firms in India, South Africa and Romania.
"What you're seeing systematically is that wherever we can and where the economics are sensible we would like to take a majority position so that we can control the company, control the products and control the free cash flow and business," Sarin said in a far-ranging interview.
Sarin said fast-growing Verizon Wireless, with 30% of the U.S. market, is not exempt from his majority-stake strategy "except that the opportunity to get control (of Verizon Wireless) is nontrivial."
Why? "Because Verizon (Communications) would obviously not want to sell a company that is growing as nicely as Verizon Wireless is growing," Sarin said.
In July, Vodafone kept its stake in Verizon Wireless at 45%, passing on an option it held to reduce it.
Vodafone has denied reports that it's mulled a $160 billion bid to buy Verizon Communications, primarily to gain full control of Verizon Wireless.
Investors and analysts have long speculated over the ownership of Verizon Wireless.
"The way I think about the situation is, we have a great asset," Sarin said. "Grow it and share the economics 55-45. And while we're doing that, we're having fun.
"What happens in the future, the future will tell. We have to let this play out over a period of time."
Vodafone doesn't stand to get any more dividends from the huge cash flow being generated by Verizon Wireless until 2009 or 2010. Verizon Communications has said the wireless firm must cut its debt before its two owners will get more dividends.
Still, Vodafone's ties with Verizon Wireless seem to be getting stronger, not weaker, analysts say. Vodafone and Verizon Wireless plan to use the same technology, dubbed "long-term evolution," in the next major upgrade of their wireless networks, Sarin disclosed at a Goldman Sachs (NYSE:GS) investor conference in September. They have had wireless networks based on different technologies, GSM for Vodafone and CDMA for Verizon Wireless.
Sarin has no qualms about Verizon Wireless bidding aggressively in an upcoming U.S. auction, even if it delays dividend payments.
"Spectrum is the lifeblood of our business," he said.
In January, the U.S. plans to auction wireless spectrum that's getting a lot of attention from telecom carriers and Internet companies such as Google GOOG. Carriers plan to use it to support development of fourth-generation, or 4G, wireless broadband service, which would offer faster services than today's 3G.
Buying airwaves for 4G services will likely cost Verizon Wireless several billion dollars.
"At the end of the day, we have to build the best company, the most valuable company," Sarin said.
Vodafone's fiscal first quarter results, reported in July, beat analyst forecasts. The firm added 9.1 million subscribers to reach 232 million globally. Revenue rose 7.5% to $17 billion as growth in emerging markets offset tougher competition in Europe, especially Germany.
Analysts polled by Thomson Financial estimate that Vodafone's earnings for the fiscal year ending in March will rise 15% to $2.54 per U.S. share.
Maurice Patrick, a London-based analyst with Bear Stearns (NYSE:BSC) , gives Sarin high marks on three fronts.
"Vodafone has been more competitive on pricing the past 12 months," he said. "It's pursuing mobile data growth opportunities. And it looks as if the relationship with Verizon Communications has improved."
In Europe, Vodafone has cut costs and, to boost revenue, sells broadband Internet access in a few markets via landline links.
While Sarin describes Europe as Vodafone's "free cash-flow machine," he says that emerging markets will drive revenue growth. Vodafone garners almost 20% of revenue from emerging markets.
Vodafone now controls the third biggest wireless firm in India, where only 17% of people have mobile phones, leaving plenty of room for subscriber growth.
In India, Vodafone added 7.7 million wireless users in July. Research firm Informa says that about one-third of new cell-phone users worldwide this year will come from India and China.
In China, more than one-third of its 1.3 billion people, now use wireless phones. It's a market that Sarin covets, but China's government limits foreign ownership of telecom companies.
Vodafone has a 3.3% stake in China Mobile CHL, by far China's biggest wireless firm with 332 million customers.
Sarin has been stymied in his bid to grow in China, where the government has delayed an industry restructuring that would let new entrants, and new investors, into the market.
"We'll just have to wait and see how the industry restructuring goes," Sarin said, adding that Vodafone has some sway with the government.
"We have to find a privileged position," he said.
China Mobile looms as a Vodafone rival in Asia as it prowls for acquisitions, analysts say. Russia's VimpelCom (NYSE:VIP) VIP has eyed emerging markets, too.
Germany's Deutsche Telekom DT, meanwhile, has surveyed Eastern Europe for deals, like Vodafone.
While Vodafone has isolated assets in emerging markets -- India and Turkey, for example -- analysts say it might have trouble putting together a cluster of properties regionally.
"It would be nice to have a string of pearls," he said. "But our emerging markets strategy is focused on large populations, with good industry structures, and places that dominate the economics of a continent, like India and China."
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Investor's Business Daily
With Vodafone's U.S. stock up nearly 30% in 2007 and near six-year highs, though, Sarin and shareholders already have reaped rewards for what he's done so far.
Sarin, named chief executive in 2003 as Vodafone's business model faltered, has invested $28 billion to expand into emerging markets including India, Turkey and Africa. At the same time, he's exited slow-growth markets in Japan, Belgium and Switzerland.
The 52-year-old head of the U.K. wireless carrier also aims to make Vodafone a bigger player in China. And Sarin has hopes of growing Vodafone's business in the U.S., where it owns 45% of Verizon (NYSE:VZ) Wireless and where, he says, he would love to own all or some of the 55% held by Verizon Communications (NYSE:VZC) VZ, if the opportunity arose.
Sarin's main strategy is to increase Vodafone's presence in countries that are driving regional economic growth and gain a majority stake in the right companies.
Vodafone has had minority shares of a sizable number of companies, and that has been its Achilles' heel, analysts say. But Sarin has hammered out deals that give Vodafone majority stakes in wireless firms in India, South Africa and Romania.
"What you're seeing systematically is that wherever we can and where the economics are sensible we would like to take a majority position so that we can control the company, control the products and control the free cash flow and business," Sarin said in a far-ranging interview.
Sarin said fast-growing Verizon Wireless, with 30% of the U.S. market, is not exempt from his majority-stake strategy "except that the opportunity to get control (of Verizon Wireless) is nontrivial."
Why? "Because Verizon (Communications) would obviously not want to sell a company that is growing as nicely as Verizon Wireless is growing," Sarin said.
In July, Vodafone kept its stake in Verizon Wireless at 45%, passing on an option it held to reduce it.
Vodafone has denied reports that it's mulled a $160 billion bid to buy Verizon Communications, primarily to gain full control of Verizon Wireless.
Investors and analysts have long speculated over the ownership of Verizon Wireless.
"The way I think about the situation is, we have a great asset," Sarin said. "Grow it and share the economics 55-45. And while we're doing that, we're having fun.
"What happens in the future, the future will tell. We have to let this play out over a period of time."
Vodafone doesn't stand to get any more dividends from the huge cash flow being generated by Verizon Wireless until 2009 or 2010. Verizon Communications has said the wireless firm must cut its debt before its two owners will get more dividends.
Still, Vodafone's ties with Verizon Wireless seem to be getting stronger, not weaker, analysts say. Vodafone and Verizon Wireless plan to use the same technology, dubbed "long-term evolution," in the next major upgrade of their wireless networks, Sarin disclosed at a Goldman Sachs (NYSE:GS) investor conference in September. They have had wireless networks based on different technologies, GSM for Vodafone and CDMA for Verizon Wireless.
Sarin has no qualms about Verizon Wireless bidding aggressively in an upcoming U.S. auction, even if it delays dividend payments.
"Spectrum is the lifeblood of our business," he said.
In January, the U.S. plans to auction wireless spectrum that's getting a lot of attention from telecom carriers and Internet companies such as Google GOOG. Carriers plan to use it to support development of fourth-generation, or 4G, wireless broadband service, which would offer faster services than today's 3G.
Buying airwaves for 4G services will likely cost Verizon Wireless several billion dollars.
"At the end of the day, we have to build the best company, the most valuable company," Sarin said.
Vodafone's fiscal first quarter results, reported in July, beat analyst forecasts. The firm added 9.1 million subscribers to reach 232 million globally. Revenue rose 7.5% to $17 billion as growth in emerging markets offset tougher competition in Europe, especially Germany.
Analysts polled by Thomson Financial estimate that Vodafone's earnings for the fiscal year ending in March will rise 15% to $2.54 per U.S. share.
Maurice Patrick, a London-based analyst with Bear Stearns (NYSE:BSC) , gives Sarin high marks on three fronts.
"Vodafone has been more competitive on pricing the past 12 months," he said. "It's pursuing mobile data growth opportunities. And it looks as if the relationship with Verizon Communications has improved."
In Europe, Vodafone has cut costs and, to boost revenue, sells broadband Internet access in a few markets via landline links.
While Sarin describes Europe as Vodafone's "free cash-flow machine," he says that emerging markets will drive revenue growth. Vodafone garners almost 20% of revenue from emerging markets.
Vodafone now controls the third biggest wireless firm in India, where only 17% of people have mobile phones, leaving plenty of room for subscriber growth.
In India, Vodafone added 7.7 million wireless users in July. Research firm Informa says that about one-third of new cell-phone users worldwide this year will come from India and China.
In China, more than one-third of its 1.3 billion people, now use wireless phones. It's a market that Sarin covets, but China's government limits foreign ownership of telecom companies.
Vodafone has a 3.3% stake in China Mobile CHL, by far China's biggest wireless firm with 332 million customers.
Sarin has been stymied in his bid to grow in China, where the government has delayed an industry restructuring that would let new entrants, and new investors, into the market.
"We'll just have to wait and see how the industry restructuring goes," Sarin said, adding that Vodafone has some sway with the government.
"We have to find a privileged position," he said.
China Mobile looms as a Vodafone rival in Asia as it prowls for acquisitions, analysts say. Russia's VimpelCom (NYSE:VIP) VIP has eyed emerging markets, too.
Germany's Deutsche Telekom DT, meanwhile, has surveyed Eastern Europe for deals, like Vodafone.
While Vodafone has isolated assets in emerging markets -- India and Turkey, for example -- analysts say it might have trouble putting together a cluster of properties regionally.
"It would be nice to have a string of pearls," he said. "But our emerging markets strategy is focused on large populations, with good industry structures, and places that dominate the economics of a continent, like India and China."
.........................................
Investor's Business Daily