Recent press speculation that Vodafone is interested in buying Kabel Deutschland should not be big news. However, it has gained a lot of attention because until recently Vodafone was regarded as a mobile-only telco
It used to be fairly straightforward to predict what Vodafone would do. It wanted to be big, and was a buyer of assets rather than a seller. It also didn’t do fixed telecoms, TV, or cable. However, this is no longer the case.
Under its current management, Vodafone’s actions are less ideological and the group has made significant efforts to adapt to changes in the industry. Vodafone has sold assets where it deems necessary and has shied away from making acquisitions that some expected it to pursue. The group’s mobile-only mantra has also been shelved and its infrastructure-light strategy for fixed telecoms has been rethought.
If the Kabel Deutschland deal happens, Vodafone will become the largest TV provider in Germany – an outcome that would have been unthinkable a few years ago. Vodafone’s pragmatism provides further evidence that European telcos are now in survival mode, and that anything that helps them to overcome the challenges they face is fair game.
Vodafone’s pre-2005 success was driven by ideological purity
Vodafone took off on its pre-2005 acquisition spree with gusto. It purchased assets wherever it deemed fit and projected itself as the first truly global telecoms brand, gaining a presence in nearly every continent in the world. The $183 billion Vodafone-Mannesmann deal, which was closed in 2000, still represents one of the biggest deals the telecoms industry has ever seen.
These achievements weren’t merely due to luck. Deprived of a national culture (as it wasn’t an appendage of its national government like many of its incumbent peers), Vodafone created a go-getting organizational culture and was led by an entrepreneurial CEO. The group also crafted a focused strategy that sought to exploit the emerging opportunities in mobile telecommunications.
It helped that Vodafone did not have a fixed telecoms legacy business to defend as this enabled the operator to aggressively pursue mobile without having to worry about cannibalizing existing revenue streams. Most of the ideological perceptions that came to represent Vodafone emanated from these times. For example, the mobile-only mantra made Arcor’s fixed telecoms assets look out of place. The quest for a larger footprint led to minority stakes around the world and laid the foundation for Vodafone’s extensive partner networks scheme.
A changing strategy for a changing industry
While the genesis of the change that befell the telecoms industry was the dot-com crash, its manifestation became entrenched when 3G services failed to live up to expectations. Early service launches of UMTS and HSDPA in 2004 and 2005 weren’t lucrative enough to justify the prices paid for 3G spectrum and the valuation that supported an acquisition spree.
As a result, Vodafone began to move from an “expansionist” strategy to one of “efficiency”. While this change was started by the former CEO, Arun Sarin, pragmatism has triumphed under Vittorio Colao’s management.
Since 2005, poor performing operations in Japan and Sweden have been sold. Minority assets in China, Switzerland, Belgium, France, and Poland have also gone. Arcor’s fixed assets are now integral to Vodafone Germany’s operations, while it has added additional fixed networks in Spain, Italy, and the UK. In the Netherlands and Portugal, Vodafone offers TV services as part of a triple-play offering.
Its emerging market footprint has also been tidied up following Vodafone taking control of Vodacom. Additional markets have been entered, including Qatar, India, and Ghana, but other potential targets – such as Celtel Africa or Nigerian operator Nitel – were not pursued. If the takeover of Kabel Deutschland goes ahead, Vodafone will become the largest TV provider in Europe’s largest economy, which is also Vodafone’s largest market.
The new Vodafone may not look like the old, but it is pragmatically efficient
The eventual fate of both Nitel and Celtel (Nitel has since collapsed and Zain offloaded Celtel in 2010) provides an insight into how different the Vodafone of today is compared to the Vodafone of 2000. In 2000, Vodafone would have snapped up those assets, but the more pragmatic company of today thought otherwise. In addition, pulling out of France, Belgium, Switzerland, and Poland has ended Vodafone’s quest to create an end-to-end pan-European telco. The company’s foray into offering fixed services is more tentative. Purchasing Tele2 in Italy and Spain and then Cable & Wireless followed a rethink of the need for Arcor’s fixed assets in Germany.
However, it is Europe’s continuing economic woes that loom largest in Vodafone’s actions. Competition, market maturity, the emergence of over-the-top players, and regulation have all conspired to exacerbate the economic challenges. Vodafone spoke of the dangers of “autopilot regulation” in Europe at Mobile World Congress 2012, while technology changes and the rollout of fiber threaten to lock Vodafone out of opportunities in the fixed market. As its recent results show, emerging market operations are no longer sufficient to offset struggles in its home market.
If Vodafone and its European peers are to overcome the challenges that they face, they will need to stabilize their performance in Europe before looking for gains abroad. If this means scavenging for gains in areas where telcos have previously not had an interest, then so be it. If Vodafone becomes Germany’s biggest TV provider, what is to stop it from doing the same elsewhere? Should Vodafone become an active player in fiber rollout? Should it launch a fixed wireless access service using TD-LTE on its recently acquired spectrum in the UK? Or should it look to acquire the rights to broadcast Premier League football in the UK or the Bundesliga in Germany?
None of these, as far as we are aware, is on the cards. But given the nature of the new Vodafone, we would no longer be surprised if any of them, or even more obscure things, happened. Surviving in Europe is the goal and anything that helps to achieve that goal is fair game.