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We aim to be the world's leading wireless telecommunications and info rmation provider bringing more customers more services and more value than any other of its competitors.
Vodafone Group Plc is the world's leading cellular telephone operator , boasting more than 165 million subscribers and annual sales of more than £31.5 billion ($64 billion). The Berkshire-based comp any is not only the largest corporation in the United Kingdom, it is also the world's third largest generator of free cash flow, trailing only GE and Microsoft. Vodafone is also leading the battle to standar dize global mobile telephone standards ahead of the expected next-gen eration boom in the industry, in which voice, video, data, music, gam es, Internet, payment and other services are expected to merge into u sers' handsets. Vodafone's success in the 2000s came through its aggr essive acquisition strategy, which included the nearly $63 billio n purchase of AirTouch Communications in 1999 and the $183 billio n takeover of Mannesmann--the world's largest ever acquisition--in 20 00. The company is present in more than 30 countries, with a focus on the European markets, as well as Japan, where it is that market's nu mber three mobile telephone player. In the United States, the company holds a 45 percent stake in the Verizon Wireless joint venture with Bell Atlantic. With fewer large-scale acquisitions available to gener ate double-digit growth into the second half of the 2000s, Vodafone h as begun to concentrate on rolling out so-called 3G services to its m arkets. The company is listed on the New York and London stock exchan ges. Arun Sarin has been company CEO since 2003.
Origins
Vodafone was the brainchild of Racal Electronics Ltd., a modestly pro sperous U.K. electronics firm, and Millicom, a U.S. communications co mpany. Developed as a joint venture during the early 1980s, Vodafone was granted a license to develop a cellular network in the United Kin gdom and was introduced under the auspices of Racal in January 1985. The new subsidiary's success was stunning. The corporate sector was q uick to appreciate the advantages of mobile telecommunications, and i ndividuals were equally quick to spot the status symbol potential of the new technology; fueled by business need and Yuppie culture, the d emand for mobile phones skyrocketed.
Vodafone found itself one of only two entrants in the United Kingdom in a virtually unregulated new industry; the other member of the duop oly was Cellnet, which remained Vodafone's principal competitor into the 1990s. Throughout the 1980s the company created much of the techn ology, and enjoyed most of the profits, of this rapidly expanding fie ld. Racal Telecommunications' profit and loss history from 1985 to 19 89 succinctly describes the matter: in the year of its creation, Voda fone was operating at a loss of £10 million; by the end of the decade pretax profits were over £84 million. Racal soon develop ed allied divisions, including Vodac, Vodata, and Vodapage, to expand the number and type of services the company offered.
By 1988 Racal Telecommunications Group Ltd., as Vodafone and the rela ted subsidiaries were officially known, was by far the most successfu l player on the Racal Electronics team. The parent company, fearing t hat the Telecommunications Group was hampered on the stock market by its subsidiary status, and wishing, in addition, to enhance other asp ects of its business with profit from Vodafone stocks, proposed a par tial flotation of the subsidiary. Millicom, the second largest shareh older, who lobbied for a complete sell-off, opposed the move; in the end, only 20 percent of the share capital of Racal Telecom was offere d on the market. Three years later, however, Racal Electronics recons idered, and Racal Telecom was separated from its parent company in 19 91, at which time the name was changed to Vodafone Group Ltd.
Dominant in the 1990s
Vodafone was a market leader in the United Kingdom since its inceptio n. Its main competitor, Cellnet, jointly owned by British Telecom and Securicor, was also granted its license in 1985 and grew as steadily as Vodafone. However, it always remained a step or two behind, with Vodafone generally enjoying some 56 percent of the market. The two re mained the only companies on the scene for approximately eight years. Although an industry regulator, Oftel, existed, frequent rumors that the duopoly would be subjected to some sort of price regulation neve r materialized, on the grounds, it is thought, that further competiti on in such an obviously lucrative industry was bound to eventually ap pear. As the Daily Mail commented in early 1993, "Profits from mobile phones have been mouthwatering." Such competition did appear when Mercury, in a joint venture between Cable & Wireless and the telephone company U S West, issued its challenge in 1993.
Amid much publicity and a flurry of marketing, Mercury's Personal Com munications Network, called One-2-One, was launched. Mercury's advert ising campaign hammered home a message of lower costs. By offering lo w prices and even free off-peak local calls, Mercury forced the two t elecommunications giants into a price war, but only in the London are a, where Mercury's operations began.
One-2-One was seen primarily as a bid for the private market of mobil e telephone users, whereas the majority of Vodafone's customer base w as in the corporate sector, where demand and the tariffs charged were historically higher. Despite this, the company was clearly not unmin dful of the competitors' interest in the vast untapped private market . It first responded to the threat of Mercury's introduction with its own countermarketing. After One-2-One was operating, Vodafone introd uced new options such as Low Call, which, with its lower rental costs but higher call charges, was targeted at individuals who used their phones less frequently than business customers. Another new initiativ e, MetroDigital, a service begun in 1993 that allowed subscribers low rates when calling from an urban "home cell," was aimed at least in part at the personal user market.
Mercury's One-2-One employed the new digital technology rather than t he analog systems used until then by Vodafone and Cellnet. Digital te chnology represented a significant advance in the industry, as its us e allowed for higher quality, better security, and lower costs. Not t o be outdone, Vodafone too was expanding its digital network, and the company expected operations to be fully digital by the end of the 19 90s.
As of the mid-1990s it was too soon to assess the ramifications of Me rcury's entry into the market, or indeed that of newcomer Hutchison M icrotel, which began operating its Orange network in 1994. Most finan cial analysts predicted, however, that there was room for all in a ma rket so ripe for expansion; increased competition would thus have lit tle effect on profit margins.
Although Vodafone Ltd. was clearly its flagship company, the Vodafone Group as a whole comprised several wholly owned subsidiaries that su pported or complemented the activities of Vodafone Ltd. Vodac was the group's service provider, buying cellular airtime wholesale from Vod afone and selling it, equipment, and services to customers via servic e centers, retail outlets, dealers, mail order, and special corporate accounts. Another subsidiary, Vodapage, operated a nationwide radiop aging network; among the services it offered were Healthcall Medical Answerline Service; Neighbourhood Watch Information Line, a crime pre vention service; and even the Rare Bird Alert News Service. Paknet, a radio-based national public data communications network, had a clien t base of banks, retailers, utilities, alarm companies, and others, a nd had a variety of applications. Country councils used it to handle traffic measurements, and British Rail used it for credit card author ization.
Vodafone had been involved as well in a number of other specialized a pplications of its capabilities. "SafeLink," introduced in 1992 in co njunction with the West Yorkshire Police, gave individuals fast acces s to the police via the Vodafone network. The "Callsafe" service, dev eloped the same year, allowed stranded motorists to contact the Autom obile Association. Perhaps the company's highest profile special appl ication, however, came in 1993 when it provided the emergency mobile phone service to environmental rescue workers following the wreck of the tanker Braer in the Shetland Islands.
Vodata, another crucial subsidiary, developed and marketed new produc ts and services for Vodafone and Vodapage customers. The company pion eered information services for users such as the Automobile Associati on's "Roadwatch" and the Financial Times' "CityLine." "Recall, " the world's largest voice messaging service, was introduced in 1992 . "Vodastream" fax allowed customers access to up-to-date macro-econo mic statistics compiled by the Central Statistical Office; "Met fax" gave the latest weather bulletins; and "Vodafax Broadcast" allowed th e facsimile transmission of information to several different destinat ions simultaneously.
Vodafone Group International was a rapidly growing component of the g roup. Active in seeking opportunities and implementing projects abroa d, Vodafone International looked likely to one day be as important to the group as Vodafone Ltd. itself. In 1993 the company was awarded a license in Australia to operate that country's third digital mobile telephone network. In the same year, consortia of which Vodafone was a member received similar licenses to operate in Greece and Germany. Vodafone also had substantial interests in France, Scandinavia, Hong Kong, Fiji, Malta, and Mexico. Although start-up costs for foreign ve ntures were obviously high, the field was very lucrative, and Vodafon e was continually on the lookout for new possibilities. Analysts pred icted that Vodafone would increase its investments with the aim of ac quiring more foreign associates and, eventually, subsidiaries.
A digital system that allowed international calls between participati ng countries was introduced in the early 1990s. Called the Global Sys tem for Mobile Communications (GSM), it was first used by Vodafone, w hose introduction of EuroDigital in 1991 allowed customers to "roam" throughout Europe and Scandinavia. In 1994 the company acquired a 10 percent stake in Globalstar, an international consortium formed to de velop a satellite-based network that would allow mobile telecommunica tions to operate everywhere in the world (except the polar ice caps) by 1998.
As of 1994, Vodafone operated one of the world's largest cellular net works, with over one million subscribers. This, combined with the com pany's increasingly high international profile, made it a safe bet th at Vodafone would continue its prominent role in the expanding mobile telecommunications industry. The Mail on Sunday confidently p redicted in 1993: "We're on the verge of a communications explosion. By 2000, nearly all of us will have a phone in our pocket." It was hi ghly likely that for many, that phone would be a Vodafone.
Digital phones took some time to catch on due to a limited service ra nge and reliability problems; they accounted for only 13 percent of m obile phones in Britain in 1995. However, the new wave of digital ent rants did force Vodafone and other analog providers like Cellnet to t rim their pricing somewhat. Earnings for the fiscal year ending March 1996 fell 4 percent in the face of stiff competition from Orange and One-2-One. However, Vodafone's foreign operations soon began to post positive results.
Thanks to its profitable operations at home, the concept of credit re mained foreign to Vodafone until July 1996, when it sought European c apital to increase its stake in France's number two mobile phone prov ider, SFR. It paid FFr 1.8 billion ($346 million) to raise its sh areholding from 10 percent to 16.5 percent. Vodafone also had equity positions in a number of other European and Asian cellular companies.
Chris Gent, who had sat on Vodafone's board for a dozen years, was ap pointed CEO in January 1997. He had never attended college but won a reputation as a shrewd businessman in the banking and computing indus tries. The company introduced a new corporate identity in the summer of 1997, uniting the six cellular providers it had acquired (Vodac, T alkland, Vodacom, Vodacall, Astec, and People's Phone) under the Voda fone brand. Vodafone began to restructure its network, laying off 250 employees. Its 300 retail outlets dropped competitors' products afte r the change. The success of One-2-One and Orange prompted regulators to allow Vodafone and top rival Cellnet relative freedom. All four p roviders promoted heavily during the Christmas 1997 season, each hopi ng to ensure its fair share of the widening market. The fastest growi ng segment, low-income clients, was being accommodated through pre-pa yment plans.
The Merger of the Millennium
Beginning January 1, 1999, subscribers became able to retain their ph one numbers after switching providers. On the same date, 11 European countries introduced the Euro currency unit, making cross-border acqu isitions theoretically more attractive. However, Telecom Italia's sha reholders still chose the hostile offer Italian typewriter manufactur er Olivetti tendered in February 1999 over the friendly one of Deutsc he Telekom largely due to nationalistic sentiment.
It would be a few months before Vodafone exploited the possibilities of the redefined European financial environment. Meanwhile, it merged with U.S. West Coast cellular company AirTouch in the summer of 1999 , paying $68 million. Although this merger thwarted Bell Atlantic from its plans for coast-to-coast wireless coverage, Gent was soon p lanning a huge new venture with this East Coast company as well.
German telecommunications giant Mannesmann AG bought Orange for $ 33 billion in October 1999. Some saw the expensive purchase as a move to dissuade potential corporate raiders. However, the teaming of Ora nge and Mannesmann scuttled plans Vodafone had with Mannesmann's Germ an and Italian mobile phone units and Vodafone launched its own takeo ver bid on November 16.
Before the takeover was closed, Vodafone had formed a joint venture ( Multi Access Portal or MAP) with Vivendi, the French media and teleco m group, shutting off a potential white knight from Mannesmann. The G erman company was also constrained by a lack of poison pill and other takeover defenses in its home country.
After a spirited campaign played out in the media, in February 2000 V odafone AirTouch acquired Mannesmann AG in the largest corporate take over ever, surpassing even the merger of AOL and Time Warner in the p receding month. At $180 billion, the final price was nearly twice the original offer. Vodafone shareholders owned 50.5 percent of the new company, Mannesmann shareholders 49.5 percent. Its market value o f $314 billion made it the largest British company and the world' s sixth largest, according to Barron's.
It also entered the millennium as the only truly global wireless phon e company. The post-merger Vodafone claimed more than 42 million mobi le telephone subscribers in 25 countries. (Business Week recko ned Vodafone was paying $9,000 per customer.) However, the real p rize was Mannesmann's position in the European Internet market. Gent hoped to use the German company's established ground-based Internet s ervice to grow Vodafone's own new wireless-based Internet service. Al though relatively untried at the time, the fusion of mobile telephone and e-commerce technologies offered unprecedented marketing opportun ities.
In April 2000, the Verizon Wireless joint venture with Bell Atlantic was launched. The European Commission approved the Vodafone-Mannesman n merger in the same month, stipulating that the combined company sel l off its Orange unit and allow competitors access to its internation al network for three years. Vodafone also planned to sell Mannesmann' s old automotive and engineering businesses.
Vodafone was showing strong customer growth in all areas. Its stock h ad doubled in the previous six months as investors caught on to the g roup's potential. In May 2000, France Telecom SA announced it was buy ing Orange for £25.1 billion ($37.4 billion), creating Euro pe's second largest mobile phone group with 21 million subscribers. A ggressive competition lay ahead. The Globalstar communications satell ite, in which Vodafone had an interest, was launched in the same mont h, and the Vizzavi Internet portal developed with Vivendi debuted.
Ever looking forward, Vodafone was developing new devices offering fa ster mobile connections than most Americans had on their home PCs. It s control of the tiny screen on millions of such units across Europe and beyond placed it at the center of a telecommunications revolution . More than one analyst expected Vodafone to become the world's large st company.
The first half of the 2000s proved a disappointment for the global mo bile telephone market, as the telecommunications sector, and the high -technology market in general, went into an extended slump. The poten tial of the new high-speed mobile telephone protocol sparked a fierce bidding war that saw most of the industry become heavily indebted. Y et Vodafone, which had maintained a relatively clean balance sheet co mpared to its heavily indebted competitors, successfully navigated th e difficult market. Indeed, between 2000 and 2005, the company more t han quintupled its global revenues and more than quadrupled its inter national subscriber base.
In 2001, Vodafone boosted its position in Japan, acquiring control of Japan Telecom Co. and its mobile carrier J-Phone Co., the number thr ee player in that market. Vodafone also took control of Spain's numbe r two, Airtel, which was subsequently renamed Vodafone Spain. In Irel and, the company bought Eircell in a deal worth EUR 4.5 billion. By 2 002, the group's subscriber base already neared 90 million, and reven ues had topped $34 billion. The company had also achieved the num ber one or number two position in a number of core markets, including Britain, Switzerland, France, Italy, Belgium, the Netherlands, and i ncluding Verizon's number one position in the United States. However, the company's growth had not yet translated into growing profits; in deed, in 2002, the company posted a loss of £13.5 billion ($ ;21 billion), the largest ever annual loss in U.K. history.
In the meantime, the main growth phase of the mobile communications m arket appeared to be completed. In Europe for example, mobile telepho ne penetration had reached 70 percent overall (and higher in individu al markets). In the United States, too, analysts estimated that marke t had already reached 75 percent of its potential. Another difficulty for Vodafone came in 2003, when Chris Gent, described as a "swashbuc kler" who had led the company on its $300 billion expansion drive , announced his decision to retire.
Named in Gent's place was Arun Sarin, who had previously led AirTouch before its acquisition by Vodafone. Business Week describe Sa rin as "a skilled integrator of different businesses." Sarin's skills appeared to be the perfect complement to the post-Gent Vodafone, a s prawling business with 122 million customers and sales of more than & #36;55 billion. Indeed, among Sarin's first moves was to lead Vodafon e into an agreement with Microsoft in an attempt to develop a single international mobile handset standard, seen as a crucial development for the future growth of the mobile communications industry.
Yet Sarin quickly surprised observers, launching a takeover bid for A T&T Wireless in the United States in early 2004. Vodafone's bid w as topped by Cingular Wireless, however, dashing Vodafone's hopes of becoming a dominant U.S. player independent of the Verizon joint vent ure.
Elsewhere, Vodafone's difficulties increased. In Japan, the company a ppeared to have flubbed its bid to position itself in the 3G market t here. Vodafone's commitment to handset standardization, which led the company to roll out a limited line of new handsets for its global op erations, failed to take into account the highly specific nature of t he Japanese market. As competitors launched their own, highly stylish handsets offering cutting-edge services, Vodafone's own handsets app eared quaint. At the same time, competitors' networks boasted downloa d speeds as high as eight times faster than Vodafone's network. The r esult was a drop in the group's market share, down to 17.8 percent in 2005, and losses in its subscriber base.
In the meantime, with few large-scale acquisition prospects available , at least in the short term, Vodafone's growth prospects appeared to depend on the development of its 3G business. The company launched a n aggressive rollout of its new 3G-capable handsets, as well as a ran ge of non-voice services, such as photo messaging, video and music do wnloads, and the first transmissions of new mobile television program ming. Yet the company faced increased competition for the market, as a new range of 3G competitors, including Hong Kong's Hutchison Whampo a, entered the European market. At the same time, a number of other p layers, notably France Telecom's Orange, had begun a drive to build u p scale in order to create a true rival to Vodafone.
With 165 million subscribers and sales of more than £31.5 billi on ($64 billion), Vodafone was the outright global leader in the mobile communications market at mid-decade. The company remained inte rested in further acquisition opportunities. Some analysts suggested that, having failed in its bid to acquire AT&T Wireless, Vodafone might instead launch an effort to take over the combined AT&T an d Cingular business. As one of the world's largest companies, Vodafon e expected to continue setting the pace for the global telecommunicat ions industry.
Principal Subsidiaries: Airtel Movil SA (21.7%); Belgacom Mobile (Belgium; 25%); Europolitan AB (71.1%); Globalstar L.P . (U.S.A.; 6.5%); Japan Telecom (27%); Libertel (Netherlands; 70%); Mannesmann Mobilfunk GmbH (Germany; 99.1%); MisrFone T elecommunications Co. (Egypt; 60%); Mobilfon SA (Romania; 20.1 7;); Omnitel Pronto Italia S.p.A. (Italy; 76%); Panafon SA (Greec e; 55%); Polkomtel SA (19.6%); RPG Cellcom Ltd. (India; 20.6- 49.0%); Safaricom (Kenya; 40%); SFR (France; 20%); Shinse gi Telecom Inc. (South Korea; 11.7%); tele.ring Telekom (Austria; 53.8%); Telecel Comunicacoes Pessoias SA (Portugal; 50.9%); Verizon Wireless (U.S.A.; 45%); Vodacom Pty. Ltd. (South Africa; 31.5%); Vodafone Australia (91%); Vodafone Fiji Ltd. (49% ); Vodafone Hungary (50.1%); Vodafone Malta Ltd. (80%); Vodaf one New Zealand.
Principal Competitors: British Telecommunications PLC; Deutsch e Telekom AG; France Telecom Group; AT&T Corp.
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