[Ben]

Yep, it's time for Vodafone to take another hit on it's share price.

http://news.bbc.co.uk/1/hi/business/4754354.stm


Vodafone in overvaluation warning

Vodafone has warned its assets are overvalued by as much as £28bn and it faces a slowdown in revenue growth.
The mobile phone giant said it would take a hit of between £23bn and £28bn - mainly on its German operations after its takeover of Mannesmann in 2000.

Increasing competition will also see revenue growth slow to between 5% and 6.5% in the year to March 2007, against growth forecasts of 6% to 9% for 2006.

As a result margins will slip in the next financial year, Vodafone said.

Earnings before interest, tax, depreciation and amortisation (EBITDA) are now expected to fall by 1%. However, this year's results would be unaffected.

Vodafone also blamed the warning on tougher regulation which has led to mobile firms reducing the amount they charge each other and landline firms for putting callers through to their customers.

The news prompted a sharp drop in Vodafone's shares, which slipped 4.75 pence - or 4.06% - to 112.25p.

Overvalued

Most of the impairment charges relate to the value of the group's German assets but operations in Italy and possibly Japan are also overvalued.

The write-down relates mainly to the £112bn takeover of Mannesmann, which at the time was the biggest in corporate history.

The deal caused dismay in Germany and sparked controversy when it emerged that a handful of Mannesmann directors were paid hefty bonuses once the merger was complete, while many rank and file employees lost their jobs.

Analysts said the announcement would step up the pressure on Vodafone chief executive Arun Sarin.

"It's another incremental worsening of management expectations," Robert Grindle, from Dresdner Kleinwort Wasserstein, told Reuters.

"It will put Sarin under more pressure. The more the share price falls, the more pressure he will be under."

But Mr Sarin said the write-down and revenue warning would not affect Vodafone's ability to return cash to shareholders through dividends and buying back shares.

[Hands0n]

Being responsible for "the biggeset [takeover] in corporate history" it is no surprise that they're writing down the value. Short termists will run for cover but Vodafone is a solid bet medium to long term, their strength in the [mobile if not entire corporate] business seems to be unparallelled. Sarin should not be taking a kicking for his growth of Vodafone into what it is today.

That said, they are going to have to deal with increased regulation from the EU, along with all the other mobops who wont play the game fairly, and competition in a saturating market place.

What they really do need to do now is promote more actively what it is they do with things like STC, Passport and some of their more innovative tariffs and offerings. They wouldn't do wrong, I think, to aggressively open up the Data Access by making it more affordable tariff-wise, thus promoting its use both for themselves and with third party content providers allied to Vodafone. Current data rates are still way way too high for the masses.

[3GScottishUser]

If competition is hurting huge businesses like Vodafone with hundreds of millions of users worldwide just imagine how difficult it must be for new operators who are building and trying to acquire customers from scratch.

Was the early 2000's a good time to gamble on mobile telecoms for any companies other than MVNO's?

[Hands0n]

I think that the problem for all the European mobops - and particularly the UK ones - is that they are operating in a saturated market. It is only recently that some people are walking around with two mobile handsets, something that would have been unthinkable even as short a time ago as 2000.

The mobops are turning to Content to pull the cash out of our wallets. Will this be enough? Who knows, the big money earner is SMS Text by all account! Revenue on calls is falling as the report suggests, and with the continual re-bundling of ever-greater numbers of minutes, giveaways like STC and Passport (in Vodafone's instance, others are following) all contribute to lower call revenue generation. Could there come a time where voice is given away just to keep folk using SMS and downloading copious amounts of Content? An exciting proposition maybe!

I dont think that the early 2000's was a bad time, I dont think any time is a bad time to "gamble" on mobile telecoms. That is the direction that people are moving towards, we have our mobile independence in the form of the Car, and it is with Telecoms that we replicate that same mobility and freedom of communication, at will. MVNOs have had their share of problems with their "gambles", witness easyMobile who are hardly making any significant impact - Virgin are one of the success stories but that is a very strong brand which helps.

The challenge, as I believe it to be, is to make a success of your mobile operator business - regardless of how long you have been in the game - in this saturated market of ours. How exactly you do this is the $20,000,000 question. Ideas-wise I think we'll see some winners (i.e. STC) and some outright stinkers (i.e. WePay) over the next year or so. I also don't think that the Content wars have properly started yet, it is all samey and over-priced in my opinion.

As the Chinese are wont to say these are indeed "Interesting Times" :)

[Ben]

Vodafone is going to suffer increasingly over the next couple of years from being the massive corporate machine that it is. As what is ultimately the best example in the mobile industry, the giant (and Sarin) simply doesn't have the flexibility or freedom to innovate at this level. Yes, STC and Passport are 'innovations', but they're very carefully calculated 'offers' at the end of the day.

What Vodafone needs to keep growing is new revenue sources that make use of it's investments in 3G. It needs to constantly be spinning out new services, the vast majority of which will fail but that odd one could just possibly become the Next Big Thing. Google (http://labs.google.com/) (thanks Bleubean) do this in their infinite wisdom, and it'll probably lead to a rosy future for them.

The mobile phone is a communication tool. Video downloads and many of the other 'content' services currently available have lost sight of this. Services that focus on communication, then, will be the real content and providing it all happens over 3G there's still plenty to look forward to for shareholders. However, the Vodafone shareholders are going to have to shut the hell up with all their moaning and appreciate that Vodafone needs to start taking risks.

[3g-g]

Services, as Ben mentions, I think are a sensible way forward. It may fail, it may be a roaring success, however, the risk is key. Nothing ventured, nothing gained. Slightly OT from Vodafone, but sticking to the same lines about the networks branching out are Orange. As can be seen here, (http://money.guardian.co.uk/businessnews/article/0,,1717186,00.html)they're having a stab at providing landline services to business customers. BT are getting into mobile, why not Orange, Voda and others getting into the huge banks of business customers whos mobile services they provide?! As Hands0n quoted the Chinese, interesting times indeed.