Expansion slowdown

Vodafone's CEO says that the operator will concentrate on existing assets before making further moves into emerging markets

Tags: QatarTurkeyVodafone GroupVodafone Qatar
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Expansion slowdown SAFETY FIRST: Colao stresses caution amid tough economic times. (Josep Lago/AFP/Getty Images)
By  George Bevir Published  June 1, 2009 Communications Middle East & Africa Logo

After two years of trotting around the globe acquiring new operators and bidding for new licences it seems as though senior executives at Vodafone Group will now be able to pack away their suitcases and passports.

In a statement containing the operator's latest set of financial results released at the end of last month, chief executive officer Vittorio Colao praised the performance of some of the firm's recent acquisitions. But he said that the priority for the group would now be to extract further value from current operations.

"Whilst emerging markets are of interest to us, we remain cautious and selective on future expansion," Colao said. "Our primary focus will remain on driving results from our existing assets."

Since 2007, Vodafone has paid GBP647 million ($1.03 billion) for a licence to establish the second fixed and mobile operator in Qatar, GBP486 million ($900 million) for a 70% stake in Ghana Telecom and GBP185 million for a 50% share in the carrier services and business network solutions subsidiaries of African firm Gateway. And it also spent GBP1.6 billion on an additional 15% stake in Vodacom.

Of the emerging markets, the group's Turkish operation was singled out for criticism, with its performance described by Colao as "disappointing". Over the last year Vodafone Turkey lost 215,000 customers, which the operator attributed to a higher rate of churn, caused partly by the introduction of mobile number portability.

Vodafone Turkey will now concentrate on "network quality, distribution and competitive offers", according to the CEO, with further investment next year when a re-launch of the operator is planned.

Vodafone has been affected by consumers in Europe making fewer calls and sending less text messages, while continued double digit price declines had also had an impact on revenue. The effect of companies making staff redundant has also taken its toll on the operator, with reductions in staff levels causing a slowdown in enterprise growth.

Vodafone's annual profit has halved, largely due to the performance of its Turkish and Spanish operation, and as pressure mounts and traditionally strong markets in Western Europe falter, cutting out the high cost of expanding is one way to save costs, which Colao is determined to do.

In November last year it was announced that Vodafone would cut costs of $1.5 billion, and those cutbacks will now be made at a faster rate.

But in spite of Colao's statement about emerging markets, some of the groups regional CEOs still seem keen to expand the Vodafone brand to new markets.

Graham Maher, CEO of Vodafone Qatar, last week told CommsMEA sister publication Arabian Business that Vodafone was eyeing other opportunities for expansion in the Middle East, without saying which countries in particular it was looking at.

And CEO of Vodafone controlled Vodacom, Pieter Uys, was quoted by Bloomberg at the end of last month as saying that the UK operator could use Vodacom as a gateway to further growth in the continent.

"If you look at the world there aren't many growth opportunities around; Africa is one of them," he said, adding: "All markets in Africa offer potential for consolidation." He also said that Vodafone "has committed to use us" to grow its sub-Saharan business and "support us" with potential acquisitions.

Expanding into emerging markets is a tactic that has helped Vodafone become the world's leading operator by revenue. In contrast to Europe, results in Africa and India were described by Colao as "robust", thanks to continued, but lower, GDP growth and increasing penetration. Revenue from the Asia Pacific and Middle East region grew by 32%, compared to 14% in Europe and 11% in Africa and Central Europe.

The growth in Asia Pacific and the Middle East was driven mainly by the fast growing market of India, where Vodafone added 24.6 million subscribers during the 2009 UK financial year.

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