Vodafone, Mannesmann Battle With Rival Visions of the Future of Telecom
By Adri den Broeder
Vodafone, Mannesmann Battle With Rival Visions of Phone Future
London, Nov. 18 (Bloomberg) -- Vodafone AirTouch Plc's battle
to buy Mannesmann AG is as much about different visions for the
telecommunications industry in the future as it is about
dominating the European market today.
Chris Gent, chief executive of Vodafone, the world's largest
mobile phone company, sees a wireless future. Mannesmann CEO Klaus
Esser sticks to a more common model combining traditional fixed-
line services with mobile phones, even though he leads Germany's
biggest cellular company.
``Mannesmann is saying its strategy is fixed-mobile
convergence, and therefore incompatible with Vodafone, which is
based on owning mobile assets,' said Jim Senko, a principal
analyst at Gemini Consulting. Who is right? ``The jury's still
out,' he said.
Mannesmann rejected a $116.3 billion takeover offer from
Vodafone on Monday, saying the U.K. company's bid was too low and
its strategy incompatible. Vodafone on Tuesday said it will make a
new bid, perhaps directly to Mannesmann shareholders. Vodafone
says if it succeeds, it will keep Mannesmann's conventional voice
business, but sell a quarter of it to the public in about a year.
The argument comes down to Internet and data traffic. Mobile
phone use is surging -- half of Europe's population will have a
phone by 2001, compared with a quarter now. That's mostly people
calling people, which is less profitable than transmitting data
because competition has forced down prices. Mobile networks can't
yet handle files and messages as fast as regular phone lines.
Vodafone says wireless could grab more data business, while
Mannesmann bets that much of it will stay on fixed lines.
Next Big Thing
``The next big thing will be wireless Internet,' Gent said
Tuesday, adding that about 20 percent of Vodafone's revenue by
2003 will come from people exchanging e-mail and looking at Web
pages on cell phones or other wireless devices. ``Our pedigree and
leadership in data is far greater than Mannesmann's.'
Mobile phone use is booming: Cell phone users worldwide will
outnumber those with traditional phones by 2010 and revenue from
cell phone service will exceed that from conventional phones as
soon as 2004, according to the International Telecommunications
Union, a United Nations agency in Geneva.
Mannesmann counters that there is plenty of growth to come in
fiber optic cables, too. More than half of the traffic on fixed
lines is already data and it's growing faster than voice calls.
Internet traffic is growing 10-fold a year, according to
Datamonitor Plc, and will overtake voice calls in volume in 2000.
In addition, companies can charge more for data services because
they run on relatively scarce high-speed fiber optic networks.
``We can't recommend that shareholders give up our growth
potential,' Esser said Monday after rejecting Vodafone's bid.
Others support Mannesmann's two-pronged strategy.
A Bit of Both
``It's very exciting to be in mobile phones at the moment,
but that focus is too one-sided,' said Christoph Vogt, an analyst
at M.M. Warburg & Co. in Hamburg. ``Since the massive growth
periods for mobile telephony are over, companies need more
possibilities for earning money.'
That means data. Mobile networks can't yet match the quality
corporate customers require to transmit data, analysts said. The
profitability of this business, however, is attracting additional
competitors, and this will drive down prices.
Eventually, wireless networks also will be able to compete.
Vodafone and other companies are developing wireless technology to
carry data as efficiently as fiber optic cables. Vodafone already
has a wireless system that lets BG Plc read gas meters remotely.
The market for mobile data services is expected to grow by 75
percent annually and be worth more than $80 billion by 2005,
according to Microsoft Corp. and British Telecommunications Plc
estimates.
``Mobile phone companies need to radically change their
business plans' away from just voice, said Peter Richardson, an
analyst at Dataquest. ``Vodafone's already there. They have a
strong data strategy.'
Acquisition Spree
Vodafone is one of few companies betting on wireless alone.
The Newbury, England-based company paid $74.4 billion for AirTouch
Communications Inc. in June to become the world's biggest wireless
services provider. Mannesmann last month agreed to pay 21.8
billion pounds ($36 billion) in stock, cash and debt for Orange
Plc, eliminating one of the few other publicly traded pure mobile
phone companies.
Mannesmann's purchase of Orange, the U.K.'s third-largest
mobile phone service provider, was the threat to Vodafone's
European position that prompted it to approach Mannesmann. The
acquisition of Orange, which Mannesmann expects to complete next
month, would make the German company Europe's biggest wireless
provider. Vodafone is No. 1 worldwide, but it doesn't dominate
Europe, trailing companies such as Telecom Italia Mobile SpA. |
