New Vodafone Chief Executive Faces a Shift to 3G Technology
Sarin Will Take the Helm as Telecom
Seeks Return on Massive Investments
By ALMAR LATOUR and DAVID PRINGLE
Staff Reporters of THE WALL STREET JOURNAL
LONDON -- Vodafone Group PLC unexpectedly called in a new CEO just as the mobile-phone industry is preparing to introduce expensive and untested technology.
Vodafone named Arun Sarin chief executive, succeeding Christopher Gent, who turned the company into one of the world's largest mobile-phone operators through nearly $300 billion of acquisitions.
Vodafone currently has more than 100 million customers in 29 countries and, despite the downturn in the telecommunications sector, has seen its market value jump to the equivalent of about $120 billion from $12 billion during the past five years.
Mr. Sarin will take the helm as the company struggles to earn a return on the billions of dollars it has invested in third-generation, or 3G, licenses and technology. 3G wireless networks, expected to roll out during the next few years, are designed to make it easier for customers to use their phones for such things as tapping into the Internet, zapping photos to friends and downloading music or videos.
The 48-year-old Mr. Sarin, who already was a director of Vodafone and who will assume the CEO post July 30, also will need to come up with a strategy for the U.S. For now, Vodafone's American presence consists of a 45% stake in Verizon Communications Inc.'s Verizon Wireless, which has declined to use the Vodafone brand or the same technologies.
Vodafone, however, has an option to force Verizon to buy out its 45% share of Verizon Wireless for as much as $20 billion. If it exercised a so-called put option, which it could begin doing in 2003, Vodafone could force Verizon to start buying it out in two stages at a value that would be determined by an independent appraisal; the actual price could be much lower than $20 billion. Verizon officials have said Vodafone is unlikely to exercise that option, since it could create disadvantages for Vodafone, including an agreement that would bar Vodafone from competing with Verizon Wireless until at least 2005.
"We've enjoyed a great relationship with Chris Gent and we expect the same with Mr. Sarin," a Verizon spokesman said. Verizon Chairman and Chief Executive Ivan Seidenberg knows Mr. Sarin and is comfortable working with him, the spokesman said.
But some analysts speculated that Mr. Sarin's appointment means Vodafone could be in the market for further acquisitions or other deals, perhaps with AT&T Wireless Services Inc. or T-Mobile USA Inc.
Vodafone's chairman, Ian MacLaurin, said in an interview with CNBC Europe that Mr. Sarin will "wring the profits out of the businesses we have at the moment." He added: "You won't see the kind of explosive deals that we have done in the last five or six years because they are just not out there." Vodafone has spent the equivalent of about $270 billion in acquisitions, nearly all paid in stock, since Sir Christopher became CEO in January 1997. Investors have questioned whether the company can sustain its rapid growth without the help of big acquisitions.
Sir Christopher, 54, who is married and has two young sons, had hinted that he would retire within a few years, but the move came earlier than expected. There has been some speculation that he might become active in Britain's opposition Conservative Party. A spokesman for the party said he was unaware of any discussions about Sir Christopher becoming an electoral candidate. Through a spokeswoman, Sir Christopher said he hasn't decided what to do next.
Born in India, Mr. Sarin graduated from the Indian Institute of Technology in Kharagpur before earning masters degrees in engineering and business administration at the University of California, Berkeley. He pursued a career in telecommunications and rose to become chief operating officer of AirTouch Communications, a big U.S. wireless operator acquired by Vodafone in 1999. Well before that deal, AirTouch had begun buying mobile-phone licenses and stakes in wireless operators in Germany, Japan and several other countries.
After Vodafone bought AirTouch, Mr. Sarin headed Vodafone's U.S. and Asia-Pacific operations until 2000, when he began a brief stint as CEO of InfoSpace Inc., a Bellevue, Wash., supplier of Internet software and content. During his tenure at InfoSpace, Mr. Sarin orchestrated the acquisition of another Internet software and content company, Go2Net Inc., for about $1.5 billion in stock. Safa Rashtchy, an analyst at US Bancorp Piper Jaffray, said Mr. Sarin "was combining two companies with different growth characteristics and importantly with different revenue models, in the hope of some future synergies that never materialized."
A spokesman for InfoSpace acknowledged that "some of the synergies have not played out as anticipated."
A Vodafone spokeswoman said Mr. Sarin wasn't available for comment.
Mr. Sarin currently is CEO of Accel-KKR Telecom, an investment company in San Francisco. He also serves on the boards of Cisco Systems Inc., Gap Inc. and Charles Schwab Corp., but Vodafone said he will give up most of his other directorships. Mr. Sarin got the nod at Vodafone partly because of his strong U.S. connections and reputation as a telecom visionary with hands-on operating experience, people familiar with the matter said.
Although Mr. Sarin is little known in London, where many of the company's big shareholders are based, the initial reaction was generally positive. David Lis, a fund manager with Morley Fund Management, London, which owns 1.9% of Vodafone's share capital, said the firm's experience with Mr. Sarin over the years "has created a very favorable impression." In a generally weak market on the London Stock Exchange, Vodafone shares slipped 2.4% to close at 110.25 pence. In New York Stock Exchange trading, Vodafone ended the session at $17.81, down 29 cents.
At Vodafone, Mr. Sarin's biggest challenge may be finding a way to make its huge investments in 3G technology pay off. That will happen only if the company can persuade lots of people to use their mobile phones as entertainment and information-gathering devices, rather than just to make voice calls. If those higher-speed services don't take off -- and there's little evidence yet that they will -- the industry will be hard pressed to generate the kind of growth that excited investors in the 1990s.
Vodafone starts off on the 3G experiment with one big advantage. Unlike rivals, Vodafone mostly used its own shares rather than cash to make big acquisitions, including the €183 billion ($188.17 billion) purchase of Germany's Mannesmann AG three years ago. So it isn't bogged down by debt as are many rivals.
But the Mannesmann takeover has left scars. During the past two years, German prosecutors have been investigating whether generous severance payments to Mannesmann executives amounted to unlawful inducements to accept Vodafone's bid. Sir Christopher has denied any wrongdoing in the case, and a spokeswoman for Vodafone declined to comment on the investigation.
Sir Christopher is getting out while his legacy as the pinstriped English gentleman who built Vodafone into a global company is still in relatively good shape. China Mobile, with 130 million subscribers, is bigger than Vodafone in those terms but lacks a global presence. The only operator that comes close to Vodafone's geographical spread is France Telecom SA's Orange unit, which has operations in 22 countries.
Vodafone said Mr. Sarin's base salary will be about $1.8 million, relatively modest by U.S. standards. Martin Mabbutt, an analyst in London with Deutsche Bank, said, "People in the [United Kingdom] have a thing about executive pay. [Mr. Sarin] is clearly not coming to Vodafone to make a lot of money. He could make infinitely more money elsewhere."
-- Jesse Drucker and Shawn Young contributed to this article.
Write to Almar Latour at almar.latour@wsj.com and David Pringle at david.pringle@wsj.com.
Updated December 19, 2002
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