Well down another 5+% in UK this AM...
Ericsson's CEO made some comments about slower than expected growth in mobile phone business going forward due to high costs of 3G licenses-so VOD getting punished even more. Unfortunately, looks like back to the 30's again before the 50's.
I've read in multiple places that WCOM/FON merger is negatively impacting VOD and am perplexed as well. My guess is that if regulators are going to frown upon big telco mergers (especially European regulators) than this sends a negative sign to a company like VOD who is very active and aggressive in the M&A area. Also, some have speculated that VOD was WCOM's next target after FON which could also be a negative b/c of any buy-out premium factored into VOD. Without FON, WCOM is too small to try to go after VOD without seriously punishing earnings and the balance sheet and interesting that some are now speculating VOD could acquire WCOM instead which also could cause some pressure on the stock.
But I think the biggest reason for the stock tank is still the 3G overhang. There has always been investor skepticism that people won't use mobile devices on a widespread basis for anything other than voice (as shown by CDPD failures here in US, 2G packet is not even available yet on widespread basis, no true financial success stories other than Japan, etc) which creates some uncertainty. At this point 3G is just a "story". Now this is compounded by the astronomical costs being forecasted for just acquiring the spectrum. With penetration rates already >50% in most Western European countries-lots of concern on where the incremental revenue is going to come from to justify capital and acquisition costs of licenses. I think 3G will be huge strategically and financially but for lots of VOD investors today they're already shaky on the business case and adding tens of billions of pounds/dollars for license costs is keeping most on the sidelines until risk is reduced and picture is clearer.
I used ATI in a previous post example and can remember ATI's deployment of 2G in the US during the mid-90s creating a similar drag on the stock. Analysts were skeptical that CDMA (narrowband) would not work and cost too much and this was combined with the fact that new PCS competition was coming into the market from auctioned licenses and the stock was range bound despite all the belief in ATI's ability to execute and hit the numbers. I think VOD's facing a similar fate for now.
Another semi-negative IMO is the huge float of VOD- so many shares after acquisitions, 5-1 split, etc. creates more difficulty in getting some real momentum on the share price. With all of the cash from various IPO's, asset sales, etc., I think its clear now that VOD has the cash flow to support a share repurchase program which would send a nice sign to the market and could potentially reduce (albeit only on a small scale) the float. The primary reason for VOD's 5-1 split was to make the stock accessible to the retail investor. However, one area I think VOD does an awful job on is with Investor Relations. VOD has done nothing here in the US to attract, market, etc. to the retail investor which really has never helped the stock. Most retail VOD investors here in the US (not all) are leftovers from Pacific Telesis, AirTouch days but the average retail investor has no idea who VOD is because there is no brand presence or investor relations presence here and in the UK retail investing is not as prevalent as here in the US (especially with a population that is 25% of the US pop.) |
