Barron's: March 6, 2000:" will Vodafone AirTouch become the biggest
ÿÿÿÿÿÿÿÿÿÿÿÿÿ global company?
ÿÿÿÿÿÿÿÿÿÿ ÿ Britain's Vodafone AirTouch could well be the world's
ÿÿÿÿÿÿÿÿÿÿÿÿÿ largest company by 2003. You might not think so from its
ÿÿÿÿÿÿÿÿÿÿÿÿÿ volatile stock. Don't let that fool you.
Will ALA / NN with giant wireless lead get pulled along?
TA
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ÿÿÿÿÿÿÿÿÿÿÿÿ Tomorrow, the Worldÿ
ÿÿÿÿÿÿÿÿÿÿÿÿÿ After Mannesmann, will Vodafone AirTouch become the biggest
ÿÿÿÿÿÿÿÿÿÿÿÿÿ global company?
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ
ÿÿÿÿÿÿÿÿÿÿÿÿÿ ÿ Britain's Vodafone AirTouch could well be the world's
ÿÿÿÿÿÿÿÿÿÿÿÿÿ largest company by 2003. You might not think so from its
ÿÿÿÿÿÿÿÿÿÿÿÿÿ volatile stock. Don't let that fool you.
By Richard Evans
ÿÿÿÿÿÿÿÿÿÿÿÿÿ Vodafone AirTouch's four-month, $185 billion battle to
ÿÿÿÿÿÿÿÿÿÿÿÿÿ take over Germany's Mannesmann has produced the
ÿÿÿÿÿÿÿÿÿÿÿÿÿ world's largest corporate acquisition in history, the largest
ÿÿÿÿÿÿÿÿÿÿÿÿÿ British company by far and the world's sixth-largest in
ÿÿÿÿÿÿÿÿÿÿÿÿÿ terms of market value -- $314 billion. But that's not the true
ÿÿÿÿÿÿÿÿÿÿÿÿÿ significance of this mega-deal. It's that Vodafone AirTouch
ÿÿÿÿÿÿÿÿÿÿÿÿÿ emerges as the world's only truly global wireless phone
ÿÿÿÿÿÿÿÿÿÿÿÿÿ company, one that stands in the forefront of the coming
ÿÿÿÿÿÿÿÿÿÿÿÿÿ wireless revolution.
ÿÿÿÿÿÿÿÿÿÿÿ "This could be the world's largest company by 2003 with
ÿÿÿÿÿÿÿÿÿÿÿÿÿ 100 million customers and a market cap of $1 trillion or
ÿÿÿÿÿÿÿÿÿÿÿÿÿ more," gushes Andrew Beale, Deutsche Bank European's
ÿÿÿÿÿÿÿÿÿÿÿÿÿ telecoms analyst. That's because Vodafone AirTouch is in
ÿÿÿÿÿÿÿÿÿÿÿÿÿ an ideal position to cash in on higher-margin services from
ÿÿÿÿÿÿÿÿÿÿÿÿÿ customers roaming from country to country while using the
ÿÿÿÿÿÿÿÿÿÿÿÿÿ same phone for both voice and e-mail. Further down the
ÿÿÿÿÿÿÿÿÿÿÿÿÿ road, Beale believes Vodafone will begin to profit
ÿÿÿÿÿÿÿÿÿÿÿÿÿ handsomely from a whole flood of coming information and
ÿÿÿÿÿÿÿÿÿÿÿÿÿ shopping services which will be available over the next
ÿÿÿÿÿÿÿÿÿÿÿÿÿ wave of third-generation, or 3G, mobile phones.
interactive.wsj.com
ÿÿÿÿÿÿÿÿÿÿÿÿÿ By then a wide range of portable
ÿÿÿÿÿÿÿÿÿÿÿÿÿ communications devices will be
ÿÿÿÿÿÿÿÿÿÿÿÿÿ available, including devices
ÿÿÿÿÿÿÿÿÿÿÿÿÿ with color screens and data
ÿÿÿÿÿÿÿÿÿÿÿÿÿ transmission rates approaching
ÿÿÿÿÿÿÿÿÿÿÿÿÿ those of today's PCs. And
ÿÿÿÿÿÿÿÿÿÿÿÿÿ Vodafone could exploit its
ÿÿÿÿÿÿÿÿÿÿÿÿÿ stock-market value to go after an
ÿÿÿÿÿÿÿÿÿÿÿÿÿ Internet portal such as Yahoo in
ÿÿÿÿÿÿÿÿÿÿÿÿÿ order to become the dominant
ÿÿÿÿÿÿÿÿÿÿÿÿÿ global force in the emerging
ÿÿÿÿÿÿÿÿÿÿÿÿÿ market for mobile and wireless
ÿÿÿÿÿÿÿÿÿÿÿÿÿ data and electronic commerce
ÿÿÿÿÿÿÿÿÿÿÿÿÿ services.
ÿÿÿÿÿÿÿÿÿÿÿÿÿ "You cannot underestimate the importance of a global
ÿÿÿÿÿÿÿÿÿÿÿÿÿ strategy," Vodafone Chief Executive Chris Gent told
ÿÿÿÿÿÿÿÿÿÿÿÿÿ Barron's. "In the world of telecommunications,
ÿÿÿÿÿÿÿÿÿÿÿÿÿ international open standards for voice and data have truly
ÿÿÿÿÿÿÿÿÿÿÿÿÿ created a global village."
ÿÿÿÿÿÿÿÿÿÿÿÿÿ This potential is not apparent from the recent volatile
ÿÿÿÿÿÿÿÿÿÿÿÿÿ action in Vodafone AirTouch's stock, however. From 52
ÿÿÿÿÿÿÿÿÿÿÿÿÿ 1/2 last November 15 just before the hostile bid was
ÿÿÿÿÿÿÿÿÿÿÿÿÿ launched, its American depositary receipts promptly fell to
ÿÿÿÿÿÿÿÿÿÿÿÿÿ the mid-40s a couple of weeks later, rallying back to the
ÿÿÿÿÿÿÿÿÿÿÿÿÿ low-60s early last month before settling at around 57 1/2
ÿÿÿÿÿÿÿÿÿÿÿÿÿ late last week. Part of this stems from the sheer size of the
ÿÿÿÿÿÿÿÿÿÿÿÿÿ new combined company, which forces some portfolio
ÿÿÿÿÿÿÿÿÿÿÿÿÿ managers to shed some of their holdings. For instance, the
ÿÿÿÿÿÿÿÿÿÿÿÿÿ combined company will account for 11.9% of value the
ÿÿÿÿÿÿÿÿÿÿÿÿÿ London exchange and 14% of the FTSE 100 index. Some
ÿÿÿÿÿÿÿÿÿÿÿÿÿ money managers are barred from owning more than 10% of
ÿÿÿÿÿÿÿÿÿÿÿÿÿ any index, prompting them to sell before the merger is
ÿÿÿÿÿÿÿÿÿÿÿÿÿ finalized.
ÿÿÿÿÿÿÿÿÿÿÿÿÿ But these near-term glitches may present investors an
ÿÿÿÿÿÿÿÿÿÿÿÿÿ attractive long-term opportunity. Beale looks for the ADRs
ÿÿÿÿÿÿÿÿÿÿÿÿÿ to hit 96 in the next 12 months, based on a mobile phone
ÿÿÿÿÿÿÿÿÿÿÿÿÿ market predicted to grow by 40%-50% annually over the
ÿÿÿÿÿÿÿÿÿÿÿÿÿ next three years. With 48 million customers in 25
ÿÿÿÿÿÿÿÿÿÿÿÿÿ countries, Vodafone is by far the world's largest mobile
ÿÿÿÿÿÿÿÿÿÿÿÿÿ operator. By comparison, Southwestern Bell, the largest
ÿÿÿÿÿÿÿÿÿÿÿÿÿ U.S. mobile carrier, has an estimated 14 million customers.
ÿÿÿÿÿÿÿÿÿÿÿÿÿ The market for wireless Internet services is projected to
ÿÿÿÿÿÿÿÿÿÿÿÿÿ explode over the next few years. Phones will no longer be
ÿÿÿÿÿÿÿÿÿÿÿÿÿ devices merely to talk through. Faster data transmission
ÿÿÿÿÿÿÿÿÿÿÿÿÿ and greater memory and processing power will morph
ÿÿÿÿÿÿÿÿÿÿÿÿÿ them into hybrids comprising a personal digital assistant, a
ÿÿÿÿÿÿÿÿÿÿÿÿÿ computer, a telephone and a data transmitter. Consumers
ÿÿÿÿÿÿÿÿÿÿÿÿÿ will access the 'Net via their portable phone gizmo and use
ÿÿÿÿÿÿÿÿÿÿÿÿÿ it to shop, do banking and brokerage transactions, make
ÿÿÿÿÿÿÿÿÿÿÿÿÿ reservations for air tickets, concerts and hotels and peruse
ÿÿÿÿÿÿÿÿÿÿÿÿÿ the World Wide Web for sports, entertainment and
ÿÿÿÿÿÿÿÿÿÿÿÿÿ business information. Basic interactive data services
ÿÿÿÿÿÿÿÿÿÿÿÿÿ running over mobile phone networks are already available
ÿÿÿÿÿÿÿÿÿÿÿÿÿ in Britain, Finland, Italy and Japan. By late spring, a new
ÿÿÿÿÿÿÿÿÿÿÿÿÿ generation of faster phones, known as 2.5G, will hit
ÿÿÿÿÿÿÿÿÿÿÿÿÿ Europe's markets, speeding data transmission and enabling
ÿÿÿÿÿÿÿÿÿÿÿÿÿ more complex transactions.
ÿÿÿÿÿÿÿÿÿÿÿÿÿ With a huge and growing customer base, Vodafone looks
ÿÿÿÿÿÿÿÿÿÿÿÿÿ better-positioned than any other mobile operator to cash in
ÿÿÿÿÿÿÿÿÿÿÿÿÿ on the coming wave of mobile electronic commerce, which
ÿÿÿÿÿÿÿÿÿÿÿÿÿ the Gartner Group estimates will eventually account for
ÿÿÿÿÿÿÿÿÿÿÿÿÿ around 40% of all online transactions. "This company is
ÿÿÿÿÿÿÿÿÿÿÿÿÿ the only one in the world with the scale and scope to
ÿÿÿÿÿÿÿÿÿÿÿÿÿ become a global player in mobile Internet," says John
ÿÿÿÿÿÿÿÿÿÿÿÿÿ Tysoe, head of global telecom research at London-based
ÿÿÿÿÿÿÿÿÿÿÿÿÿ growth-stock specialists WestLB Panmure. "E-commerce
ÿÿÿÿÿÿÿÿÿÿÿÿÿ will become me-commerce because it is much more
ÿÿÿÿÿÿÿÿÿÿÿÿÿ personal, and a lot of that business is likely to migrate to
ÿÿÿÿÿÿÿÿÿÿÿÿÿ portable devices." Tysoe believes Vodafone's stock may
ÿÿÿÿÿÿÿÿÿÿÿÿÿ triple by December 2003, when super-fast 3G phones able
ÿÿÿÿÿÿÿÿÿÿÿÿÿ to handle complex data and commercial transactions will
ÿÿÿÿÿÿÿÿÿÿÿÿÿ likely be well established in both Europe and Japan.
interactive.wsj.com
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ The U.S., by his reckoning,
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ is at least several years
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ behind the Europeans in
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ mobile technology, and its
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ telephone markets also
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ remain more fragmented, all
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ of which plays into
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Vodafone's hands. Gent
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ realized some time ago the
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ company needed an
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ American presence and in
ÿÿÿÿÿÿÿÿÿÿÿÿÿ January 1999 he offered $68 billion to buy AirTouch, the
ÿÿÿÿÿÿÿÿÿÿÿÿÿ successful West Coast cellular operator. That broke up a
ÿÿÿÿÿÿÿÿÿÿÿÿÿ cozy relationship that AirTouch had with Bell Atlantic,
ÿÿÿÿÿÿÿÿÿÿÿÿÿ reportedly infuriating the latter's management for thwarting
ÿÿÿÿÿÿÿÿÿÿÿÿÿ its quest for nationwide wireless coverage. But Gent
ÿÿÿÿÿÿÿÿÿÿÿÿÿ managed to strike a new deal with Bell Atlantic just eight
ÿÿÿÿÿÿÿÿÿÿÿÿÿ months later that would launch Vodafone into the U.S.
ÿÿÿÿÿÿÿÿÿÿÿÿÿ market in a huge way. Under the terms of the deal, expected
ÿÿÿÿÿÿÿÿÿÿÿÿÿ to be okayed by the Federal Communications Commission
ÿÿÿÿÿÿÿÿÿÿÿÿÿ next month, AirTouch and Bell Atlantic will form a joint
ÿÿÿÿÿÿÿÿÿÿÿÿÿ operating company owned 55% by the Baby Bell and 45%
ÿÿÿÿÿÿÿÿÿÿÿÿÿ by Vodafone, making it the largest U.S. wireless operator
ÿÿÿÿÿÿÿÿÿÿÿÿÿ with some 23 million customers.
ÿÿÿÿÿÿÿÿÿÿÿÿÿ Some investors are already whispering that Gent may move
ÿÿÿÿÿÿÿÿÿÿÿÿÿ to buy Bell Atlantic outright as soon as he divests
ÿÿÿÿÿÿÿÿÿÿÿÿÿ Mannesmann's old smokestack businesses this summer.
ÿÿÿÿÿÿÿÿÿÿÿÿÿ "This is an absolute testament to Gent's skills as a
ÿÿÿÿÿÿÿÿÿÿÿÿÿ dealmaker," says Simon Weeden, European telecom
ÿÿÿÿÿÿÿÿÿÿÿÿÿ analyst with Goldman Sachs. Moreover, he thinks the
ÿÿÿÿÿÿÿÿÿÿÿÿÿ ADRs could fetch 80 in the next 12 months, given that "this
ÿÿÿÿÿÿÿÿÿÿÿÿÿ is a company growing at maybe 40%-45% this year and is
ÿÿÿÿÿÿÿÿÿÿÿÿÿ trading at only around 30 times forward earnings."
ÿÿÿÿÿÿÿÿÿÿÿÿÿ Consensus estimates for the fiscal year ending this month
ÿÿÿÿÿÿÿÿÿÿÿÿÿ are 74 cents a share, versus 62 cents the previous year.
ÿÿÿÿÿÿÿÿÿÿÿÿÿ Fiscal 2001 estimates center on $1.10.
ÿÿÿÿÿÿÿÿÿÿÿÿÿ The company has recently announced alliances with
ÿÿÿÿÿÿÿÿÿÿÿÿÿ content providers Charles Schwab, Sabre Travelocity.com
ÿÿÿÿÿÿÿÿÿÿÿÿÿ and Infospace.com and with Internet technology providers
ÿÿÿÿÿÿÿÿÿÿÿÿÿ Sun Miocrosystems and IBM to provide a readily
ÿÿÿÿÿÿÿÿÿÿÿÿÿ identifiable 'Net portal. The most ambitious alliance to
ÿÿÿÿÿÿÿÿÿÿÿÿÿ date, however, is with French media and telecoms group
ÿÿÿÿÿÿÿÿÿÿÿÿÿ Vivendi, signed in January. Vodafone and Vivendi are
ÿÿÿÿÿÿÿÿÿÿÿÿÿ working to develop what they call MAP, a pan-European
ÿÿÿÿÿÿÿÿÿÿÿÿÿ 'Net portal allowing access to e-commerce and information
ÿÿÿÿÿÿÿÿÿÿÿÿÿ services via mobile phone, PC and TV, with a July startup
ÿÿÿÿÿÿÿÿÿÿÿÿÿ target. "If they succeed in this they will be a long step
ÿÿÿÿÿÿÿÿÿÿÿÿÿ ahead of the competition," says Weeden. "It could make
ÿÿÿÿÿÿÿÿÿÿÿÿÿ them the AOL of the mobile world." Don't be too surprised
ÿÿÿÿÿÿÿÿÿÿÿÿÿ to see a similar U.S. portal launched by Vodafone and Bell
ÿÿÿÿÿÿÿÿÿÿÿÿÿ Atlantic by this time next year.
ÿÿÿÿÿÿÿÿÿÿÿÿÿ Perhaps the biggest worry is that Gent and company will
ÿÿÿÿÿÿÿÿÿÿÿÿÿ become so obsessed with their bright future on the Internet
ÿÿÿÿÿÿÿÿÿÿÿÿÿ that they will forget about the $5.7 billion in sales and $1.5
ÿÿÿÿÿÿÿÿÿÿÿÿÿ billion in profit from mobile phone services in the year to
ÿÿÿÿÿÿÿÿÿÿÿÿÿ March 31, 1999. "Growth is still so strong in this business
ÿÿÿÿÿÿÿÿÿÿÿÿÿ that I don't want to see them focus on anything else right
ÿÿÿÿÿÿÿÿÿÿÿÿÿ now other than building network capacity to keep up with
ÿÿÿÿÿÿÿÿÿÿÿÿÿ demand," says Steve Scruton, HSBC's European telecom
ÿÿÿÿÿÿÿÿÿÿÿÿÿ analyst. "They still have plenty of time to get their Internet
ÿÿÿÿÿÿÿÿÿÿÿÿÿ strategy right and they don't want to lose their place as the
ÿÿÿÿÿÿÿÿÿÿÿÿÿ world's biggest mobile phone company."
ÿÿÿÿÿÿÿÿÿÿÿÿÿ That's not apt to happen. But don't expect Chris Gent to
ÿÿÿÿÿÿÿÿÿÿÿÿÿ slow down anytime soon. |
