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Technology Stocks : Vodafone-Airtouch (NYSE: VOD) -- Ignore unavailable to you. Want to Upgrade?

To: MrGreenJeans who wrote (2835)	5/31/2000 2:19:00 PM
From: MrGreenJeans	Respond to of 3175

Vodafone Airtouch Is Sitting on Top of the Wireless World by Todd P. Bernier \| 05:47 PM \| 05-30-00 \| E-mail Article to a Friend British wireless-phone giant Vodafone Airtouch VOD has gotten huge over the past year, using acquisitions to quadruple its subscriber base and stimulate revenue growth. This focus on gaining scale has put Vodafone in the catbird seat, showing that size really does matter in the wireless industry. As Tuesday's full-year operating results clearly depict, Vodafone is using its size to remain the market leader by introducing innovative new services. Investors obviously liked what they heard, driving the stock up more than 10% Tuesday. For the year, pro forma revenue increased 37% to nearly $19 billion, driven by a 54% increase in the number of subscribers. The company now claims 39.2 million proportionate subscribers, making it the largest wireless operator worldwide. If the subscribers from recently acquired Mannesmann MNNSY are included, Vodafone has roughly 53 million subscribers. Besides the strong revenue growth, Vodafone also reported that earnings before interest, taxes, depreciation, and amortization, or EBITDA, grew by 30% to more than $5.9 billion. Putting the enormousness of that figure into perspective, AT&T Wireless AWE has annualized EBITDA of about $1.5 billion. Profitability during the year was inflated by $1.4 billion, relating to the sale of E-Plus Mobilfunk, a firm that the European Union regulators forced Vodafone to sell as a condition of the approval of its merger with Mannesmann. Its sizable girth gives Vodafone the operating flexibility to do things that its competitors are unable to do. In April, for example, Vodafone leveraged its massive balance sheet, spending roughly $8.9 billion, to acquire the largest block of third-generation, or 3G, wireless spectrum available to an existing operator in the United Kingdom. This spectrum is crucial for the deployment of new Internet-based services. Although management has been loudly criticized for mortgaging the company's future to make that purchase, the spectrum is a necessity that will become more valuable as mobile phones replace computers as the key entry to the Internet. One of the primary concerns surrounding Vodafone is its growing debt level. Vodafone will have about $20 billion in long-term debt after paying for the wireless spectrum that it acquired in the recent British 3G-spectrum auctions. The cost of acquiring additional spectrum throughout Europe--including the lucrative German market, which comes due later this year--will also threaten the company's balance sheet. Management plans to sell various corporate assets, including Orange PLC ORNGY, to pay down this debt and to acquire new wireless spectrum. Vodafone's long-term debt rating has retained its investment-grade status of A-minus, suggesting that the major ratings agencies are unfazed by Vodafone's higher leverage. A final concern surrounding Vodafone is the erosion of operating margins as a result of the growing popularity of prepaid calling plans. This decline in profit margin is not specific to Vodafone, as companies throughout the mobile-phone industry fret about this trend. Management's response has been to aggressively migrate its remaining analog customers to digital service, which tends to produce higher usage (and revenue) and lower rates of disconnection. Also, Vodafone continues to introduce new services, such as Short Message Service, to drive higher usage. Management expects in the future Internet-ready phones will cause users to become more dependent on their phones.