Vodafone Sees New Opportunities in the U.K. Public Sector, Appoints New Chairman

Vodafone has revealed that it plans to expand its business and enterprise division with four new units that will specifically target the public sector in the United Kingdom, where the operator expects government spending cuts to create new growth opportunities for mobile providers. Vodafone says it already has around 1 million public-sector mobile connections and announced that it has won a four-year contract to provide mobile services to the Metropolitan Police Service, the United Kingdom's largest police force.

The U.K. mobile giant now plans to ramp up its activities and win further business with the four divisions due to launch in March, which will focus on providing mobile services to four different public sectors: health, criminal justice, local government, and central government. Meanwhile, Vodafone has announced that it has appointed Gerard Kleisterlee as its new chairman, following the resignation of John Bond from the board last summer. Kleisterlee has been chief executive and president of Royal Philips Electronics since April 2001 and will be appointed as a non-executive director of Vodafone on 1 April.

Outlook and Implications

• Targeting U.K. Business Growth: Vodafone saw its revenues in the United Kingdom fall by 3.2% year-on-year (y/y) in the six months ending 30 September last year and the mobile giant is now targeting the public sector to boost flagging consumer profits in its home country. The United Kingdom's coalition government has stated that it aims to lower spending by £23 billion (US$37 billion) within the next financial year and Vodafone says the cutbacks are an opportunity to win new business by identifying areas where it can help the government to rein in costs, such as providing solutions to allow employees to work remotely. Vodafone announced that its group revenue for the half-year to the end of September 2010 rose 3.9% y/y, as its operations in emerging markets in Africa and Asia offset ongoing declines in Europe, and the operator is now looking to mobile broadband growth to offset the slump in its mature markets (see United Kingdom: 9 November 2010: Vodafone Sells Softbank Stake for US$5 Bil. As Six-Month Revenues Grow 3.9%). In terms of Vodafone's ongoing strategy, there is little doubt that the operator is increasing its focus on emerging markets in Asia and Africa, as this is now where the key growth is to be found.

• Network Pressures Continue: Vodafone was a major beneficiary of the decision of U.K. regulator Ofcom last month to allow the liberalisation of 2G (GSM) spectrum for 3G services, as it is one of only two operators currently owning 900-MHz spectrum in the country (see United Kingdom: 7 January 2011: U.K. Regulator Liberalises GSM Spectrum for 3G Services). The regulatory decision was made with a view to meeting ever growing mobile data demands, largely driven by smartphone use, with smartphone subscriber numbers having increased by around 70% in 2010. Meanwhile, Vodafone has recently cut its unlimited mobile broadband package in Spain, as mobile operators in developed nations have been cutting back on data offerings as demand outstrips capacity (see Spain: 1 February 2011: Vodafone Spain Cancels Unlimited Mobile Data). A recent study by Amdocs confirmed that data congestion is a global issue, with laptops driving usage in Asia, while in Europe and North America smartphone growth is causing congestion issues. However, Vodafone has announced some significant network investment in its mature markets, such as in Germany, where it plans to activate LTE networks in 1,500 locations by the end of the first quarter of 2010 following some key spectrum gains (see Germany: 31 January 2011: Vodafone Germany LTE Service—Case Study).

• Non-Core Divestments Continue: Meanwhile, Vodafone is widely expected to be on the verge of selling its 44% stake in French operator SFR (see France: 22 November 2010: Vivendi Threatens to Walk Away from SFR Deal If Vodafone Price Is Too High—Report) as it continues its policy of disposing of non-controlling assets following the recent sales of minority stakes in China Mobile and Japan's Softbank. Co-owner Vivendi has made no secret of the fact it covets the stake—and the recent sale of its own holding in NBC Universal means it now has the cash to complete the deal. However, Vivendi has signalled that it will not pay over the odds for the stake, and likewise Vodafone will not sell at under the market price. However, both companies should have no problem agreeing on a realistic valuation, so unless one decides to play hardball, IHS Global Insight fully expects the divestment to go ahead this year. The next potential non-core asset that Vodafone is expected to divest is Poland's Polkomtel; however, this is less of a done deal, without an obvious buyer, and with less stable conditions in the Polish mobile market, meaning that any valuation could be tricky. However, Polkomtel has performed well of late and the potential sale has attracted some significant interest, not least from TeliaSonera. Vodafone's continually improving performance, along with its solid revenue base and strong cash flow, mean the operator is not desperate to sell any of its minority stakes, meaning there will be no bargains or fire sales.