Vodafone's £7 billion ($11.2 billion) spending spree only goes so far. The world's second-biggest mobile operator is stepping up investment in telecoms networks and elsewhere. That's good preparation for economic upturn and a boom in data usage. But the clearest route to a higher share price remains a potential takeover.
First-half results released on November 12 underscore Vodafone's operational difficulties, particularly in Europe, where an unholy trinity of recession, regulation and competition is still at work. Adjusted Ebitda fell 4.1 percent to £6.6 billion.
Management's response is "Project Spring", a huge step-up in capital expenditure that comes on top of Vodafone's usual £6 billion-a-year outlay. This was first trailed when Vodafone agreed a $130 billion exit from the United States, but has been increased by 1 billion pounds and telescoped into just two years.
A total 4.5 billion pounds will go on mobile networks, largely in Europe. The remaining £2.5 billion splits between fixed-line, corporate and retail investments.
Vodafone aims to get out ahead of a recovery in Europe, and a predicted explosion in data demand, which should favour operators with high-quality networks. Telco equipment maker Ericsson reckons mobile data traffic will leap nine-fold in Europe by 2019. Heavy investment has paid off for BT in Britain, and for the two main US mobile operators. Still, the rewards will take time: extra Ebitda will not exceed the capital expended for seven years.
Moreover, while the regulatory and economic picture is brightening, Vodafone is in an awkward position. The rise of fast and mobile broadband has handed the advantage to former telecoms monopolies and cable companies, who bundle cheap mobile services with their core products to buy customers' loyalty. Vodafone has also let customer satisfaction and network quality slip in key markets.
So Vodafone still looks vulnerable to an approach from AT&T, the US giant which has been talking up its interest in Europe. The new strategy does not look merely like a defence against likely bid interest: it makes sense on its own terms. But shareholders might prefer to take a conventional takeover premium within months, rather than wait years for the solo Vodafone to deliver more value.
First-half results released on November 12 underscore Vodafone's operational difficulties, particularly in Europe, where an unholy trinity of recession, regulation and competition is still at work. Adjusted Ebitda fell 4.1 percent to £6.6 billion.
Management's response is "Project Spring", a huge step-up in capital expenditure that comes on top of Vodafone's usual £6 billion-a-year outlay. This was first trailed when Vodafone agreed a $130 billion exit from the United States, but has been increased by 1 billion pounds and telescoped into just two years.
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Vodafone aims to get out ahead of a recovery in Europe, and a predicted explosion in data demand, which should favour operators with high-quality networks. Telco equipment maker Ericsson reckons mobile data traffic will leap nine-fold in Europe by 2019. Heavy investment has paid off for BT in Britain, and for the two main US mobile operators. Still, the rewards will take time: extra Ebitda will not exceed the capital expended for seven years.
Moreover, while the regulatory and economic picture is brightening, Vodafone is in an awkward position. The rise of fast and mobile broadband has handed the advantage to former telecoms monopolies and cable companies, who bundle cheap mobile services with their core products to buy customers' loyalty. Vodafone has also let customer satisfaction and network quality slip in key markets.
So Vodafone still looks vulnerable to an approach from AT&T, the US giant which has been talking up its interest in Europe. The new strategy does not look merely like a defence against likely bid interest: it makes sense on its own terms. But shareholders might prefer to take a conventional takeover premium within months, rather than wait years for the solo Vodafone to deliver more value.