Vodafone in Trouble
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Case Code: BSTR213 Case Length: 20 Pages Period: 2000-2006 Pub Date: 2006 Teaching Note: Available |
Price: Rs.400 Organization: Vodafone Industry: Consumer Electronics Countries: UK, US and Japan Themes: Globalization Strategies, Problems |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Building the Vodafone Empire
Gent, who had been working with TVG since 1985, succeeded Whent as the company's CEO in September 1997. TVG underwent drastic transformation under Gent's management. After becoming CEO, Gent set up three wholly-owned Service Providers within TVG namely, Vodafone Corporate, Vodafone Retail, and Vodafone Connect. By setting up these subsidiaries, TVG could rationalize its numerous billing and customer care systems, tariff structures, etc. In order to expand the company' s cellular network, Gent set up 250 'Vodafone stores' all over the UK. He also introduced a new corporate identity and logo for TVG. The new corporate identity and expansion of the distribution network helped Vodafone in strengthening its brand all over the UK. By 1998, TVG had a market share of 35 percent in the UK. In 1998, TVG had a market capitalization of $35 billion and ranked first among BusinessWeek's top 100 non-US information technology companies. At this point of time, Gent decided to turn TVG into a global company. He wanted the Vodafone network to have a 'global footprint'.
Beginning 1999, Gent started buying many telecom companies around the world to realize his vision of turning TVG into a global wireless company. To begin with, he acquired AirTouch Communications Inc. (ACI), a leading US wireless company, in early 1999 for $56 billion, paid entirely in stock. The combined entity known as Vodafone AirTouch plc (VA) had a market capitalization of around $110 billion. Post merger, VA became the largest wireless company in the world. Gent became the CEO of the new company. In September 1999, VA entered into a strategic alliance with Bell Atlantic Corp. (BAC), a leading telecom company in the US. Both BAC and TVG had earlier fought over the acquisition of ACI. The companies agreed to merge their respective US wireless assets, which included cellular assets of AirTouch Cellular, Bell Atlantic Mobile, PrimeCo Personal Communications L.P., and GTE Corp. The alliance led to the formation of a new wireless company called Verizon Wireless (Verizon)...
Vodafone's Woes
In Europe: In 2002, the European Union (EU) adopted a new regulatory framework for the communications sector and asked its member states to implement it by July 24, 2003. The new framework laid down guidelines for matters such as the objectives of the national regulatory authorities ('NRAs' of the member states), the method through which telecommunications operators were to be licensed, measures for protecting consumers, and ensuring the universal provision of certain telecommunications services and the terms and conditions that guided the way in which operators interconnected and provided access to each other. The new regulatory framework' s restrictions among various others included one on 'call termination rates' of mobile operators. Vodafone' s key market was Europe and the company claimed that this market had been affected by the new regulatory framework...
Outlook
After the impairment review, company shareholders pressured Sarin to sell the company's businesses in the US and Japan. According to them, Verizon used an incompatible wireless technology, CDMA, and hence provided very little economies of scale to the company. They also pointed out that since Vodafone was only a minority partner in the venture, the company could not leverage on the benefits of its 'Vodafone' brand. However, despite the opposition from shareholders, Sarin said that he would retain Vodafone's stake in Verizon. He said, "We look at Verizon and our presence in the U.S. as an important asset to the company. The board reviews the Verizon situation from time to time. We'll continue to review."However, Sarin also said that he was not opposed to a future sale of Verizon whereby shareholders could gain the maximum benefits. Many analysts were of the view that Sarin sold Vodafone KK in order to calm the investors...
Exhibits
Exhibit I: Share Price Movement of Vodafone
Exhibit II: Vodafone's Logos
Exhibit III: Vodafone's Worldwide Mobile Telecommunications Businesses as of September 2000
Exhibit IV: Vodafone Group - Benefits of Scale
Exhibit V: An Overview of one Vodafone Program, 2005
Exhibit VI: Summary of Vodafone's Telecommunications Businesses as on March 31, 2005
Exhibit VII: Total Group Operating Profit/(Loss) of Vodafone Before Goodwill Amortization and Exceptional Items from 2000 to 2005
Exhibit VIII: Summary of Key Performance Indicators of Vodafone's Principal Markets in Europe
Exhibit IX: Operating Proft/Loss of Verizon Wireless from 2003 to 2005
Exhibit X: Market Shares of Wirelss Companies in the US in Early 2006
Exhibit XI: Summary of Key Performance Indicators for Vodafone's Japanese Market
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