Vodafone Essay

Initially conceived as a subsidiary of Racal Electronics, the first mobile phone call was made on the Vodafone network in the United Kingdom (UK) in 1985. Following a demerger in 1991, Vodafone Group plc (VOD) was formed, taking its name from the phrase “voice and data services over mobile phones.” With its headquarters in Newbury, England, Vodafone has predominantly grown through acquisitions, joint ventures, and partnerships to become one of the largest mobile telecommunications companies in the world. During this period, its original core business of mobile communications has evolved into integrated mobile and personal computer (PC) communication services with more than 200 million (direct and proportionate) customers worldwide.

The rapid development from the first UK mobile network provider to that of global corporation was driven by Sir Christopher Gent, the chief executive of Vodafone from 1997 to 2003. Key mergers, acquisitions, and joint ventures during this time included BellSouth, New Zealand (1998); AirTouch, United States (1999); Bell Atlantic Corporation, United States (1999); Mannesmann, Germany (2000); and Jphone, Japan (2001). In 2003 Arun Sarin took over as chief executive and maintained this expansive growth strategy with the notable acquisitions of Singlepoint, UK (2004), and Telsim, Turkey (2005). Of these developments, two are particularly worth highlighting: the joint venture with Bell Atlantic, which saw the creation of Verizon Wireless in the United States, and the hostile acquisition of Mannesmann of Germany.

Verizon Wireless was created in 1999 from a $70 billion joint venture between Vodafone and Bell Atlantic to create a new wireless business with a single brand and common digital technology. Despite building a profitable ($44 billion in 2007) business, the agreement has not been entirely to Vodafone’s satisfaction. Vodafone is a minority shareholder (45 percent) and subsequently has had minimal brand exposure in the United States. Additionally, the network protocol used by Verizon Wireless remains different from that of Vodafone. Verizon uses the Code Division Multiple Access (CDMA) while Vodafone uses the European network standard Global System for Mobile (GSM). These incompatibilities mean that Vodafone has found it difficult to achieve economies of scale with its wider global networks.

The £112 billion ($180 billion) acquisition of Mannesmann was at the time the largest corporate merger in history; the market value of the combined company ($314 billion) also made it the largest British company and the sixth-largest company in the world. The early bids were met with public protests in Germany and Vodafone’s initial offers were subsequently rejected. In the meantime and possibly as a defensive action, Mannesmann acquired the UK mobile operator Orange, thus bringing the company into direct competition with Vodafone. In April 2000, Mannesmann accepted a higher offer and following merger approval by the European Union (EU), the Mannesmann Group was acquired and disbanded. With the manufacturing operations sold off, the real prize of Mannesmann’s “land-line” internet market was absorbed into Vodafone’s portfolio.

In addition to Vodafone’s aggressive expansion strategies, the company has extensively utilized the concept of “partner networks” to gain relatively inexpensive market entry to more than 50 national markets. The partnership arrangement provides access and therefore revenue to Vodafone’s international services while providing increased brand visibility.

Vodafone’s ordinary shares are listed on the London Stock Exchange (LSE), with Vodafone posting a total market capitalization of approximately £82 billion in April 2008. Vodafone operations have been profitable since conception despite, in 2005, reporting the largest corporate loss in British history (£14.9 billion). However, the underlying operating profit of the company at this time was still a healthy £9 billion. The primary reason behind the loss was the payment of £23.5 billion in charges resulting from the acquisition of Mannesmann five years earlier. In common with its competitors and to support its growth strategy, other significant debts have been incurred, for example, as a result of the purchase of multinational 3G licenses. The price of these licenses has now been recognized by Vodafone as being highly inflated; £6 billion was paid for the licenses in the UK alone.

In the rapidly developing and converging communications market, Vodafone has had to anticipate market trends and preempt technological changes. In 2004 Vodafone launched its 3G service in Europe, followed by television and radio streaming to the new technology in 2006 and the continued expansion of 3.5G broadband (High Speed Download Packet Access [HSDPA]) networks.

The convergence of mobile communications and the internet has seen widespread developments from voice, SMS, and MMS to partnership agreements enabling applications such as YouTube, Google Maps, eBay, instant messaging (IM), and MySpace to be used on mobile devices. With other mobile tools such as mobile payment services and global positioning system (GPS) coming of age and with new companies such as Google, Microsoft, and Apple entering the wireless market, the future remains unpredictable.

Bibliography:

  1. Kate Boothby, “Vodafone Limited Campaign: Welcome Call—The IDM Business Performance Awards 2006, Highly Commended,” Journal of Direct, Data and Digital Marketing Practice (v.9/2, 2007);
  2. Peter Crush, “Line Engaged: Vodafone’s Continued Growth, Innovation and Customer Focus Depends on a Better Engaged Workforce,” Human Resources (March 1, 2008);
  3. Economist, “Vodafone: Calling for a Rethink,” Economist (v.378/8462, 2006);
  4. Economist, “Vodafone: Wake-Up Call,” Economist (v.379/8480, 2006);
  5. Christopher J. Ibbott, Global Networks: The Vodafone-Ericsson Journey to Globalization and the Inception of a Requisite Organization (Palgrave Macmillan, 2007);
  6. Irwin Mark Jacobs, Joseph McGeehan, and Robert Calderbank, Lecture Series in Mobile Telecommunications and Networks: Transcripts of the First Three Lectures, November 2005–June 2006 (Royal Academy of Engineering, 2006);
  7. Tegan Jones, “Sometimes You Have to Break the Rules to Succeed. Vodafone Had to Create Them From Scratch,” PM Network (v.22/6, 2008);
  8. Vodaphone, www.vodaphone.com (cited March 2009);
  9. “Vodafone Sells Japanese Business,” Engineering & Technology (v.23, 2006).

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