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As Rivals Pull Ahead, Vodafone Pays The Price For Inertia

As Rivals Pull Ahead, Vodafone Pays The Price For Inertia
With the aim to become more competitive and as rival mobile companies become internet companies offering combined services from phones to TV to broadband and break free from just selling ever-cheaper data bundles, British mobile operator Vodafone risks being left on the sidelines.
Investors worry that Vodafone is not adapting quickly enough to the fast-changing landscape even though Vodafone now has nearly half a billion mobile customers and operations in about 30 countries and expanded at breakneck speed through audacious takeovers.
Amid worries about cashflow in a cut-throat mobile market are reviving calls for a merger to transform it into a European communications powerhouse once again Vodafone shares are trading at a discount by most measures for the first time in more than three years even though its shares were long-cherished for its dividend yield.
"It's fair to say Vodafone were too slow to appreciate the direction that the market was going in terms of the need to be able to offer genuinely converged products, and to have favorable access to fixed-line networks and, ideally, to own those networks," said one of the company's 10 biggest shareholders.
"The longer they wait the more time you are losing ground to others," said the investor, who declined to be named.
The broader challenges that the company faces is epitomized by Vodafone's home British market. Offering telecoms, broadband and TV bundles, former fixed-line phone monopoly BT and satellite TV pioneer Sky have spread their wings.
While BT has muscled in on Sky's turf, bidding aggressively to win the rights to broadcast top soccer matches, Rupert Murdoch's Twenty-First Century Fox is also buying Sky to expand its global media empire.
Offering mobile, broadband and entertainment services in one package - and uses its own fixed-line network is European-focused cable firm Liberty Global, which operates in Britain as Virgin Media, in an increasingly crowded marketplace.
While a joint venture between the two in the Netherlands is showing signs of success, the valuation of an overall deal has proved a stumbling block in the past, investors have hoped Vodafone would combine with Liberty Global for years.
Vodafone says there are no talks with Liberty at the moment and price still appears to be an issue.
A Liberty merger remained an attractive proposition, especially if the European Union wanted to create a real pan-European player, Vittorio Colao, who has been Vodafone's chief executive since 2008, said last week at a trade fair in Barcelona.
A source close to the American cable tycoon said that Liberty's owner John Malone would expect the British company to make the running and would be reluctant to pay any kind of premium for Vodafone.
"Malone would happily sell at a big premium but Vodafone can't afford it," the source told Reuters.
They talk up their own strong growth forecasts and question Vodafone's strategy, when Liberty executives are asked about a possible merger with Vodafone, analysts at Haitong Securities also say.
Vodafone says it is adding 350,000 to 400,000 customers each quarter to make it Europe's fastest growing broadband operator and moving beyond mobile services and bringing telecoms and multimedia services together is at the heart of its strategy.
Sentiment towards the British company was at a long-term low as shareholders worried about future cashflow was suggested by its meetings with investors in Vodafone, investment bank Goldman Sachs said.

Christopher J. Mitchell

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