When Vodafone chief executive Vittorio Colao took the reins at the mobile giant, he made it clear that it was more interested in selling assets than buying them.
It was a strategy that marked a radical departure for the Newbury-based business, which had spent the last decade acquiring and launching new companies across the globe. That spending spree saw Vodafone (LSE: VOD.L - news) expand its footprint across sub-Saharan Africa, India, Turkey and Europe. Under Colao’s tenure, the company has sold its stakes in China Mobile, Poland’s Polkomtel and SFR in France.
However, the mobile operator now appears to be heading in a somewhat different direction. Last year, Vodafone swooped on Cable & Wireless Worldwide, paying £1.3bn for the business which provides communications networks for large organisations. And on Wednesday, it emerged that Vodafone was considering a takeover of Kabel Deutschland (Other OTC: KBDHF - news) , the country’s largest cable television and landline telephone operator. It has not made a formal offer, but the news nonetheless sent shares in Kabel up nearly 10pc to €69.49, valuing the firm at €6.2bn.
On one level, the potential deal fits with Vodafone’s established plans. The mobile business aims to be one of the two biggest players in any market it operates in something that a Kabel deal would certainly deliver, albeit in a new sector. Adding Germany’s biggest cable TV business to the mobile operation Vodafone already owns in the territory presents enormous opportunities, for example to sell content subscriptions on multiple different devices. However, the idea that Vodafone could be prepared to write a cheque quite so large, and then to spend it on a television company has rattled some observers.
Analysts have interpreted it as a signal that the existing Vodafone model is running out of avenues for growth. It was forced to write its Southern European business down by £5.9bn in November (Xetra: A0Z24E - news) last year, as customers cut back on spending, sending the group into the red. There was little sign of improvement three months later, when, for all the talk of surging internet usage, the best it could say was that it expected “margin decline to continue its improving trend year on year”. In other words, things are getting worse - just not quite as fast as before.
Many analysts fear that mobile operators, gargantuan though many of them still are, are being reduced to “plumbing” businesses which will run the capacity for more profitable companies like Google (NasdaqGS: GOOG - news) or Facebook (NasdaqGS: FB - news) . “Deep down (Other OTC: DPDW - news) they all know it,” says Mark Newman, chief research officer at Informa’s telecoms unit. Vodafone’s potential play for Kabel Deutschland is a tacit admission of that fact.
As far as Mr Newman is concerned, the £83.9bn business has already begun a shift away from being a strightforward mobile operator to one that is placing bets on so-called “enterprise” communications, providing telephone and broadband networks for multinational companies, or a services such as wireless internet. Buying into television takes this a step further. “Strategically it makes a lot of sense. In the years ahead we can expect a reasonable level of consolidation between television and mobile companies. There is evidence to suggest that when you do that, customers are more loyal,” he says.
People like paying one company for “bundled” services and, as more people watch content on their televisions, tablet devices and smartphones on an almost interchangable basis, this will only become truer.
There is a long way to go until Vodafone crosses the finish line on this one, but analysts believe it is a race Vodafone will want to win. After all, if mobile operators don’t buy up television companies, the television companies may buy them first.