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Opinions of Tuesday, 5 August 2008

Columnist: Nelson, Ekow

Fact: Vodafone is primarily a mobile network operator!

Let's be clear: the principal activity of Vodafone is the provision of mobile telecommunications services. It is the largest mobile operator in world by revenue and a very successful one at that. However, any attempt to suggest that it is a seasoned fixed telecom operator (see Business news: "Facts Sheet: Vodafone has experience in fixed line operations, Ghanaweb, 30th July 2008) is not credible and will quite rightly be treated with derision by investment analysts who track the company's performance and progress and indeed by anyone who knows what he/she is talking about. Has Vodafone got some experience with fixed line operations? Yes! Is it one of the leading fixed network providers in Europe, North America, Asia or in the world? An emphatic no!

Fortunately, as a publicly listed company, a full disclosure of Vodafone's activities and revenues is available to anyone who wants to examine them. Its recent annual report presented at this week's AGM sets out Vodafone's strategy and activities very clearly for anyone who is interested and is available online at: http://www.vodafone.com/etc/medialib/attachments/agm_2008.Par.22564.File.dat/2008Annual_Report_FINAL_20-F.pdf.

For the benefit of those who do not have the time to peruse all 160 pages of the annual report, I will summarize some of the relevant points to rebut the claims made in the so- called fact sheet released through the Ghana News Agency on 30th July 2008.

At end of last fiscal year (March 2008) fixed line services contributed 6 percent of Vodafone's total revenues. For the avoidance of doubt the annual report makes it clear that Vodafone's fixed line revenues include "revenue relating to fixed line activities provided by mobile operators" as well as "revenue from fixed line operators and fixed broadband". In contrast, what Vodafone describes as 'voice', defined as "MOBILE VOICE COMMUNICATIONS" (emphasis added) contributed 75 percent and "Messaging" also defined as "Text, picture and video messaging on mobile devices", 12 percent. The final component of the revenue mix is "Data" defined as "email, mobile connectivity and internet on mobile" which contributed 7 percent of total revenues. Taken together, mobile services contributed a grand total of 94 percent to Vodafone's 2007-2008 revenues. Furthermore, Vodafone forecasts a 1 percent increase in fixed line revenues in the current fiscal year. To imply, therefore, that Vodafone is anything but primarily a mobile operator is misleading at best.

In fact on page 108 of the annual report, Vodafone lists its principal subsidiary undertakings and for each, the principal activity. Of the 25 subsidiaries listed only one, Arcor in Germany is described as a "fixed network operator". The principal activity of 16 of the 25 subsidiaries including Vodafone Spain, Portugal, New Zealand, Egypt and Panafon (Vodafone Greece ) is described as "mobile network operator". The remainder are holding companies and the UK is described as "global products and services provider".

According to the so-called 'fact sheet' "Vodafone also has over 10 million fixed-broadband customers across 13 countries". However, this is contradicted by Vodafone's current annual report of March 2008 (published in May 2008) which states: "At the end of the year we had 3.6 million fixed broadband customers in 13 markets, principally in Germany and in our newly acquired businesses in Italy and Spain". Between the end of fiscal year 2007-2008 and July 2008, Vodafone has not made any major fixed acquisitions, so unless in the last 4 months Vodafone has increased its fixed broadband subs nearly three-fold, this statement is either a mistake or plainly false.

The annual report also confirms that Vodafone's fixed customers are principally in Germany, Spain and Italy but goes on to add that "Vodafone branded consumer fixed broadband offers were also launched in Greece, the Netherlands, Portugal, New Zealand and Egypt during the 2008 financial year." So the experience in these latter countries has only just begun.

Vodafone's fixed-line interest in New Zealand for example is largely through its acquisition of the country's former third largest Internet Service Provider (ISP) formerly known as 'ihug'. At the time of acquisition in 2006 'ihug' had just over 100,000 subscribers. Vodafone is not by any measure one of the major fixed network providers in New Zealand where Telecom New Zealand (TCNZ) and Telstra dominate the market. In fact TCNZ's fixed line revenues in 2007 alone, which I estimate to be approximately US$2.7 Billion (NZ$3.6 Billion) is about fifty times Vodafone's 2007-2008 revenues for its entire Pacific fixed-line operations (of US$49.5m or £25m).

By far, Vodafone's most credible fixed credentials are in Germany through its recently acquired subsidiary Arcor which contributed over 85 percent of its 2007-2008 fixed- line revenues of some US$3.7 Billion (£1.87 Billion). It has some 2.6 million subscribers (or 72% of all of Vodafone's fixed subscribers) which is respectable but compared with Germany's incumbent fixed network provider, Deustche Telekom's 36.6million fixed telecom lines, it is puny.

In relation to Italy and Spain, the annual report says that "[i]n December 2007, Vodafone completed the acquisition of Tele2 in Italy and Spain ("Tele2"), which had almost 800,000 fixed broadband customers.But again let's examine the numbers in a little detail. The incumbent and leading fixed network providers in Italy and Spain, Telecom Italia and Telefonica Espana have approximately 22 million and 21 million fixed telecom customers respectively, so Tele2 is a very small player and Vodafone's experience here, such as it is, is nothing to write home about.

Set against the likes of France Telecom, BT, Deustche Telecom, Telefonice Espana, Telecom Italia, KPN, Belgacom, Portugal Telecom or other major fixed network providers in Europe and elsewhere, Vodafone's experience in fixed telephony is not only recent, it is puny by any industry measure you care to name: volume of fixed traffic carried and billed, fixed telecom lines/connections, fixed broadband connections, fixed telecom revenue, fixed telecom infrastructure and investment etc.

Vodafone is a very successful and indeed an impressive mobile operator;however, to justify the proposed sale of GT fixed to a predominantly mobile telecom provider on the basis that Vodafone has a world-class pedigree in the provision of fixed telephony services is an overstatement and quite plainly inaccurate.

© Ekow Nelson London, July 2007