What’s the most successful British company of the last 20 years? Tesco would be a contender, but it is still a marginal force outside of Britain, and lags Wal-Mart and Carrefour in the global retail market. Royal Bank of Scotland would have been a possibility until Sir Fred Goodwin blew the whole bank up. GlaxoSmithKline has been treading water since its 1980s to early 1990s heyday. In fact, the answer is easy: it’s Vodafone.
The telecoms conglomerate has 347 million subscribers and runs the largest mobile network in the world, measured by sales, even if it is slightly behind China Mobile in terms of its total customer base. It operates networks in 31 countries, and has partners in another 44. Not bad for a company that three decades ago was just a small unit of the long-since forgotten Racal. And yet you would hardly guess that from the way the City treats it.
The share price is beaten up. The chief executive, Vittorio Colao, is under constant pressure to dispose of assets. There’s an endless stream of stories about how he should be selling his businesses in the US, or France, or somewhere else. Demands are tabled for special dividends and share buy-backs. It is an illustration of the City’s short-termism at its most destructive.
The last week has seen yet another round of pressure on Colao to dismantle the empire that his predecessor, Sir Christopher Gent, so expensively put together at the turn of the last decade. The firm’s $6.5bn stake in China Mobile was sold off amid pressure for divestments. The 45% that it owns in Verizon Wireless, the largest mobile network in America, is constantly under review. So too is the 44% stake it owns in the French operator SFR (Vivendi owns the other half). The 25% stake in Poland’s biggest mobile operator, Polkomtel, could be on the block. One shareholder group to lobby for the break-up of the business has been active since 2007. The demand for deals to boost shareholder returns builds all the time.
Some of the criticism is fair. Amid the telecoms bubble of the late 1990s, the firm spent almost £200bn on acquisitions. The $175bn it paid for Germany’s Mannesmann remains one of the largest hostile takeovers ever attempted in western Europe. Of the largest 50 deals of all time, Vodafone was a party to three of them. Shareholders didn’t see much of a return for all that frantic, and expensive, activity. Spending £200bn only produced a firm worth £85bn today: not a great return, even if much of the money was in shares rather than cash. The share price has perked up this year. And the dividend is one of the most generous and safest on the London market. But at just over 160p, Vodafone is still a long way short of the 444p it reached in March 2000.
But so what? While it may have over-paid for its acquisitions, Vodafone is an industrial giant. No other mobile company comes close: China Mobile may have more customers, but it doesn’t have anything like the same global reach. There is also still a good chance that its ambitions may pay off one day.
No one knows precisely how the mobile industry will develop. It is, in truth, still in its infancy. It may end up destroying fixed-line networks. It may merge with the computing and social networking industries. It may develop into something completely different. Whether having a global presence, in the way Vodafone does, will pay off remains to be seen. It’s a gamble. But it is hardly a foolish one. Being the biggest gives you muscle in a market. It doesn’t guarantee success – there are plenty of big companies that completely mess up – but it’s a good place to start.
Many of Vodafone’s minority stakes are, admittedly, frustrating. It hasn’t received any dividend on its Verizon shares since 2005. The two companies appear locked in a stand-off that makes the War of the Roses seem amicable and straightforward by comparison. Vivendi shows no interest in selling Vodafone majority control of the French operation they share. In some countries, it has already abandoned its ambitions. In Japan, for example, it sold out in 2006 after years of making little headway in one of the world’s most competitive, and technologically advanced, telecoms business.
But it’s still crazy to pressurise the company to sell out of successful businesses in France, Poland and, most crucially, the US. It may be a long struggle to get control of Verizon, but the prize is surely worth having. Likewise, it doesn’t make much sense to sell out of the Polish market, which boasts some of the best growth prospects in Europe. It may not have complete control of that business, but who is to say it won’t win it one day?
Mobile telecoms is one of the world’s most lucrative and innovative consumer industries. For Britain to have the global leader is a remarkable achievement. So it is an indictment of the City that it only wants to rip that apart – and can’t seem to see any virtue in supporting the company. The German stockmarket doesn’t try to break up its most successful business, neither does the Swiss, nor the Japanese. The London market should be more worried about supporting the country’s few world-class companies – and should spend a lot less time thinking about where the next deal is coming from.