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Next revelations about Vodafones future direction


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Industry commentators seem increasingly at odds over the future direction of Vodafone.
The latest view from Merrill Lynch is that the company was considering the sale of its interests in China and France. Speculation that Vodafone was open to sell its majority stake in Vodafone Egypt has also been confirmed following an informal approach from Telecom Egypt.

These revelations need to be balanced by the fact that during the last 12 months the company increased its stake in Vodacom in Africa from 50 per cent to 65 per cent, and also acquired Vodafone Qatar and merged its Australian assets with Hutchison into a joint venture.

So, is the company about to reverse its long-held ambitions of rapid expansion, or are these moves an indication of a new phase for the company?

According to financial analysts at MorningStar, Vodafone has quietly moved away from wanting to build the largest customer base worldwide, and is now pursuing a route of searching for growth in selected regions.

This is seen in Europe where the company now has an integrated network covering many countries, and is busy coaxing Verizon Wireless towards adopting a more worldly approach to working with its European subsidiaries.

However, MorningStar disagrees with Merrill Lynch, believing that Vodafone will push forward with attempts to gain control of the companies in which it is a minority shareholder - such as in France, Italy and Egypt.

Without question Vodafone has a sprawling empire with majority or joint control in 23 countries and minority or partnership interests in many others.

But has this scale become more of a burden than a benefit in today's financial climate?

The competition is increasing globally, European rivals are merging and emerging market operators are becoming significant players. Vodafone has also been hit with a US$2 billion tax bill by the Indian government for its acquisition of Hutchison Essar in 2007, and will be saddled with paying heavily for new spectrum in India and Germany.

Selling its shareholding in China Mobile would comfortably cover these outgoings, but the bigger question of what to do with its 45 per cent holding in Verizon Wireless (valued at between US$30 billion and US$40 billion) remains a point of fascination for industry watchers.

Forbes magazine writes that the mobile phone giant said its full year profits more than doubled to 8.65 billion pounds ($12.5 billion) from 3.08 billion pounds ($4.5 billion) a year earlier as strong sales in Asia offset declines elsewhere. While revenue fell 3.5% in Europe and 1.2% in Africa and Central Europe, Asia Pacific Middle East revenue swelled as India led the way with a 14.7% jump in service revenue.

"European results suggest Vodafone is still losing share," wrote Nick Lyall, who covers the company at Swiss bank UBS and has a "neutral" rating on the stock. Of course, as Lyall points out, Vodafone has a particular problem in Europe that has nothing to do with the relative merits of Europe versus Asia. As the largest global mobile phone operator by revenue, Vodafone, whose earnings are driven by its European business, is particularly vulnerable to market share loss in Europe. The continent is a mature mobile phone market and competition is intense, putting pressure on Vodafone's margins.

Besides its big presence in Europe, Vodafone also has a strong foothold in the U.S. where it has a 44% stake in wireless operator Verizon Wireless.

Perhaps the best news for investors Tuesday was not Vodafone's profit growth but its announcement that it would boost its dividend by at least 7% a year for the next three years after posting a rise in operating profit of only 1.7%. The dividend move is supported by job cuts and higher emerging market sales.

In trading on the London Stock Exchange, Vodafone's stock's was changing hands at 136.75 pence, a gain of 0..29% but well below the stock's 52-week high of 152.85 pence.


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