Vodafone hedging bets with C&W buy

Catherine Haslam/Ovum
27 Apr 2012

Vodafone is set to acquire Cable and Wireless Worldwide (CWW) following a recommendation from CWW’s board to its shareholders that they accept the £1.04 billion bid from the UK-based mobile operator.

CWW’s assets will help Vodafone fill gaps in its telecommunications portfolio, while the purchase price is the best CWW could have hoped for. It’s certainly considerably higher than the bid rumored to have been on the table from Tata Communications, which pulled out of the running last week.

Still an uphill battle

The acquisition adds to Vodafone’s revenue potential from global services by significantly increasing the number of addressable enterprise customers worldwide, giving it access to substantial international network systems and relationships that CWW built up over many years.

However, we see Vodafone facing an uphill route to profit. Most carriers find it difficult to integrate complementary telecoms service portfolios, networks, and business processes. Vodafone will have to make numerous tough decisions to build a competitive global services business, and the operator has yet to prove it can make such difficult choices.

With its money on the table, Vodafone must now act decisively to minimize its risk. However, the risks associated with developing its global services business will be substantially offset by the cost and efficiency savings it anticipates garnering in the UK and internationally.

Fiber for enterprise and backhaul in the UK

The deal, which still has to be approved by CWW’s shareholders, will make Vodafone the second-largest telecoms service provider in the UK based on each company’s last reported year of revenues, behind BT and ahead of Everything Everywhere. It will also make Vodafone the only owner of next-generation fixed and mobile networks in the UK, a position of strength it must exploit to minimize costs and increase efficiency while building enterprise revenue.

In statements to analysts and press, Vodafone’s chief executive, Vittorio Colao, stated that CWW’s fiber goes within 100 meters of a third of all Vodafone’s base stations and that the company would “edge towards” digging to the base stations.

Owning one’s own fiber backhaul capacity has considerable efficiency and financial benefits. AT&T claimed that connecting HSPA+ base stations with fiber increased data throughput speeds by 35% over HSPA+ on the air interface alone. Furthermore, if CWW fiber goes that close to Vodafone’s base stations it will also be close to those of the other mobile operators. Vodafone can look at offering backhaul either on a wholesale basis or through backhaul-sharing options such as the one it has with Deutsche Telekom in Germany, especially when UK operators roll out LTE.

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