Vodafone doubles enterprise power

Vodafone’s £1 billion takeover of Cable & Wireless Worldwide makes the mobile network the biggest UK telco behind BT. Jasper Jackson analyses what implications the deal will have for the industry

Vodafone two weeks ago agreed a £1.04 billion deal to buy troubled telecommunications firm Cable & Wireless Worldwide (CWW) to become the UK’s second largest telecoms provider by revenue behind BT.

Vodafone Group CEO Vittorio Colao (pictured) said the deal would effectively double Vodafone’s current enterprise business in the UK and boost its credentials in the unified comms (UC) markets space.

The cash deal, expected to be finalised in Q3, will provide Vodafone Group’s UK sales with a large global network of fibre broadband infrastructure and will generate significant cost savings from using CWW’s infrastructure to provide mobile network backhaul.

Analysts claim the acquisition will increase Vodafone’s revenues by up to £2 billion, taking total annual revenues to around £7 billion.

This would see the firm leapfrog Everything Everywhere and O2 to become the UK’s second largest telecoms company.

Announcing the deal last week, Colao said: “Cable & Wireless is a major infrastructure player globally and a unique asset. It will make us the second largest telecom operator in the UK, and a leading integrated fixed and mobile operator for enterprise.

“This positions us very well to capture the growth for unified communications services for UK businesses.

“We see Cable & Wireless as a good opportunity to strengthen our enterprise business, both in the UK and internationally.”

Two-part takeover strategy
Vodafone plans to take a two-stage approach to the acquisition, initially keeping CWW separate and investing to “stabilise” parts of its business under the leadership of an unnamed senior Vodafone executive.

The firm will then carry out a full integration and merge management teams, eventually rebranding all CWW operations as Vodafone.

Colao confirmed the acquisition is likely to result in a number of job cuts at CWW, and also potentially at Vodafone, although he did not go into specifics.

“We need to leverage and use the skills existing in Cable & Wireless, and there are many that are good and will be used,” Colao explained.

“We will expect some job losses in areas where we have overlap, possibly in some administrative and technical functions, but it is too early today to give a number.”

The Communications Workers Union (CWU), which represents staff in non-management roles said it is optimistic redundancies in mobile and fixed-line divisions will be kept to a minimum.

CWU deputy general secretary Andy Kerr said: “In our experience, whenever there’s a takeover there are job losses, and staff in CWW, in particular, will be feeling concerned right now.

“We would hope that because of the different nature of the work that the two companies undertake – mobile versus fixed line – there wouldn’t be too large a reduction in the workforce.

“The limited duplication of work could be in the best interests of job retention within both companies.

“We’ll be working to minimise the impact of any redundancies on staff and to seek alternatives to compulsory redundancies, in particular, wherever possible.”

Boost for One Net
Colao said the acquisition of CWW will be “very important” for strengthening the operator’s UC product One Net in the UK – a service which met with a number of limitations here.

In the long term, the acquisition will give Vodafone greater purchase in the wider enterprise ICT market that O2 has been targeting in recent months.

In October, O2 head of business Ben Dowd told Mobile News that the firm was determined to win business in an ICT market he estimated was worth around £62 billion.

At the time, he added that as a result of the firm’s aims he no longer saw Vodafone as a competitor, instead saying that companies such as BT Global Services, Fujitsu and notably Cable & Wireless, were the real competitors.

According to Informa Telecoms & Media principal analyst Camille Mendler, O2 is still not competing at the same level in larger enterprises as big players such as BT, but Vodafone now has the muscle to take business from such players.

She says: “Vodafone was closed out of ICT wallet share without the range of assets that it can now offer.

“The UK market has been one of the most difficult, challenging markets for years, but for anyone who is trying to win enterprise business in the UK market, things have become tougher.”

Mendler points out that CWW has a long roster of large corporations on its books and claims to serve 70 per cent of the FTSE 100, including Tesco, insurance company Aviva, Lloyds bank, as well as government bodies such as the NHS.

Buying CWW will give Vodafone access to these companies, many of which have years to run on their contracts with CWW, and the operator will be able to sell mobile services to those firms.

She notes CWW’s existing relationships with government organisations and other customers, and its partnership with firms such as IBM, will put Vodafone in a better position to bid for M2M contracts such as the £3.5 billion smart metering contract currently up for grabs in the UK.

“Enterprises are looking to inject mobility and that reflects what is happening in the workforce, the composition of the workforce, the fact that we are using these cool connected devices more,” Mendler said.

“It is not just about people, but the things as well, so I am very much looking at this as an opportunity for Vodafone to sell cross-border M2M as well as some national deals.”

The CWW acquisition will inevitably intensify the rivalry between O2 and Vodafone in the UK.

However, they have very different strategic focuses globally.

O2 parent Telefónica is expanding in Latin America, while Vodafone is more focused on Europe and the Asia-Pacific region.

CWW’s infrastructure stretches along a corridor through Europe and into Asia-Pacific, making the acquisition a good fit with Vodafone’s international strategy.

Full article in Mobile News issue 513 (May 7, 2012).

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