Vodafone’s Deep Pockets Could Influence Rivals’ Spectrum, M&A Strategies, Observers Say

If Vodafone looks for additional spectrum, and is willing to buy its way into a leadership position, that could affect spectrum values, said Analysys Mason analyst Chris Nicoll. Regulators will be sensitive to rivals’ worries about Vodafone cornering the market, so they may consider auction caps, he said. In the U.K., for example, Vodafone holds the most spectrum across six different bands, with Everything Everywhere and O2 each holding spectrum in five different bands, he said.

Nicoll predicted Vodafone’s strategy will be to be smart about acquiring spectrum. LTE Advanced offers the ability to aggregate different pieces of spectrum and treat them as a single channel, he said, and aggregation could affect bidding strategies. Vodafone may also look at how it can take advantage of unlicensed spectrum, such as for Wi-Fi, to offer a great roaming service, he said. The mobile operator has the spectrum and technological coverage via Wi-Fi and LTE Advanced to drive end-user terminal development for its own network features, he said. Nicoll predicted Vodafone will focus on how to add value to LTE through new services and capabilities, not just bigger pipes.

Vodafone won’t necessarily have any lead in acquiring spectrum, said John Delaney, associate vice president-European mobility for market intelligence consultancy IDC. Spectrum auctions can’t be done on a tactical basis and Vodafone, like other operators, already has a detailed strategy in place in line with what’s coming available in markets over the years, he said. Vodafone will “have the cash to ensure it obtains the spectrum portfolio it requires in each market,” said consultant Amit Nagpal at U.K. telecom consultancy Aetha. “Though to be fair, this is not a major change -- Vodafone has historically always bid aggressively in spectrum auctions to get its target package."

Vodafone’s deal could have more of an impact on M&A strategies in Europe, commentators said. The company will have cash to invest in M&A activities such as buying more fixed operators, which could lead to offerings such as quad-play services that other mobile-only operators can’t match, Nagpal said. It can also invest more in its network to seek to gain an advantage such as speeding rollout of 4G/LTE, widening the coverage of its data network, or upgrading to the latest variants of LTE to offer the highest data rates, he said.

Vodafone is starting to feel uncomfortable as a mobile-only operator in some markets, so it’s looking for fixed-line assets as well to bundle fixed-line services such as TV in quad-play packages, said Delaney, saying his comments on potential M&A are “purely speculation.” It’s impossible to predict what companies Vodafone might want to buy, but the idea that it could acquire a fixed-line operator to shore up its position is attractive, he said.

Italy is a market in flux, and Vodafone has the ability to raise financing for acquisitions that Telecom Italia can’t raise, which could give it a competitive advantage there, Delaney said. It’s reported that Vodafone is poised to spend a lot of money in Italy, said Informa consultant Francesco Radicati. One acquisition target his organization has mentioned is Fastweb. With its fixed assets, and partnership with Sky TV, it’s the “best bet for triple-play” Vodafone could offer in Italy, he said. Another good target for Project Spring would be Spain, said Radicati. There’s already a deal with Orange Spain to roll out a fiber network to cover 6 million buildings in 50 cities. Informa believes buying a cable player like broadband communication and entertainment company ONO would give Vodafone more subscribers and better access to the TV market, he said.

There’s already a significant increase in M&A in Europe, said Delaney. A Vodafone suddenly flush with cash will stoke that fire, he said. The mere fact that Vodafone has the money to look at M&A will fuel interest in a telecom sector already moving in that direction, he said.

The European Telecommunications Network Operators’ Association said “healthy consolidation” in the mobile sector was recommended by a July report for ETNO (http://xrl.us/bpg48t), which declined to comment on specific deals. The report pointed to the “high degree of fragmentation” in the mobile market, and said more M&A could help consumers “if a more dynamic and holistic approach was applied to evaluating the impact of these deals.” Consolidation would help economies of scale and of density and quality, the report said. The European Competitive Telecommunications Association wouldn’t comment on the Vodafone deal, saying the operator is a member in connection with its fixed-line business. Deutsche Telekom and Telecom Italia didn’t comment.

The Vodafone sale could be good news for corporate users who are “profoundly dissatisfied” with the global mobile market, said Nick White, executive vice president of the International Telecommunications Users Group (INTUG). Companies are fed up with not being able to acquire international contracts that cover all of the countries in which they operate, he said. Vodafone is one of the few providers that can offer such a service and even it isn’t everywhere, he said.

The deal will be good only if Vodafone doesn’t eliminate customer choice, said White. INTUG advocates service-based competition, and hopes Vodafone doesn’t waste money by seeking access infrastructure rather than sharing networks, he said. That’s not necessarily the view of dominant operators or some regulators, who want infrastructure competition, he said.

Should other operators be worried? “Yes, is the short answer,” said IDC’s Delaney. Orange and Deutsche Telekom are also in fairly strong positions in Europe but neither has Vodafone’s resources, he said. The Verizon deal gives Vodafone a lot of scope for maneuvering against rivals, he said. And Vodafone may also be able to take advantage of the growing number of consolidations from four to three mobile operators in a country, he said. Austria has gone that way, Ireland is in the process of losing one player, and Telefonica may take over one of the other German operators, he said.

The question is what assets are available for Vodafone to buy, said Radicati. EE and O2 in the U.K. are too big, and Radicati dismissed rumors that Hutchison 3’s European operations are a possible target. The difficulty with asking whether Vodafone will enter new countries or consolidation is that its trend is to move away from part ownership in certain subsidiaries, as when it sold its stake in French operator SFR, he said. It’s unclear what takeover targets there will be in Europe, he said.

It will be interesting to see what happens to Vodafone in the long term, said Aetha’s Nagpal. “Could it be acquired by AT&T -- or perhaps even America Movil?” In that case, he said it will “have even bigger economies of scale and purchasing power which smaller competitors will fail to match.”