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Vodafone: acquisitions in the face of heavy competition

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Vodafone continues to expand its presence in the UK mobile phone market with the acquisition of mobile services provider Project Telecom. Like other independent resellers, Project Telecom has already suffered due to intense price competition in the market - competition that is set to get even worse in the run up to Christmas.

The boards of Vodafone and Project Telecom have agreed on an offer of 70 pence in cash for each Project Telecom share. This is a 43% premium on its price on July 10, the day before Project Telecom revealed that it had been approached.

Essentially, Project Telecom provides mobile services to companies by buying minutes of airtime from network operators, and reselling them with handsets, as well as providing billing and other services. The Nottinghamshire-based company also supplies fixed-communication services through an agreement with Energis, the telecoms business spun out of National Grid.

This business model proved to be successful until April, when it was forced to issue a profit warning after it was hit by intense price competition from the mobile operators themselves, slower than expected growth, and a Competition Commission ruling on charges. The difficulties led to a strategic review of the business, which prompted the board to consider talks on a potential takeover. A number of other suitors, including BT, Orange, mmO2 and even Energis, are thought to have made approaches to the company.

Vodafone is also interested in buying out another mobile phone service provider, Singlepoint, in a deal thought to be worth more than £400 million. Singlepoint is a service provider like Project Telecom, but has 1.4 million customers as opposed to Project Telecom's 210,000 customers. About 90 per cent of its customers use the Vodafone network, and as with Project Telecom, Vodafone is keen to get direct access to the subscriber base. Last year, Singlepoint had estimated revenue of £500 million.

At the moment, the mobile phone market-place in the United Kingdom is incredibly competitive, after the heavy summer price cuts offered by 3G mobile operator "3" in its desperate attempt to acquire market share and consumer take-up of its 3G service. The pressure is expected to increase in the run-up to Christmas, especially now that BT plans to return to the mobile sector with its partner T-Mobile, while supermarket leader Tesco launches its own-brand service using the mmO2 network.

Source: Computerwire/Datamonitor

Recommended research: Reuters Business Insight, "Mobile Telecom Strategies in Europe: Identifying the Risk" (RBTC0048)

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