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Hope for Vodafone as staff cuts loom

But no hope for 'dead man walking' Arun Sarin

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Analysis The shame of working for what used to be the jewel in the crown of UK mobile companies won't cause too many top execs to resign in the next three months. They'll hang on for their pay-offs, not just because the money would be nice, but because they are right now close to being unemployable.

But being seen driving a BMW five series instead of a £74,550 Maserati Quattroporte will probably hurt some of them even more than being unemployed.

So, what went wrong?

There are plenty of analyses. In the eyes of some - like James Enck perhaps there isn't any need to fire everybody, and certainly not the CTO. His response to the dismissal of Thomas Geitner last week: "Friday the 13th seems like an appropriate date for a company to oust a respected executive, and that's just what Vodafone has done."

The announcement may have come on Friday 13th, but Geitner lost his job a week earlier. And the reason he's gone is that Vodafone has decided to stop mucking about with impressive-sounding spin, and get down to brass tacks.

"In the mobile phone business, the important thing to remember is that this is a consumer electronics business, based on voice," was the analysis of one Italian based insider this weekend. "They have to focus on how many phones we have, not on vague, SciFi futurism like presence and IM."

Another analysis would be to notice that Vodafone is not a consumer phone company. Maybe as much as 80 per cent of its revenue comes from business users - in the UK, certainly. Why did it get confused about strategy? Should it have pushed on with its thrust into consumer? or is that a distraction from its true calling?

Controversy will rage over the next couple of months.

Sarin: still some dirty work to do

First out the door will not be Arun Sarin, long though his departure has been expected. There are great tasks ahead of Arun! - he has several cans to carry, yet. In particular, he has to organise a slew of P45 forms because - yes, there are some senior staff who have to go.

Sarin was appointed because he has a great public profile in the US, and for some time, Vodafone has had great ambitions to expand its shareholding in mobile partner Verizon there.

Those ambitions are fading. And as they fade, Sarin's usefulness to the New Voda fades with them. But if he can clear out the broom cupboard before he goes, and take the blame for a few more bits of bad news that are still due to be revealed, then he can stay another couple of months.

Geitner is (my sources insist) just the first of the old broom cupboard bits and pieces to be shuffled off. "He was considered one of the old guard," summarised Nic Fildes at the Independent. That didn't help, despite the theory held by many that Sarin's imminent departure is part of the Return Of Gent.

A real Gent?

Geitner left, despite his "old guard" credentials. They're pretty impressive. But still, he left, "having been with the mobile operator since 2000, when the British company acquired German operator Mannesmann [continued Fildes]. He received £734,000 in basic salary last year and received almost £1m in bonus payments and benefits." No sympathy for Thomas, then. No doubt he'll keep his other directorships, perhaps even including the 4G NGMN (next generation mobile initiative) consortium in which Vodafone is playing a part.

Sarin, of course is "The Next Generation." But in reality, "old guard" and "next generation" questions aren't the ones that need answering. The underlying problems facing Vodafone are facing a lot of mobile network operators. In a nutshell: "Where will next year's growth come from?"

Investors expect growth, or a raw increase in share value. Without that, there's no reason to hold onto the investment. Well, of course, there is a dividend.

By no coincidence at all, earlier this year, Vodafone forked out five billion pounds to bribe shareholders. Nobody was fooled, well, nearly nobody. There were some who thought it was shrewd, but most observers spotted that it was an attempt to "buy time" by keeping shareholders at bay.

Like buying a lottery ticket

Forbes remarked at the time: "Standard Life, the most vocal of Vodafone Group PLC's major shareholders, this afternoon applauded the mobile phone giant's decision to hike its dividend, but said that questions over its long-term growth prospects remain. 'The changes to the balance sheet structure are appropriate,' said Wesley McCoy, Standard Life's Investment Director for UK Equities, in a statement. 'However, we - and I believe the market - remain sceptical on Vodafone's ability to realise its earnings potential,' he concluded."

When your biggest investors call ownership of your shares as "like buying a lottery ticket" because of your "lack of strategic focus" then you can be sure the Board will see the writing on the wall, and Arun Sarin was "a dead man walking" from that moment. The only question that needed time to answer would be: "Who takes over?" and (same question, really) "What will the strategic focus be?"

As the NewsWireless gossip columnist remarked yesterday, the strategy for the future will be to run the corporation properly. A reputation for being well managed in Italy led to the appointment of Vittorio Colao to the Board as from 9th October 2006 as Chief Executive of Vodafone's European region.

And that date, by no coincidence whatever, was the day Geitner was told to collect his million quid and his belongings in a plastic bag, close down the "innovation" division, and hand his ID pass to Security.

What can Colao actually do to rescue Vodafone from what the market is doing to all mobiles? Ha! Not a thing, probably. But what he can do, is make it appear that Vodafone will be less badly affected than others.

Right now, the real threat to Vodafone is from asset-strippers. They reckon that UK growth in handsets simply has to peak, and that the cost per minute simply has to carry on dropping. And they reckon that buying new customers by giving them expensive new phones every few months will hurt profits. So - no growth in European markets. But plenty of growth, they reckon, in overseas markets like South America and Africa.

So buy the whole enchilada, sell off the high-growth sectors for more than you paid, and then run the remainder as a low-capital cash cow? Why not!

Asset-strippers

That plan will only work as long as Vodafone is undervalued. So to fight off the asset-strippers, all the Board has to do is get investors to re-value the corporation on the grounds that it's going to be properly managed.

The first thing to do is cut costs. That involves firing large numbers of expensive people. And (as the Hunky Mouse reported earlier) "you can't tell a couple of thousand people they've lost their jobs, and then drive off in a Ferrari". Hence the purge this week on any car bigger than the BMW Series 5 and (even more startling!) the decision that senior Vodafone execs can have only one company car.

The future, for Vittorio Colao, depends on how these changes go down with Standard Life and the other big investors. And a lot of that depends on how he's seen by them.

People inside Vodafone find the man impressive. True: his fiercely pro-Italian sympathies seem likely to betray him into losing some good people who happen to be British or American or German - but (as one consultant remarked not long ago) "there are not all that many good people at the top of Vodafone these days." If they all go, the loss will not be terrible, she reckons.

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Next page: Brilliant Colao?

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