Hope for Vodafone as staff cuts loom
But no hope for 'dead man walking' Arun Sarin
But Colao is a genuine, old-fashioned "brilliant man" capable of startlingly rapid thinking. Stories are told about his ability to read a 200-page analyst report in ten minutes, and then quote paragraph by paragraph where it contradicts itself - from memory. And few seem to doubt that Italian Vodafone's turnround is directly due to his management.
It may be, at that. One of the key decisions the Italian management made, was to start switching off the old mobile network, the generation two, GSM phone system, and move investment to 3G. Legacy equipment can only be maintained at great expense. A proper 3G network really could cost less to run, and allow sensible profits while allowing lower call charges - or at least, that's how the Italian strategy is now perceived.
In this context, Vodafone may well (with Hutchison 3G) be able to gain a march on rivals. Everybody says they are going UMTS, of course. The reality (says American analyst Doug Freeman at American Technology Research) is that anybody providing 3G wireless solutions is trapped in a relatively stagnant market. To quote the report directly:
"We believe handset IC margins will come under pressure as the mix towards 3G is less than expected given the continued high demand for 2G and 2.5G technologies. We point to better than expected sales of 2G and 2.5G base stations as a leading indicator of future handset demand."
Freeman's analysis continues: "We also believe 2.5G networks could see useful life extension with the addition of DVB-H functionality. We believe that new model introductions are slowing with platforms lasting longer in the marketplace. The result for IC companies is that lower prices are required on mature solutions whose costs can no longer be reduced."
Invest in 3G
In other words, as 2G and 2.5G platforms see extended lifetimes, Freeman believes the margin opportunity in handsets decreases. But of course, it also means that those who are investing in 3G may well have an edge.
Till now, investors have been getting steadily more sceptical about 3G. There are pretty good reasons to be so. For example, the coverage provided by masts at 2.1GHz has disappointed the politicians (but not surprised the engineers) who planned UMTS.
This time next year, say technicians, we'll quite probably see a solution to this, with the spread of femtocells - in-house wireless hotspots using 2.1 GHz to provide in-building 3G wireless. On this, of course - as with much in 3G - the jury is still out. We probably have a year before we hear the verdict.
So Vodafone's Board has, effectively, bought time.
Perhaps, the plan to increase the number of SIM cards per user will be proven a winner. Perhaps the strategy to wind down 2G and 2.5G will turn out to be the key to profit growth. Perhaps an all-new system with integrated billing and management will prove capable of allowing the long-prophesied growth in "data revenues" which has eluded Europe's networks for so long.
Or (in the words of the proverb) perhaps the horse will learn to sing. But sadly for Arun Sarin, it looks like he won't be in the audience by then.
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