Fool's Eye View

[ February 2, 2000 ]

Vodafone & the Art of World Domination

By Nigel Roberts (TMFNigel)

Chippenham, Wiltshire -- You have to marvel at the way Vodafone AirTouch (LSE: VOD) has managed the news flow in its battle to take over Mannesmann. Last week Mannesmann was putting up a spirited defence, and pointing out how its Internet strategy was better formulated than Vodafone's. There was talk, apparently spread by Mannesmann, which indicated that it was going to create a joint holding company with French utilities group Vivendi. At the time, Vodafone chief executive Chris Gent dismissed this, saying: "An alliance between Mannesmann and Vodafone creates much more value than an alliance between Mannesmann and Vivendi. We can offer a global presence, rather than just a European one, and a better partnership." A few days later he was able to announce that Vodafone had actually agreed a deal with Vivendi to set up a 50-50 Internet joint venture to develop and operate a branded multi-access portal in Europe. This was a clear indication of which company held the balance of power.

On the 28th January there were newspaper reports, again apparently coming from Mannesmann, that said Mannesmann would take a minority stake in AOL Europe, with AOL gaining access to the German company's fixed and mobile phone operations in return. Then today we hear today from Vivendi that its Internet venture with Vodafone, now called MAP (Multi-Access-Portal), is interested in buying Bertelsmann's 50% stake in AOL Europe. OK, the creation of MAP is conditional on Vodafone succeeding in buying Mannesmann AG, Germany's biggest mobile phone company, but again it shows how Vodafone have been able to counter Mannesmann's best efforts. A Vivendi spokesman said that Vivendi-Vodafone's Internet venture "would be the best partner for America Online", clearly a slap in the face for Mannesmann.

We then get another announcement today that CMG (LSE: CMG), the computing company, is to provide Vodafone with its mobile Internet access systems. CMG's shares were the best performer on the FTSE 100, up 22% on the news. Vodafone said CMG's technology allowed it to retain its current phone and computer systems and integrate them with new hardware and software. Vodafone is developing new services using Wireless Application Protocol (WAP). This deal follows the agreement that Vodafone signed with Affinity Internet (LSE: AIH) last month to provide services such as games and shopping over WAP. CMG's WAP Service Broker has already been installed for Vodafone and will be providing its UK subscribers with full WAP services. Not only that, but yesterday Vodafone unveiled an agreement with Casio Computer Co., Ltd., the Japanese electronics company, for the joint development of mobile multimedia palmtop computers incorporating a wide range of wireless Internet content and services. The aim is to provide customers with a lightweight handheld device offering full colour Internet access with audio and video capability. Chris Gent said that the company's goal "is to become the world's leading mobile multimedia operator, and our agreement with Casio marks another significant step towards achieving this goal."

So much for Mannesmann's charge that Vodafone had an underdeveloped Internet strategy!

I know I am biased -- I am a Vodafone shareholder, and Vodafone is part of the Fool's Rule Shaker portfolio -- but it really does seem to be showing signs of being a super world-class company. It is amazing to think that it was only formed in 1984 as a small division of Racal (LSE: RCAL). 16 short years on and Vodafone is now the UK's largest company by market capitalisation, valued at £112 billion compared to second-placed BP's (LSE: BPA) £106 billion. Vodafone has grown aggressively through acquisitions, in stark contrast to BT (LSE: BT.A) which really has struggled to capitalise on its commanding position in the UK by expanding overseas, has generally resisted takeovers in favour of joint ventures, and which published some pretty poor results this morning, covered in our Breakfast News.

While the deal for Mannesmann is still far from being done and dusted, the actions that Vodafone has taken over the last few weeks really do now seem to be paying off, and it is looking more and more likely that they will win the day. It was reported that Klaus Esser from Mannesmann and Chris Gent met in Düsseldorf yesterday, and that the two came close to an agreement over a merger of equals between the two companies. It seems that Esser is responding to pressure from his shareholders for an agreed solution to the takeover bid, and that he now wants to try to reach a merger agreement before the Friday deadline. So the UK's biggest company now looks certain to be getting even bigger soon.

So once the deal has been done and dusted, what next for Vodafone? Well, maybe they don't need to look much further than their joint venture partner in the multi-access-portal, Vivendi, which would make another natural link in Vodafone's move to commercial world dominance! Biggest company in the UK already: could it soon be the biggest company in the world? It is just possible, you know!

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• Vodafone AirTouch message board