5G is a much-anticipated shift into the next generation of mobile connectivity. We shouldn’t underestimate its power as it has the potential to transform enterprise to another level with its ultra-fast speeds and superior capacity. One company at the forefront of this technology shift is telecoms giant Vodafone (LSE:VOD). Harnessing the power of 5G could be its ticket to a more profitable future, but the Vodafone share price has been on a downward spiral for several years now, so will its 5G investment be enough to propel it back into the realms of being a great British company to invest in?
The £28bn member of the FTSE 100 is a multinational operating in 24 countries. It owns a 45% stake in Vodafone Idea, which operates throughout India, and its Vodafone Global Enterprise division services clients in 150 countries.
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Vodafone Idea is heavily indebted to the Indian government and has endured eight straight quarterly losses. It has been struggling in a price-war with competitors resulting in it losing millions of subscribers. Meanwhile, in Italy it has been involved in disputes over ownership of a broadband network.
Big wins boost share price
In the UK, Vodafone is pinning its hopes on its 5G rollout to transform the company’s prospects. Its Vodafone Business unit helps companies switch to 5G, and it’s already won contracts to help Centrica and Ford transition. It’s helping Ford create a private 5G network to accelerate and refine its production of electric vehicles. And it’s helping Centrica install a 5G-ready mobile private network, making it the first plant in the oil and gas sector to do so. If Vodafone can win more of these types of contracts, it could boost its credibility as more than a telecoms company, which would probably improve its share price.
Headwinds halting progress
The Vodafone share price has fallen 33% in the past year, it carries a lot of debt and earnings per share are negative. And there are some hurdles to leap before the group can really feel the benefits of its 5G strategy. Vodafone’s 5G rollout began its staggered launch in July 2019, but the pandemic has slowed progress.
To allow it to pitch its masts, it pays over £3.5bn in rent to UK landowners annually. An act introduced in 2017, to speed up 5G rollout, gave Vodafone hope it could reduce the amount of rent it was paying. Unfortunately, this hasn’t quite gone to plan, and it recently lost a court battle with one landowner, which might open the floodgates to more.
It’s rare that nationwide projects run smoothly. What with red tape, the pandemic and potential court cases to contend with, the 5G rollout may not be as fast as the company and its shareholders would like. However, the Vodafone share price is low, and its forward dividend yield is a juicy 7%. And despite delays, the government wants the 5G transition to go ahead because it should bring significant cost savings once implemented. That’s good news for Vodafone.
The CEO is on a mission to streamline the group and is committed to digitising its supply chain. In recent years, major acquisitions have contributed to its high debt levels, but cash flow remains resilient and 5G should pay off eventually. As a long-term growth prospect, I think the Vodafone share price looks promising.