Vodafone rules out merger with HTA

For some time, ABN Amro (amongst others) have been speculating on the kind of consolidation that will emerge within the telecommunications industry.

Many within the industry have also been speculating on various consolidation scenarios.

Significant within these scenarios has been the suggestion of some form of tie-up between Hutchison and Vodafone.

Most recently, this was speculated upon as a result of the 3G roaming arrangements that were announced by HTA on 24 May 2002.

Under the announced arrangements, H3GA switched 3G traffic will roam onto Vodafone's 2G (GSM) and 2.5G (GPRS) networks throughout Australia, in those areas falling outside of H3GA's 3G coverage areas.

With this announcement, several commentators suggested that Vodafone would soon seek to merge together its operations with HTA (ie: making for a complete suite of wireless products, covering GSM, GPRS,CDMA and 3G), each capable of differentiation, including by way of customer targetting of services, branding of offerings, and /or marketing of solutions.

Now, however, Vodafone's Grahame Maher has come out to suggest that Vodafone's commitment to Australia is stronger than ever, as evidenced by the following extract from today's COMMUNICATIONS DAY, and yesterday's transcript from BUSINESS SUNDAY.

For the time being, this suggests that Vodafone and others are adopting a wait and see approach regarding HTA /3G and that consolidation (if this is indeed an option) will occur later, rather than, sooner.

COMMUNICATIONS DAY (3 JUNE 2002):

"Vodafone Australia managing director Grahame Maher yesterday ruled out a merger with Hutchison
Telecommunications Australia, saying it has a sustainable business in its own right. “We don’t intend to merge with Hutchison - that is not on our agenda in any way, shape or form,” he said, adding that Vodafone had no plans to change in regard to ownership, structures or commitment to its market. Speaking on Channel Nine’s Business Sunday, Maher also ruled out Vodafone floating on the stock market in the short term".

BUSINESS SUNDAY, TRANSCIPT (2 JUNE 2002):

VODAFONE'S LOCAL EARNINGS UP

2 June 2002

Helen McCombie

"We’ve achieved a significant turnaround of this business and a great result. And that is because of what the people in the business have done and all of our partners that we deal with have been able to achieve in the market place."


So Vodafone Australia is safe ... the British parent injecting $1.3 billion to repair an impaired balance sheet, despite multibillion dollar write-downs of its own asset base.

But how safe? Indeed, just what is Vodafone Australia's financial position? And what about its earnings? Ask these questions and you get partial answers. Earnings before all deductions rose ... revenue per customer rose ... But ask for the actual figures and, well, silence ... Vodafone says it's not a public company here, and doesn't have to make these public.

It's quite a curious state of affairs, as Helen McCombie found when she spoke to the company's managing director, Grahame Maher.

Grahame Maher, Managing Director, Vodafone Australia: I actually don’t have any continuing doubt about Vodafone’s future in Australia, certainly there is some speculation I guess about it but there is absolutely no doubt. Vodafone is committed to Australia, it is part of our larger environment in this region, we’re represented in Australia, New Zealand, Fiji, Japan and so India and China, so there is absolutely no doubt.

Reporter: Why is that almost no one is convinced that’s the case. People in the telco market don’t accept it?

Maher: I don’t know if the telco market don’t accept it, I think there is some journalist who may be continuing to talk about that, but it is an interesting industry right now. Lots of change happening all around the world, so it is something to talk about I guess but we run our business, we know what we are doing, we have a solid background, we’re committed by our shareholders, we’re here to stay in Australia.

Reporter: The speculation continues that you will merge with Hutchison, that you will have no choice?

Maher: That’s interesting, I hadn’t heard the ‘no choice’. We don’t intend to merge with Hutchison, that is not on our agenda in any way shape or form. I think the industry talks about industry consolidation, all around the world and you know that probably will happen. That’s part of how we have grown our business, it is not in our intention of producing our business by doing that. We continue to grow our business like that possibly, but it is not on our agenda at all today.

Reporter: You can totally rule out a merger with Hutchison?

Maher: I can totally rule out the fact that we are not talking to any one about a merger in Australia in any way shape or form.

Reporter: But would younot say that rationalisation is inevitable for you and Hutchison?

Maher: No, not at all. I would say that Hutchison has to plan and prove what they want to do. We believe we have a sustainable business in Australia right now and that will continue to grow.

HM; Can you say that this time next year Vodafone will operate in its present form?

Maher: Ha Ha Ha, I don’t know what we’re doing next week. So our industry is a fast moving industry. What this current form mean, what does that mean. We have no plans to change any thing that we do today as far as ownership, structures or commitment to this market.

Reporter: Your parents rescue of our balance sheet though, does set you up for a merger with Hutchison?

Maher: Rescue of our balance sheet and set us up right, again I don’t think so, I mean Idon’t understand really by what you mean by that. What we have done in Australia, has made a commitment to our business in Australia by our shareholder investing one point three billion dollars as shares, so they’ve changed from a debt profile, that is a very strong statement about our commitment to Australia, and our commitment to the Australian business. Don’t see how that changes anything around what we may do around other ownership issues in any way shape or form.

Reporter: And you obviously pushed strongly for that one point three billion?

Maher: I wanted to prove that we were committed to Australia and we wanted to put share holder funds in not in debt, yes.

Reporter: Can you give us a figure for after tax earnings?

Maher: We don’t release earnings numbers, we have a set of numbers we release on a globa basis to ebit da level and that is what we do. I’m bound by the way we report on a group wide basis, and we don’t report down to an ebit line.

Reporter: But why just make an announcement on profit, isn’t that blowing your own trumpet selectively?

Maher: Well that is a nice thing to do, we’ve had a very good result and we’ve made good profits, and we had big increases in our profits and we’ve made major changes in the business. All which come out with a good result. We’re very, very happy about that. Our team in the business has done a great job. When I spoke to you last we were dealing with all sorts of questions about how do we change this business and improve the reformers. We’ve achieved a significant turnaround of this business and a great result. And that is because of what the people in the business have done and all of our partners that we deal with have been able to achieve in the market place.

Reporter: Why is there so much doubt?

Maher: I guess probably it has just been a history of Vodafone has done different things in Australia, there as a potential IPO, which is now no longer on the agenda, there was the question about purchasing Optus which was another clever play but we didn’t do that and we backed out of that deal, so I think there was lots of things we were doing and people I guess have just decided that if we weren’t doing those are we doing something else. Yes we are dong something else, we ‘re running our business, we’re running it efficiently and effectively and it is running very well.

Reporter: At what point would you be able to look at an IPO?

Maher: I don’t know, it is not on our agenda at all. Will it come back on, I just don’t know.

Reporter: What sort of interest saving will the injection of one point three billion dollars do for you?

Maher: Again it is not numbers that I can talk about around our group numbers, it is a significant reduction of the debt of the business, and it is now converting that debt into equity. It is again a great commitment about how committed we are to the business and it is great to see our shareholder backing what it says with money.

Reporter: Has any money flowed back to the parent as a result of that injection?

Maher: Not as a result of the injection, as a result of our operating business we are now cash flow positive in Australia, one that is a great result, and we are paying back to our shareholder dividends, so it is a great result.

Reporter: Can you say how much you have paid back?

Maher: Again I can’t give you numbers.

Reporter: Does Vodafone Australia have any debt now?

Maher: Vodafone in Australia still has debt yes.

Reporter: What level of debt?

Maher: Again I can’t give you numbers around those, it is not what we disclose.

Reporter: What are the prospects for growth now?

Maher: That is a very good question and it is a question I guess that every one around the world is really asking about telecommunications. If I focus in Australia in our region, the areas for us that see significant growth, one is data and these new services. You’ve seen what has happening with SMS or text messaging, has really taken off and we are now seeing up to eight percent of our revenue coming out of SMS message and it continues to grow. What we’re also seeing though around the world is new data services, and probably the most exciting things we’re see is picture messaging. My phone is over there is one which I can use today that is capable of sending a photo of you to someone else in Australia on our network now, a colour photo message. In Japan that has just boomed, we now have four million users in our Japanese business, sending pictures like saying good night to your partner via phone, my wife will hate that. But it is something that we can do now. We can do that today on two and a half G, technology GPRS right now and we will see that commercial in Australia very soon.