Vodafone Group PLC ADRVOD

Morningstar Rating

Stock Research and Analysis

by Allan C. Nichols, CFA

We believe the telecom industry is more stable than many other industries against swings in the broad economy, and diversified firms like Vodafone are generally less sensitive than telephone companies focused on one country or geographic region. However, Read more

Bulls Say

Vodafone's scale and scope around the world provide cost advantages, as programs can be developed in one market and then rolled out to the rest at minimal additional cost.

The firm generates significant free cash flow, which it is using to increase dividends, make acquisitions, and invest in the business.

Vodafone's 45% stake in Verizon Wireless is estimated to be worth $30 billion-$40 billion--or about one third of Vodafone's market capitalization. The firm recently acquired outright control of Vodacom, its South African subsidiary.

Because the firm is not an incumbent telephone operator, it has no legacy problems like major underfunded pensions, civil-servant employees, or regulations mandating universal telephone service.

Vodafone has developed M-Pesa, which allows money to be transferred via cell phone, for emerging-market customers who don't have bank accounts. Read more

Bears Say

Competition is increasing globally, and Vodafone is a target. European rivals are merging and becoming more global, and strong emerging-markets players are developing. This competition is driving down average revenue per user.

Vodafone could overpay for acquisitions, especially to buy complete control in France or Italy.

Verizon Wireless uses CDMA technology, while most of Vodafone's operations use GSM. Currently, these two technologies are not very compatible, which prevents Vodafone from seamlessly connecting one of its biggest operations to the rest of its network.

Governments are mandating that wireless firms lower interconnection and roaming fees, hurting sales and margins.

Vodafone has been given a $2 billion tax bill by the Indian government for its acquisition of Hutchison Essar in 2007. The firm is disputing the claim in the Indian court system. Read more

Strategy

Vodafone has ratcheted back its strategy recently, aiming to build the largest wireless customer base in select regions, rather than worldwide. It has integrated networks for seamless cross-border operations Read more

Management

Vittorio Colao replaced Arun Sarin, who retired in 2009, as CEO after previously serving as CEO of Europe and deputy CEO for Vodafone. Previously he was CEO of RSC MediaGroup, a leading publisher in Milan, a position he took after leading Omnitel Pronto Read more

Profile

With 303 million proportional customers (total customers multiplied by its ownership interest), Vodafone is the second-largest wireless phone company in the world behind Read more

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