Vodafone snaps up Cable & Wireless

Vodafone looks to have succeeded in its ambition to buy up commercial network provider Cable & Wireless for a projected £1.04 billion ($1.76 billion), or about 40% of the estimated break up value of the company.


Assuming it is successful, Vodafone will gain; a national fibre-optic broadband network that is separate from BT or Virgin Media's), a massive portfolio of business customers and a global backbone infrastructure that reaches out to over 160 countries via its network of undersea cables. 


Suggestions are that the latter will probably be sold off so that Vodafone can concentrate on winning more enterprise customers at home, which is probably what they will do.  Though as a long term play, especially if they are interested in servicing large enterprise customers, I think that would be as strategically unwise as the BT forced sale of its mobile phone business...


C&W has a lot of customers but not as many as you might think, remember they have been in serious decline for over 10 years, I rather consider them to be the GEC/Marconi of the UK Telecoms Industry, the parallels are clear.


The real coup with this acquisition is not the customers or the international fibre, it is that UK national fibre infrastructure that they will take possession of as the deal completes.   Since 2010 when the use of smart phones and mobile devices saw the cellular data traffic move ahead of voice the one the largest cost-of-service-delivery items has been the amount of money that Vodafone has had to pay to BT for backhaul, and from here on in the Vodafone will benefit from the coming explosion in mobile (I don;t think mobile is even ouf the gate yet...)


Bottom line. Buying up C&W gives Vodafone its own infrastructure the reduction in backhaul costs will dramatically improve its revenue per user with all the potential advantages that this brings forth customers and investors.

TATA leaves C&W Worldwide a sinking ship

Tata Communications 11th hour withdrawal from negotiations with Cable & Wireless Worldwide sent the troubled companies shares into free-fall yesterday and left the way clear for Vodafone to snap up a bit of a bargain.

The estimated breakup value of Cable & Wireless is estimated to be around £2 1/2 billion, approximately £.90 per share. This may have led to the Cable & Wireless board to reject the £.42 a share offer made by Tata.  With CW shares standing at £.31 each as I type this, you wonder if they've gained anything.

Over the years of watching the ups and downs and further downs of Cable & Wireless it's often occur to be and my colleagues at Cable & Wireless would be a better fit with British Telecom supporting their increasingly successful BT Global Services organisation.

Here is an interesting if not terribly well-informed article posted on interactive investor on the 16th which goes into rather more details. The comment that Cable & Wireless is the provider of choice for 70 of the FTSE 100 companies is terribly wide of the mark, after years of decline Cable & Wireless is left as one of the many, many, many, providers that service the U.K.'s largest companies.  Don't believe the PR spin Cable & Wireless's position amongst these organisations is way behind that of BT Group and Verizon.

BT £9m Pension deficit slams stock price

BT unveiled profits from operations up this quarter, mostly off the back of improvements in the group known, or formerly known, as BT Global Services, which is good, yes?! Well no they they also announced a pension deficit of £9Bn, for those of you in Metric that's €10.2Bn or in greenbacks $14Bn.  They said they were going into a 17 year recovery plan.

A 17 year recovery plan!!  This is a company that has been in recovery since 2001 when it finally figured out that it had a £30bn debt mountain.  Whilst smaller atthe time France Telecom and DT where quietly beavering away being modern Telcos BT and their arch rivals CW seemed to lose the plot completely, determinedly launching and relaunching on the International markets, in ever more crazy, expensive and vain-glorious attempts to out AT&T, AT&T. 

You have to feel for the current BT management team who will be cleaning up Sir Peter Bonfields mess for another 20 years.

CW to spin-out DEMON Internet

In acquiring THUS, CW got it's hands on a mighty NextGEN network, major MPLS infrastructure and associated high value customer-base, datacentres, a sticky product set, skilled engineering team etc. Essential elements in taking on BT & Verizon in the modern enterprise.

As with any house sale they also got some bits they don't want; where as most of us would have put those on eBay or dropped them off at the tip - reports are coming in that CW management have appointed Rothchild to help them clear out the cupboards. Which almost certainly means Broadband ISP Demon Internet is up for sale. Suggestions of a £75-£80m asking are being floated - a nice 'find' as the daytime presenters would say.

But if history is anything to go by I expect CW to find a lot more value than just the sale price. Those of you with half decent memory will remember Bulldog the CW subsidiary voted as 'Britains worst broadband provider'. After Pluthero and the Energisers got hold of it they sold off Bulldogs customers in a deal that ensured the acquiring company had to lease network from CW in order to serve them.

So, I expect more of the same. Double's all round!

That C&W takeover of THUS Telecom people are talking about

As the 30th June deadline looms and THUS Management remain coy about their plans, we take a look at how a combined CW/THUS entity would address the IP services market in the UK.
In this graph we see the customers of each player by turnover. The first thing that strikes you is that where CW is weaker than the market average (0 on the 'Y' axis), THUS is stronger and vice-versa. A combined entity would have a significant increase in market strength across the whole business IP services market.

CWs undeniable success in controlling costs, reducing unplanned churn, and bringing its customer base back to those it finds most profitable to serve; has led to a fall in its 'overall' market strength. It's position in the profitable £2m-£20m Turnover bracket is particularly effected, see below.
For CW being able to leverage THUS' position amongst this group could quickly address the concerns that some analysts recently expressed that CW has pulled back too far, too fast.

Given that unlike India, Big Vision in UK Telco sadly took a pasting in the 2001 crash, What is the Pluthero vision that is big enough to accommodate the acquisition of THUS?

THUS is a strong company, has a lot of potentially profitable customers, a UK wide NextGen powered network, and growing reputation for delivering value to customers & shareholders. CW, is a global brand, has a focus on increasing profit per customer, and access to a global network which makes them increasingly attractive to multinationals transitioning from legacy to all IP NextGen services.

My opinion is that both companies are growing in strength and left to it would thrive independently; together the potential is extraordinary.

"Vodafone is a national operator in mobile and we'll take that philosophy to the fixed line world as well"

In recent years New Zealand has become the place where technology companies go to test products, and hone business models prior to releasing them on a world stage.

After my comments on the likelyhood of Vodafone buying up more fixed line capability, one of my colleagues passed me this news report on Vodafone's LLU 'Red' Network in New Zealand.

Vodafone Red has unbundled half the exchanges in NZ's major cities and is busy working it's new triple-play across the country. Russell Stanners CEO of Vodafone NZ said " Vodafone is a national operator in mobile and we'll take that philosophy to the fixed line world as well,"

NZ's a small country so costs are manageable, but if Vodafone were planning such a move in the UK, they should look at THUS Plc. THUS already has the country wide LLU network in place and their Demon Internet subsidiary has many years of experience in providing consumer broadband and telephony.