Hitt og þetta 26. júlí 2006

DJ THE SKEPTIC: Vodafones Wakeup Call

By Robb M. Stewart


LONDON (Dow Jones)--Arun Sarin has escaped being made the scapegoat for Vodafone's woes, securing the support of shareholders and both the outgoing and incoming chairmen.

Yet the mobile titan's CEO shouldn't read this as grounds for complacency, but instead as a warning shot.

A majority of shareholders - almost 86% by proxy - voted in favor of Sarin's reelection. A similar number voted for the company's remuneration report.

Lord MacLaurin came out in support of the CEO, denying there was any rift in the board. And Sir John Bond, who now takes up the chairman's post, also stood by Sarin at the AGM.

Still, almost 10% of shareholders - including institutional holders such as Standard Life and Morley Fund Management - voted against Sarin.

And not without cause.

Vodafone's shares are down 15% over the last five years, and down 21% on a 12-month basis. More damning, they have underperformed the DJ Eurostoxx telecom index by roughly 14% on year.

Still, the majority of shareholders have wisely opted to give Sarin time.

For starters, Bond needs a chance to conduct a review of the board and to assess management performance. Management instability, particularly following the unexpected departure of veteran Bill Morrow, would be unhelpful at a time when competition is intense in Vodafone's core markets.

Vodafone has, after all, shown itself still capable of squeezing out growth. First-quarter KPIs came in slightly above the market's forecast, and showed improvement in areas where pricing pressure and regulatory burdens are weighing on the industry.

Indeed, it's worth recalling that Vodafone's peers are suffering along with it.

Sarin has shown on several instances this year that he isn't deaf to shareholders' criticism. In mid-March he unveiled plans to sell Vodafone's Japanese business to SoftBank and return billions in cash to shareholders. He further forestalled investor rebellion in early April with word Vodafone would restructure its operations along three business lines: Europe, emerging markets, and new businesses and innovation.

Equally, Sarin has shown a steady hand in not bowing to institutional shareholder pressure to sell the stake in Verizon Wireless - one of Vodafone's few growth engines, and which if sold would mean a loss of earnings and likely tax hit.

Having escaped the wrath of shareholders, Sarin now needs to prove he isn't simply managing Vodafone's decline. And that means spelling out a strategy that until now he has given only vague definition.

Reassuring investors that Vodafone recognizes the threat of convergence, or that it aims to have a DSL offering in all major markets by the end of the financial year, is of little benefit without knowing just what Vodafone aims to do and how much it will cost.

Until Sarin does that, there seems little chance the share price will reverse its downward trend.

(Robb M. Stewart, founder of the Skeptic column in 2001, has reported for Dow Jones Newswires since 1997 from Sweden and the U.K. He can be reached at robb.stewart@dowjones.com)

(END) Dow Jones Newswires

July 26, 2006 01:46 ET (05:46 GMT)

Copyright (c) 2006 Dow Jones & Company, Inc.