Vodafone’s CEO Arun Sarin was widely tipped to be on his way out more than two years ago, when he came under intense pressure from short termist and disgruntled shareholders. However, he survived and reasserted his authority, and this week has decided to go out on a high, with the cellco reporting strong results and with his signature strategies, notably the shift to emerging markets, firmly in place.
Though the departure was a surprise, Sarin leaves with his record as CEO far stronger than it would have been, had he departed under pressure in late 2005 or early 2006. Some of the complaints of shareholders remain unaddressed, though most of these are symptomatic of a risk-averse and short termist shareholder base that has consistently clipped Vodafone’s wings since its aggressive former chief Chris Gent handed over to Sarin in 2003. For instance, major investors often call for the stake in Verizon Wireless to be offloaded, because they value the cash they would put into their pockets in the immediate term, above the strategic importance of having a cash machine in the US and a stake in one of the world’s top three markets.
Other factors behind the Sarin crisis of 2005-6, which led to widespread expectation of his resignation, included fear of reckless takeovers, in the Gent mold, and disappointment with the poor performance of Vodafone Japan. Sarin, in fact, has been cautious about acquisitions, and has largely cleared up the legacy of Gent’s less astute buys, notably by giving up on Japan before it caused any more damage, selling the unit on to Softbank. His most important purchase was that of Hutchison’s stake in what is now Vodafone Essar in India, which should be one of the cornerstones of a strategy that is now firmly in place, to shift Vodafone’s balance of revenues away from its saturating heartlands and towards emerging, high growth territories such as India. This has also led the cellco to take stakes, or discuss joint ventures, in various parts of Africa (where its partnerships with South Africa’s Telkom and the Zain Group will be valuable springboards) and in other areas like Turkey, where it acquired control of Turkcell.
The geographical shift of focus was hardly a surprise, and was probably instituted later than it should have been. Sarin arguably clung too long to strategies conceived during the telecoms boom of the end of the last century, when Vodafone ‘ and many other European cellcos ‘ believed 3G would create a massive mobile data business with impressive margins and strong brands; not that they would invest billions in networks that were then largely harnessed for cut price voice minutes, as they struggled to rise to the challenge of flat rate mobile broadband and user dissatisfaction with the 3G experience. Vodafone Live! has been one of the more effective first generation mobile internet brands, but the Gent vision of a unified Vodafone marketing brand that would be recognized globally and would overshadow the power of the handset makers’ or content providers’ brands, has proved unrealistic, especially outside core Vodafone loyalty bases. But Sarin’s regime has been flexible in the past two years in responding to changed market conditions, becoming less dogmatic in its fights over branding and balance of power with Nokia and others; focusing on well targeted application or geographic markets rather than seeking universal penetration; and supporting partner brands in areas where it is weaker.
All this suggests that Sarin will be well remembered. He has built on Gent’s legacy, and cleared up some of his mistakes, despite intense pressure from shareholders, and seismic market shifts whose scale few would have predicted when he took the reins five years ago. He certainly has not addressed all the challenges that face a mobile operator today, but he has sacrificed some sacred cows in the interests of protecting Vodafone’s profile, margin and market share. Not just the bid for global, universal brand; but the old belief that the lack of wireline networks was an asset, which has driven Vodafone to start to look at convergence and invest in fixed line operations.
Sarin is succeeded by his deputy CEO Vittorio Colao, who rose to prominence in 2006, after Sarin reasserted his authority with the board with the sale of Vodafone Japan and with a major executive reorganization. Initially head of Vodafone Italy, Colao took on the European Region in the first Sarin restructuring, in March 2006, and then gained convergence and other key growth areas after a second upheaval in October of the same year. Colao, with a strong record for execution, was supportive of the move to converged and 4G services, and to expand businesses like enterprise and wholesale services, and also backed the view that the European operators’ expensive efforts to build international consumer brands would have less impact on success than efficient execution, key partnerships and maximum exploitation of the network, increasingly on a wholesale basis.
This increasingly accepted Vodafone wisdom reverses many of the fundamentals inherited from Gent, and Colao’s elevation certainly helped stamp Sarin’s new approach on the firm from 2006. The Italian fits very clearly into the ‘New Vodafone’. He is chiefly admired for his formidable analytical brain and memory, and for his operational excellence, which was displayed in the turnaround of Vodafone Italy, an achievement that rewarded him with a seat on the board and the CEOship of the European region, Vodafone’s most difficult because it contains several saturated markets. Colao was widely credited with 2006’s improvements in Vodafone’s financial fortunes, even if the £5bn dividend bribe to shareholders that year was probably more important in stemming a desertion. In Italy, as in Germany, Vodafone made gains by exploiting the efficiencies of the modern 3G network to reduce costs and so support lower prices – Colao took the brave decision to turn off GSM.
Colao takes over against the backdrop of reasonably strong full year results. Vodafone announced revenues of £35.5bn ($70.1bn), up 14.1% on a year earlier, and a customer base of 260 million, the second largest in the world after China Mobile. Discounting the impact of acquisitions, the operator’s full year revenues grew by 4.2% on a like-for-like basis. Full year profit was £6.6bn ($13.1bn), up nearly 7% year-on-year. The outlook for the current financial year to the end of March 2009 is for further growth in revenues and profits. Revenues from data services in the year were up nearly 53% to £2.2bn ($4.35bn), with the company noting a strong uptake of its data services in the strategically important enterprise market. In his outgoing CEO’s statement, Sarin noted that Vodafone’s investment in 3G is driving that data growth, and that the carrier will, before the end of 2008, ‘begin to offer 14.4Mbps, which will provide a compelling alternative to fixed broadband for many customers.’ The success of mobile data services for consumers and enterprises, and of a move to quad play, would be a fitting legacy for Sarin.