EUR 850.00 For Business Accounts Only

Morningstar | Slow Growth and Hefty Spectrum Costs Weigh on Vodafone's Cash Flow

Vodafone has transitioned from one of the world’s largest wireless telecom firms to a diversified operator offering converged mobile and fixed-line services in many markets. This shift comes as many of its core wireless markets have fully matured and competition has intensified. As a result, growth has stalled and capital needs have increased, pressuring the balance sheet. Shareholders likely face a bumpy year as Vodafone pushes to close its deal with Liberty Global, continue building fixed-line networks, fend off competition, and prepare for 5G wireless deployments.The acquisitions of Kabel Deutschland in Germany, Ono in Spain, and Cable & Wireless Worldwide in the United Kingdom provide Vodafone with key fixed-line infrastructure in three of its biggest European markets. The firm has also built fixed-line networks and partnered with others, including, Italian electric utility Enel, to expand its network reach. Vodafone can now provide fixed-line services to about 140 million European homes, a figure that will expand to about 145 million if the Liberty Global asset acquisition closes. In addition, Vodafone merged its business in the Netherlands with Liberty Global’s Ziggo, creating the ability to offer converged services to another 7 million homes. We think this reshaping of Vodafone’s capabilities positions the firm to compete more effectively over the long term. Vodafone has also improved the quality of its networks, enabling the firm to compete more on quality and less on price. Management believes customers who want the fastest and most reliable wireless network will be willing to pay a premium for that service. We are beginning to see this strategy work, as many new customers are opting for higher-priced packages. We anticipate this will increase as quality becomes increasingly important with the growth of data usage.