Vodafone Group PLC History

Address:
The Courtyard
2 - 4 London Rd
Newbury
Berkshire RG 14 1JX
United Kingdom

Telephone: +44-1635-33-251
Fax: +44-1635-45-713

Website:
Public Company
Incorporated:1985 as Racal Telecommunications Group Ltd.
Employees: 35,150
Sales £7.87 billion (US$12.55 billion) (2000)
Stock Exchanges: London New York
Ticker Symbols: VOD.L; VOD
NAIC:513322 Cellular and Other Wireless Telecommunications

Company Perspectives:

We aim to be the world's leading wireless telecommunications and information provider bringing more customers more services and more value than any other of its competitors. Key Dates:

Key Dates:

1985:
Racal Electronics and Millicom launch joint venture to develop a cellular telephone network.
1991:
Vodafone Group Ltd. is floated as an independent company.
1997:
The six cellular subsidiaries are reorganized under the Vodafone brand.
1999:
Vodafone merges with AirTouch, a large cellular operator on the U.S. West Coast.
2000:
Mannesmann AG is acquired in the world's largest merger to date.

Company History:

Since its landmark merger with Mannesmann AG, Vodafone Group PLC has become the first truly global wireless phone company. The largest company in Great Britain, where it pioneered cellular service, it has poised itself to become the largest in the world within a few years. Vodafone has 59 million subscribers around the world and has been focusing its future on bringing the Internet to consumers in Europe and beyond via wireless--not land-based--networks.

Origins

Vodafone was the brainchild of Racal Electronics Ltd., a modestly prosperous U.K. electronics firm, and Millicom, a U.S. communications company. Developed as a joint venture during the early 1980s, Vodafone was granted a license to develop a cellular network in the United Kingdom and was introduced under the auspices of Racal in January 1985. The new subsidiary's success was stunning. The corporate sector was quick to appreciate the advantages of mobile telecommunications, and individuals were equally quick to spot the status symbol potential of the new technology; fueled by business need and Yuppie culture, the demand for mobile phones skyrocketed.

Vodafone found itself one of only two entrants in the United Kingdom in a virtually unregulated new industry; the other member of the duopoly was Cellnet, which remained Vodafone's principal competitor into the 1990s. Throughout the 1980s the company created much of the technology--and enjoyed most of the profits--of this rapidly expanding field. Racal Telecommunications' profit and loss history from 1985 to 1989 succinctly describes the matter: in the year of its creation, Vodafone was operating at a loss of £10 million; by the end of the decade pretax profits were over £84 million. Racal soon developed allied divisions, including Vodac, Vodata, and Vodapage, to expand the number and type of services the company offered.

By 1988 Racal Telecommunications Group Ltd., as Vodafone and the related subsidiaries were officially known, was by far the most successful player on the Racal Electronics team. The parent company, fearing that the Telecommunications Group was hampered on the stock market by its subsidiary status, and wishing, in addition, to enhance other aspects of its business with profit from Vodafone stocks, proposed a partial flotation of the subsidiary. Millicom, the second largest shareholder, who lobbied for a complete sell-off, opposed the move; in the end, only 20 percent of the share capital of Racal Telecom was offered on the market. Three years later, however, Racal Electronics reconsidered, and Racal Telecom was separated from its parent company in 1991, at which time the name was changed to Vodafone Group Ltd.

Dominant in the 1990s

Vodafone was a market leader in the United Kingdom since its inception. Its main competitor, Cellnet, jointly owned by British Telecom and Securicor, was also granted its license in 1985 and grew as steadily as Vodafone. However, it always remained a step or two behind, with Vodafone generally enjoying some 56 percent of the market. The two remained the only companies on the scene for approximately eight years. Although an industry regulator, Oftel, existed, frequent rumors that the duopoly would be subjected to some sort of price regulation never materialized--on the grounds, it is thought, that further competition in such an obviously lucrative industry was bound to eventually appear. As the Daily Mail commented in early 1993, 'Profits from mobile phones have been mouthwatering.' Such competition did appear when Mercury, in a joint venture between Cable & Wireless and the telephone company U S West, issued its challenge in 1993.

Amid much publicity and a flurry of marketing, Mercury's Personal Communications Network, called One-2-One, was launched. Mercury's advertising campaign hammered home a message of lower costs. By offering low prices and even free off-peak local calls, Mercury forced the two telecommunications giants into a price war--but only in the London area, where Mercury's operations began.

One-2-One was seen primarily as a bid for the private market of mobile telephone users, whereas the majority of Vodafone's customer base was in the corporate sector, where demand and the tariffs charged were historically higher. Despite this, the company was clearly not unmindful of the competitors' interest in the vast untapped private market. It first responded to the threat of Mercury's introduction with its own countermarketing. After One-2-One was operating, Vodafone introduced new options such as Low Call, which, with its lower rental costs but higher call charges, was targeted at individuals who used their phones less frequently than business customers. Another new initiative, MetroDigital, a service begun in 1993 that allowed subscribers low rates when calling from an urban 'home cell,' was aimed at least in part at the personal user market.

Mercury's One-2-One employed the new digital technology rather than the analog systems used until then by Vodafone and Cellnet. Digital technology represented a significant advance in the industry, as its use allowed for higher quality, better security, and lower costs. Not to be outdone, Vodafone too was expanding its digital network, and the company expected operations to be fully digital by the end of the 1990s.

As of the mid-1990s it was too soon to assess the ramifications of Mercury's entry into the market, or indeed that of newcomer Hutchison Microtel, which began operating its Orange network in 1994. Most financial analysts predicted, however, that there was room for all in a market so ripe for expansion; increased competition would thus have little effect on profit margins.

Although Vodafone Ltd. was clearly its flagship company, the Vodafone Group as a whole comprised several wholly owned subsidiaries that supported or complemented the activities of Vodafone Ltd. Vodac was the group's service provider, buying cellular airtime wholesale from Vodafone and selling it, equipment, and services to customers via service centers, retail outlets, dealers, mail order, and special corporate accounts. Another subsidiary, Vodapage, operated a nationwide radiopaging network; among the services it offered were Healthcall Medical Answerline Service; Neighbourhood Watch Information Line, a crime prevention service; and even the Rare Bird Alert News Service. Paknet, a radio-based national public data communications network, had a client base of banks, retailers, utilities, alarm companies, and others, and has a variety of applications. Country councils have used it to handle traffic measurements; British Rail uses it for credit card authorization.

Vodafone has been involved as well in a number of other specialized applications of its capabilities. 'SafeLink,' introduced in 1992 in conjunction with the West Yorkshire Police, gave individuals fast access to the police via the Vodafone network. The 'Callsafe' service, developed the same year, allowed stranded motorists to contact the Automobile Association. Perhaps the company's highest profile special application, however, came in 1993 when it provided the emergency mobile phone service to environmental rescue workers following the wreck of the tanker Braer in the Shetland Islands.

Vodata, another crucial subsidiary, developed and marketed new products and services for Vodafone and Vodapage customers. The company pioneered information services for users such as the Automobile Association's 'Roadwatch' and the Financial Times' 'CityLine.' 'Recall,' the world's largest voice messaging service, was introduced in 1992. 'Vodastream' fax allowed customers access to up-to-date macro-economic statistics compiled by the Central Statistical Office; 'Met fax' gave the latest weather bulletins; and 'Vodafax Broadcast' allowed the facsimile transmission of information to several different destinations simultaneously.

Vodafone Group International was a rapidly growing component of the group. Active in seeking opportunities and implementing projects abroad, Vodafone International looked likely to one day be as important to the group as Vodafone Ltd. itself. In 1993 the company was awarded a license in Australia to operate that country's third digital mobile telephone network. In the same year consortia of which Vodafone was a member received similar licenses to operate in Greece and Germany. Vodafone also had substantial interests in France, Scandinavia, Hong Kong, Fiji, Malta, and Mexico. Although start-up costs for foreign ventures were obviously high, the field was very lucrative, and Vodafone was continually on the lookout for new possibilities. Analysts predicted that Vodafone would increase its investments with the aim of acquiring more foreign associates and, eventually, subsidiaries.

A digital system that allowed international calls between participating countries was introduced in the early 1990s. Called the Global System for Mobile Communications (GSM), it was first used by Vodafone, whose introduction of EuroDigital in 1991 allowed customers to 'roam' throughout Europe and Scandinavia. In 1994 the company acquired a ten percent stake in Globalstar, an international consortium formed to develop a satellite-based network that would allow mobile telecommunications to operate everywhere in the world (except the polar ice caps) by 1998.

As of 1994, Vodafone operated one of the world's largest cellular networks, with over one million subscribers. This, combined with the company's increasingly high international profile, made it a safe bet that Vodafone would continue its prominent role in the expanding mobile telecommunications industry. The Mail on Sunday confidently predicted in 1993: 'We're on the verge of a communications explosion. By 2000, nearly all of us will have a phone in our pocket.' It was highly likely that for many, that phone would be a Vodafone.

Digital phones took some time to catch on due to a limited service range and reliability problems; they accounted for only 13 percent of mobile phones in Britain in 1995. However, the new wave of digital entrants did force Vodafone and other analog providers like Cellnet to trim their pricing somewhat. Earnings for the fiscal year ending March 1996 fell four percent in the face of stiff competition from Orange and One-2-One. However, Vodafone's foreign operations soon began to post positive results.

Thanks to its profitable operations at home, the concept of credit remained foreign to Vodafone until July 1996, when it sought European capital to increase its stake in France's number two mobile phone provider, SFR. It paid FFr 1.8 billion (US$346 million) to raise its shareholding from ten percent to 16.5 percent. Vodafone also had equity positions in a number of other European and Asian cellular companies.

Chris Gent, who had sat on Vodafone's board for a dozen years, was appointed CEO in January 1997. He had never attended college but won a reputation as a shrewd businessman in the banking and computing industries. The company introduced a new corporate identity in the summer of 1997, uniting the six cellular providers it had acquired (Vodac, Talkland, Vodacom, Vodacall, Astec, and People's Phone) under the Vodafone brand. Vodafone began to restructure its network, laying off 250 employees. Its 300 retail outlets dropped competitors' products after the change. The success of One-2-One and Orange prompted regulators to allow Vodafone and top rival Cellnet relative freedom. All four providers promoted heavily during the Christmas 1997 season, each hoping to ensure its fair share of the widening market. The fastest growing segment--low-income clients--was being accommodated through pre-payment plans.

The Merger of the Millennium

Beginning January 1, 1999, subscribers became able to retain their phone numbers after switching providers. On the same date, 11 European countries introduced the Euro currency unit, making cross-border acquisitions theoretically more attractive. However, Telecom Italia's shareholders still chose the hostile offer Italian typewriter manufacturer Olivetti tendered in February 1999 over the friendly one of Deutsche Telekom largely due to nationalistic sentiment.

It would be a few months before Vodafone exploited the possibilities of the redefined European financial environment. Meanwhile, it merged with U.S. West Coast cellular company AirTouch in the summer of 1999, paying US$68 million. Although this merger thwarted Bell Atlantic from its plans for coast-to-coast wireless coverage, Gent was soon planning a huge new venture with this East Coast company as well.

German telecommunications giant Mannesmann AG bought Orange for US$33 billion in October 1999. Some saw the expensive purchase as a move to dissuade potential corporate raiders. However, the teaming of Orange and Mannesmann scuttled plans Vodafone had with Mannesmann's German and Italian mobile phone units and Vodafone launched its own takeover bid on November 16.

Before the takeover was closed, Vodafone had formed a joint venture (Multi Access Portal or MAP) with Vivendi, the French media and telecom group, shutting off a potential white knight from Mannesmann. The German company was also constrained by a lack of poison pill and other takeover defenses in its home country.

After a spirited campaign played out in the media, in February 2000 Vodafone AirTouch acquired Mannesmann AG in the largest corporate takeover ever, surpassing even the merger of AOL and Time Warner in the preceding month. At US$180 billion, the final price was nearly twice the original offer. Vodafone shareholders owned 50.5 percent of the new company, Mannesmann shareholders 49.5 percent. Its market value of US$314 billion made it the largest British company and the world's sixth largest, according to Barron's.

It also entered the millennium as the only truly global wireless phone company. The post-merger Vodafone claimed more than 42 million mobile telephone subscribers in 25 countries. (Business Week reckoned Vodafone was paying US$9,000 per customer.) However, the real prize was Mannesmann's position in the European Internet market. Gent hoped to use the German company's established ground-based Internet service to grow Vodafone's own new wireless-based Internet service. Although relatively untried at the time, the fusion of mobile telephone and e-commerce technologies offered unprecedented marketing opportunities.

In April 2000, the Verizon Wireless joint venture with Bell Atlantic was launched. The European Commission approved the Vodafone-Mannesmann merger in the same month, stipulating that the combined company sell off its Orange unit and allow competitors access to its international network for three years. Vodafone also planned to sell Mannesmann's old automotive and engineering businesses.

Vodafone was showing strong customer growth in all areas. Its stock had doubled in the previous six months as investors caught on to the group's potential. In May 2000, France Telecom SA announced it was buying Orange for £25.1 billion (US$37.4 billion), creating Europe's second largest mobile phone group with 21 million subscribers. Aggressive competition surely lay ahead. The Globalstar communications satellite, in which Vodafone had an interest, was launched in the same month, and the Vizzavi Internet portal developed with Vivendi debuted.

Ever looking forward, Vodafone was developing new devices offering faster mobile connections than most Americans had on their home PCs. Its control of the tiny screen on millions of such units across Europe and beyond placed it at the center of a telecommunications revolution. More than one analyst expected Vodafone to become the world's largest company.

Principal Subsidiaries: Airtel Movil SA (21.7%); Belgacom Mobile (Belgium; 25%); Europolitan AB (71.1%); Globalstar L.P. (U.S.A.; 6.5%); Japan Telecom (27%); Libertel (Netherlands; 70%); Mannesmann Mobilfunk GmbH (Germany; 99.1%); MisrFone Telecommunications Co. (Egypt; 60%); Mobilfon SA (Romania; 20.1%); Omnitel Pronto Italia S.p.A. (Italy; 76%); Panafon SA (Greece; 55%); Polkomtel SA (19.6%); RPG Cellcom Ltd. (India; 20.6--49.0%); Safaricom (Kenya; 40%); SFR (France; 20%); Shinsegi Telecom Inc. (South Korea; 11.7%); tele.ring Telekom (Austria; 53.8%); Telecel Comunicacoes Pessoias SA (Portugal; 50.9%); Verizon Wireless (U.S.A.; 45%); Vodacom Pty. Ltd. (South Africa; 31.5%); Vodafone Australia (91%); Vodafone Fiji Ltd. (49%); Vodafone Hungary (50.1%); Vodafone Malta Ltd. (80%); Vodafone New Zealand.

Principal Competitors: British Telecommunications PLC; Deutsche Telekom; France Telecom Group; AT & T Corp.

Further Reading:

  • Baker, Stephen, and Kerry Capell, 'Chris Gent, King of the Web?' Business Week, February 14, 2000, pp. 60--61.
  • Brewis, Janine, 'Vodafone More Than a Match for Mannesmann,' Corporate Finance, March 2000, pp. 22--26.
  • Brown, Malcolm, 'Slow March of the Mobiles,' Management Today, December 1993, pp. 54--57.
  • 'Calling the Masses,' Sunday Times, June 20, 1993.
  • 'Crossed Lines over Survey,' Sunday Times, March 28, 1993.
  • Evans, Richard, 'The New Microsoft,' Communications International, April 2000, pp. 29--32.
  • ------, 'Tomorrow, the World,' Barron's March 6, 2000, p. 28.
  • Ferguson, Anne, 'Securing Racal's Future,' Management Today, August 1988, pp. 30--31.
  • Guyon, Janet, 'What Does This Gent Really Want?' Fortune, March 6, 2000, pp. 163--166.
  • 'Harrison's Happy Ending,' Daily Telegraph, June 9, 1993.
  • 'The Lex Column: Mobile Market,' Financial Times, June 8, 1994.
  • 'A Line to the Future,' Mail on Sunday, February 7, 1993.
  • 'Mobile Telephones: London Calling,' The Economist, August 5, 1995, p. 60.
  • Naik, Gautam, and Anita Raghavan, 'France Telecom Confirms Plan to Buy Vodafone Unit; Purchase of Orange for $37.4 Billion Intensifies a Battle,' Wall Street Journal, May 31, 2000, p. A21.
  • O'Sullivan, Tom, 'Mobile Phone Rivals Plan Marketing Blitz,' Marketing Week, December 11, 1997, p. 22.
  • ------, 'Vodafone Cuts Lines to Challenge Rivals,' Marketing Week, July 10, 1997, p. 23.
  • Palmer, Jay, 'Loud and Clear,' Barron's December 16, 1996, p. 15.
  • Reed, Stanley, Kerry Capell, Heidi Dawley, and Stephen Baker, 'Ready to Take on the World,' Business Week, June 12, 2000, pp. 70--71.
  • Ryan, Vincent, 'Vodafone AirTouch's Shock to the System,' Telephony, February 14, 2000, pp. 35--36.
  • Schneiderman, Ron, Future Talk: The Changing Wireless Game, New York: IEEE Press, 1997.
  • Shishkin, Philip, and William Boston, 'Vodafone Wins EU Clearance to Acquire Mannesmann in Record $180 Billion Deal--Competitors to Get Access to Network for Three Years; Orange Must Be Shed,' Wall Street Journal, April 13, 2000, p. A14.
  • 'Stay Well Connected for the Phoney War,' Daily Mail, February 3, 1993.
  • 'Upwardly Mobile,' Economist, August 13, 1988, pp. 62--64.
  • 'Vodafone: Casting a Worldwide Network,' Investors' Chronicle, January 7, 1994.
  • 'Vodafone Finds the Right Response,' Corporate Finance, July 1996, p. 9.
  • 'Vodafone Move Fuels Price War,' Financial Times, June 17, 1993.
  • 'Vodafone: On Line for a Breakthrough,' Investors' Chronicle, October 22, 1993.
  • 'Vodafone Signs up for $1.8 Billion Satellite Telecoms Venture,' Independent, March 25, 1994.
  • Wallace, Charles P., 'A Vodacious Deal,' Time, February 14, 2000, p. 63
  • Wonacott, Peter, and Silvia Ascarelli, 'Hutchison Whampoa Sells Stake in Vodafone, Raising $5.03 Billion,' Wall Street Journal, March 23, 2000, p. A19.

Source: International Directory of Company Histories, Vol. 36. St. James Press, 2001.

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