By Chris Blackhurst Wednesday, 01 June 2011

The MT Interview: Vittorio Colao of Vodafone

Vodafone's global chief is sitting on the UK's most valuable brand, with profits of more than £9bn last year. Now, with a run-in with the Revenue behind him, a more dynamic company structure and a new chairman on the way, he's looking to mobile data services to provide the next spur to growth.

Sometimes when I meet people at the top of a major corporation it's not apparent why they are there. They've got no obvious strengths, not ones that make them stand out from the crowd.

Occasionally, it's all too clear: they really are place-men - 'a safe pair of hands', boring. They're neatly turned out and charming, but would I cross flaming coals barefoot for them if I were an employee? Not a chance.

Then, I come across a person who has an easy manner, is direct and funny but also serious and full of charisma, and, I suspect, has no problem at all motivating people. Such a specimen is Vittorio Colao, chief executive of Vodafone.

I don't want to big him up any further - he wouldn't be human if he didn't have some faults. But, on first appearances, there's no doubting his credentials to lead. At 49, he's tall and thin - lanky - so much so that when he sits in a chair, there's fun to be had seeing what he will do with his legs. One minute, he is leaning back and one of them is draped over the arm. Then, his legs are folded under, then it's the turn of the other one to hang off the side of the chair.

He's got a crumpled, lived-in face. When he smiles, which is often, his lines crease and his eyes shine. He talks with an Italian accent but his English is perfect. His wit is dry and he doesn't miss any nuance. Ideas and thoughts pour from him.

We're sitting in Vodafone's new steel and glass, open-plan head office at Paddington Basin. New, because one of Colao's first decisions when he took the CEO job three years ago was to move the global HQ from Newbury in Berkshire, Vodafone's original home.

When Vodafone was spun out of Racal in 1991, its then top two executives, Gerry Whent and Chris Gent, lived in villages near Newbury. Their first offices were next to a curry house on the high street and, as Vodafone grew into a global mobile telecoms giant and Britain's second biggest company, it added premises. At one stage, Vodafone owned 60 buildings scattered around the town. Newbury was the stuff of company legend but it also proved to be an albatross around the necks of more recent Vodafone bosses - Colao's predecessor, Arun Sarin, struggled with imposing his will on an old guard of current and former executives who liked to hark back to the pioneering days of formation and rapid expansion.

Colao dealt with that by moving the corporate power-base from Newbury to west London (close to Newbury by train from Paddington but far enough away not to be held back by the past). He denies that this was the reason, saying that Vodafone UK needed its own base, independent from the group. 'It created contamination. You couldn't understand who made the decisions.'

And the company also stressed it was shifting to London to be nearer shareholders and business partners. Plus, Colao lives in South Kensington, not rural Berkshire, with his wife and two young children.

There's an energy about him that suggests he is always doing something - glancing at the TV screen, looking at emails on his computer, helping himself to yet more coffee from the espresso machine. He doesn't go in for lots of photographs and memorabilia, but on the wall nearest his desk are four framed prints.

He proudly explains them one by one. The first is of the executive football team from Omnitel, the Italian telecoms firm he used to run before it was swallowed by Vodafone. Colao played right-back.

The second comes from his national service spent in the carabinieri, the Italian police force that he says was 'part FBI, part Scotland Yard'.

The third is the front page of La Gazetto dello Sport, with the banner headline 'Tutto Vero' on the day after Italy won the 2006 World Cup. 'It sold the highest number of papers ever in Italy,' he says.

The fourth is of a mock film poster showing the three regional heads of Vodafone with Colao, looking like all-action tough guys, with the slogan 'There is no plan B'. This was after Colao had told them and the company that, under him, there was only ever going to be plan A.

The head office really does feel like a nerve centre. There are giant TV screens and a battery of executives and assistants coming and going. It's late afternoon but there is no slacking; they're on the phone or hunched over terminals - there's a sense of purposeful intensity.

Colao is at the summit of an enormous commercial empire, one with annual revenues of £46bn, producing profits of £9.5bn, with 85,000 staff and serving 359 million subscribers. Vodafone has its own operations in 23 countries and works alongside local partners in 40 more. Its market capitalisation is around £100bn. Vodafone is the UK's most valuable brand, the 12th most valuable in the world (according to WPP-owned research firm Millward Brown) and number one in telecoms globally. Yet questions remain. It grew rapidly into an almighty, sprawling company on the back of some daring acquisitions. When it could not take over the leading network provider in a country it bought a minority stake. Ever since, critics have carped about the amounts paid and the fall in values since it went on that dizzying buying spree.

It still holds many of these stakes - including one in Verizon Wireless in the US, which is 45% owned by Vodafone. Verizon hasn't paid a dividend since 2005 and the City is constantly pushing to know Vodafone's gameplan for its stake, recently valued at £58bn.

In India, which should be one of Vodafone's most exciting markets, with colossal potential, the firm has become locked in a dispute with the Indian authorities over a $2bn tax bill relating to the purchase of a business there. Colao has recently suggested that the firm may end up washing its hands of the ill-starred joint-venture once the dispute is resolved.

With Sarin, there was a sense of someone applying the brake, of wanting to slow down and consolidate. Consequently, he was viewed askance by some in the company, particularly those loyal to earlier, more aggressive regimes. Colao, too, has had to deal with a sometimes impatient board and investors.

Sir John Bond, the chairman, has enjoyed strong support in the City, where he was remembered fondly as the patrician boss of HSBC. But Colao is about to get a new chairman - Gerard Kleisterlee, formerly of Philips - who does not have a City background and is closer to Vodafone's industry.

We're meeting when Colao has just won applause for selling Vodafone's 44% holding in SFR, the French mobile operator, for £6.8bn - a higher price than was expected. Colao professes to be publicity-shy - he rarely gives interviews - and he keeps a low public profile. Most days, when he is in London, he heads home in the evening, eschewing glitzy parties and functions. He lives simply - his favourite pursuit is donning Lycra to pedal furiously around Richmond Park. He also skis when he can in his beloved Italian mountains.

Colao has determined that Vodafone should be a key player in the move to data, and should become the industry market-leader for data services. At the same time, he says: 'We set out a simplification plan for our minority holdings and non-controlled businesses. That's underway - so far, we've achieved the right prices.'

But, he admits: 'We still need to make progress, to become a focused data company and we need to create more value out of all our interests.' He tips his head back and chortles: 'I'm always impatient that our speed of change is not good enough.'

Taking over Vodafone must be like grabbing the wheel of the often-cited supertanker - how on earth do you switch direction? Colao says he had to change the culture, 'from being a strongly compliance-oriented organisation to one that is more customer-focused and more effectiveness-oriented'.

Staff incentives were altered so they gave 'more weight to customer satisfaction and to value creation'.

He took out layers of management and has tried to make the company more streamlined. He has changed the senior management structure twice in an effort to get it right. 'I want a network-based organisation that is more empowered, more accountable at every juncture,' he says. To that end as well, he's been selling off minority interests. The days when Vodafone acquired stakes in foreign firms, but not control, have gone. 'We're not an investment trust,' he says. 'It's a clear strategy of the board.'

In France, Vivendi is buying the Vodafone shares in SFR. From the consumer point of view, nothing will change, he says. 'The only difference is that we no longer sit on the board and we don't have a large amount of money invested in a company we don't control.'

France, he says, 'is the only country in Europe where an outside company could not have taken control'. For that reason, Vodafone got out of China too. 'If you want to go into mobiles in China you can buy shares, same as in France, but you can't get control.' Vodafone, he maintains, has kept close ties with China and has a strong support network there in case it returns - which is unlikely while the no-foreign-ownership rule applies.

Next, he's selling Vodafone's 24% holding in Poland's Polkomtel. Then there's the US's Verizon. There's a sense that while Verizon fits the bill of an asset he should sell, he's reluctant to let go. It's making piles of money and the two companies are working together much better than previously. And to sell and say good-bye to what might become a valuable presence in the mighty American market could be foolish.

While having to deal with different countries and attitudes is 'fascinating', he admits to frustration. 'In some nations, the circumstances that are presented to us are less favourable, less benign. We're in a phase where the political world wants more regulation and more taxation that can lead to over-taxation.'

Vodafone has been targeted by anti-tax avoidance demonstrators. 'People have the right to protest but they have less right to invade our shops.'

Campaigners claim Vodafone was 'let off' paying a tax bill of £6bn and have blockaded the company's stores. 'We didn't avoid paying any bill, we agreed on a bill,' says Colao, his smile for once deserting him. 'Everybody has the right to protest. I'm a great fan of freedom of expression, provided there is no personal threat to my people or our assets.'

The tax row centres on the claim that HM Revenue & Customs let Vodafone off a £6bn tax bill on profits funnelled through a Luxembourg subsidiary - something HMRC denies. It dates back a decade to when Vodafone bought Mannesmann in Germany. The British company wanted to avoid paying future UK taxes and routed the purchase through Luxembourg, where profits would be taxed at less than 1%.

HMRC took a dim view and pursued the company. However, the case was settled by negotiation last year, with Vodafone agreeing to pay a lump sum of £800,000 and a further £450,000 over five years. This agreement was denounced as a 'cave-in' by protesters.

He's smiling again. 'It's one of the beauties of being in a liberal society. It's fine.'

The India case, which is wending its way through the courts, he sees as different. 'The Indian government levied a tax on the buyer of a local company, which is very strange.'

Colao says he can 'understand why tensions everywhere are so high', but, he also points out: 'Governments are hard up - they need international investment. There has to be an understanding by the political world, if they've got non-pro-business policies, they're shooting themselves in the foot.' This, he says, 'is one of the challenges for all CEOs over the next three to five years'.

Another is specific to his market: data. 'There will be a big migration to data. The growth in volumes will be massive - we're already seeing it - volumes are doubling every year but prices are declining.' Indeed, data is so important, it's enshrined in the company name: Voda stands for VOice and DAta.

The soaring volumes may be good commercially but does he approve of the technological advance? 'Watching TV with the rest of the family won't happen - people will be watching TV when they want, where they want. I remember as a boy everyone gathering at my father's house, all my uncles. They would debate what to watch, then 22 of us would sit down to watch it in one big room. It's sad.'

But now everyone gets what he wants. It might be better for children to not always get their own way, he murmurs. But then he brightens. 'I can send a picture to my son of something I've seen as I'm travelling and he can guess what it is. He loves that.'

Colao frowns. He wants to share something. 'I've just been watching a video of (Unilever boss) Paul Polman talking about morality and capitalism.' He sees my quizzical look. 'It's what I do. Every one-and-a-half hours to two hours I take a nano-break and do something I really enjoy. Maybe read some military research, emails from friends.' Or watch a video ...

He agreed with Polman (profiled in MT in March) about the role of a CEO in large companies such as theirs, which is 'pushing harder than ever to be admired in the heart of the customer'. Some companies exclude the consumer at the expense of pleasing the City. That's not his intention. 'You can't have shareholder value or customer friendliness - you have to put them together or else capitalism can produce problems.'

Are we nearing telecoms saturation in the west? He pulls a mocking face. 'Saturation? It does not exist. What is saturation, that every person should have a mobile phone? Yes, that can happen. But a smart phone? Not many have those. Smart and a tablet? Saturation there is very far away. Smart, tablet and a big screen? That is very, very far away. Every person ought to have all three. Having two is possible, all three is very difficult, unless they're shared.'

Colao works in an industry where he says volumes grow by 80% a year and 'prices are down by a factor of three or four every year. We've got to accept that if you want to use 100% more, you're not prepared to pay twice the price.'

If Vodafone is to soak up that demand it must overcome two challenges, he says. 'From traditional competitors - from Telefonica, AT&T and companies like that. From competitors for customers' minds, which is those giving communications services, like Apple, Google, Facebook and Skype. We must work with them. It's about loyalty, we can't be exclusive. I'm happy if customers have an Apple iPhone and the iPhone is with me or they use Google and they use me. We have to share. We must use loyalty but not lose loyalty. We have to accept this is a shared loyalty world.'

There is a seriousness to Colao. He's in the class of CEO that I would describe as cerebral - without being stuffily so. But, he doesn't like talking about himself. 'I'm 89 kilos and 193 centimetres' is all he will say at first.

He grew up in northern Italy, in Brescia - more European by influence than fiery Italian. His mother spoke six languages and worked in publishing; his father was a Total oil executive. He was educated at three top universities and joined McKinsey. 'It might look like I planned it but I did not. In my career I always wanted to stay with people I liked. So I joined McKinsey because of the quality of the people who interviewed me. They were tough interviews, selective. I thought if they're this selective it must mean there is something good on the other side.'

McKinsey gave him his grounding. 'They taught me the fundamentals, how to analyse before you have the ideas, how to establish parameters. And about business integrity and ethics. And hard work.'

The firm has its downside. 'For four or five years there was not a lot of fun in my life. I was spending weekends working for McKinsey.' Would he do it again? 'Yes,' is the unequivocal reply.

At McKinsey, he worked on telecoms and, in particular, Vodafone's arrival in Italy. He was there at the beginning when Vodafone Italy started - 'it was on one page, I remember I wrote the marketing, HR, everything, all on one page. Today's it's a £7bn company.'

He went to Omnitel, which was absorbed by Vodafone, and he climbed up through the group. When Sarin got the CEO post in 2003 he left - not because he was overlooked, he stresses, but because he wanted to go into media, with Italian publisher RCS Media Group.

Colao stayed in touch with Sarin and, when he fell out with RCS, the Vodafone chief and Bond the chairman were on the phone to him. 'They were super-quick at calling me,' he says.

He was put in charge of Europe and made deputy chief executive in succession to Sir Julian Horn-Smith, with a seat on the board.

But the Vodafone he was joining was not such a happy ship, something that he has worked hard to address. 'That feeling has gone. It's my perspective that we have a very supportive, very competent, very wise board. We've got different competencies but this is a board that is really rich in talent and diversity.'

He does not expect too many differences from the new chairman. 'Gerard is like John Bond - he's very experienced, very international, very smart and analytical. The important thing is not how we work as individuals but how the team works.'

One thing's for sure - he likes it here. 'This country is a very serious country - I'm full of respect for it. It's very welcoming to foreigners and is very serious about each other's rights.' Then he adds: 'Mind you, it's also serious about gardening, queuing, animals and the weather - none of which I understand.'

FOUR CHALLENGES FACING COLAO

- To position Vodafone as the world's leading data services company
- To streamline Vodafone and reduce it to core activities and markets, without selling things too cheaply or hastily
- To give Vodafone a much more user-friendly image, to make it caring, inclusive and responsible
- To climb the Alpe d'Huez on his Colnago racing bike and exceed the furthest he has ever ridden in a day, 170 kms

COLAO IN A MINUTE

1961: Born 3 October in Brescia, Italy, went to Liceo Classico, Milan and then to Bocconi University, followed by Harvard in the US and Essec in France

1986: Joined McKinsey in Milan. Rose to partner, worked on media and telecoms

1996: Left for Italian mobile operator Omnitel, which later became Vodafone Italy

2001: Regional CEO, southern Europe for Vodafone

2004: Overlooked in favour of Arun Sarin as group CEO. Joined Italian publisher RCS Media Group as CEO

2006: Disagreed with RCS shareholders over strategy and quit. Rejoined Vodafone

2008: Succeeded Arun Sarin as group chief executive.

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