Today brings news that Vodafone is increasing its capital expenditure in the UK by 50% to almost £1bn for 2013, mainly to gear up for the introduction of 4G mobile devices to its network, and also tying in its Cable & Wireless business. Last year it spent about £600m on its network, and this year it plans to spend about £900m. It has already spent a pile of dosh getting hold of the radio frequencies - £802m, more than any other operator – and says that 98% of the UK population should have indoor access to it by 2015.
It all sounds pretty technical, but the gist is that the iPhone 5 and other smartphones have the capability to use the internet at superfast speeds, and you need a 4G signal to do it. The only network that currently has the fast signal is EE (Orange and T-Mobile, before they paired up), but Vodafone intends to have its own deals online buy the end of the summer.
Vodafone needs to move pretty quickly on getting this technology rolled out, for several reasons. First, the mobile telecoms market is rapidly moving away from ‘per-minute-billing’ of phone calls and texts, towards data consumption used for the internet and for video calling. This means the traditional mobile revenue model is morphing out of existence. And Vodafone has been feeling that pinch – full year UK revenue to March 2013 was down almost £250m to £5.15bn compared with the previous year. Group revenue was down 4.2% to £44.4bn.
Chief executive of Vodafone UK, Guy Laurence, pointed out that this new burst of UK investment will not only benefit consumers, but businesses, too. He said: ‘This investment is further evidence of our commitment to deliver our best ever network. We’re bringing together the best of mobile and fixed communications to help our business customers make their communications work for them.’
There remains speculative talk of Vodafone selling off its 45% stake in Verizon (the biggest US operator) to raise a ton of cash, too. It is thought that because the US operator actually wants to own itself outright, it could pay up to £90bn to acquire Vodafone’s stake. The implications for the London stock market would be huge, because this could mean Vodafone returns the cash equivalent of a Tesco or RBS to shareholders after the sale. Investors would then be looking for new places to put their money, offering an overall lift to the FTSE.
There is a continuing fly in the ointment, however. Vodafone has received bad press for some years over its ‘minimisation’ of its corporation tax bill. A deal like this would normally be structured in such a way that little or no capital gains tax is paid, but as one of the biggest deals ever, this one would draw a lot of international attention and Vodafone could become the biggest ever single symbol of corporate tax avoidance if it takes this route. Not good PR.
Still, the deal is only speculative, and no one knows if it will ever happen. In the mean time, the £300m extra being spent on its UK network is a welcome investment in British telecoms.