Chris Gent has had quite a year.
For the chief executive of Vodafone Group plc, 2000 began with a hostile takeover of Mannesmann AG, parent of its rival Orange plc, and continued with a spending spree for third-generation licenses across Europe. The year also marked the finalization of the mergers of the companies now called Verizon Wireless and ended with respectable Vodafone Group interim results in the wake of a tumble in telecom stocks based partially on less-than-stellar earnings reports.
Gent is the man who oversaw all the activity, which spanned the globe and set U.K.-based Vodafone up to be the largest mobile carrier in the world with a proportionate customer base of 65.5 million subscribers.
Vodafone has full ownership or partial stakes in 25 wireless carriers around the world, including a 45-percent stake in Verizon, and holdings in 15 European operators. The company fully represents the wireless operator of the future, with Gent spearheading the carrier’s strategy of building seamless networks from one continent to the next.
“Gent had the foresight to realize 3G would require a pan-Europe and pan-international presence and to get the geographical leverage to find additional revenue streams, with the ability to exploit next-generation services,” noted Jake Saunders, European director for London-based Strategis Group.
Carriers around the world first realized Vodafone was playing to win in November 1999, when the U.K.-based company made by far the industry’s boldest and riskiest move. Vodafone announced a hostile takeover of Mannesmann AG, a German-based carrier with wireless assets in some of the largest European markets, such as Germany and Italy, in addition to Austria.
Numerous roadblocks stood in the way of such a massive deal, including regulatory, cultural and technical issues. Moreover, no company had ever acquired a German company through a hostile takeover.
Gent had the foresight to realize he needed a strong backbone to survive in the upcoming third-generation arena. At the time, Gent said: “Together we would be in pole position to exploit 3G technology and the significant wireless data and Internet opportunity.”
“He was the right person,” said Phillip Phan, bruggeman associate professor at Rensselaer Polytechnic Institute’s Lally School of Management in Troy, N.Y., who studies chief executives in high-technology fields. “He’s a gambler, which is unusual for European managers. They tend to be conservative. Europeans tend to develop strong relationships with national governments, using the governments to give them a leg up. Chris is more the mold of a typical American global manager, which is to take the problem by the throat and attack it.”
After a nearly three-month struggle, Mannesmann’s supervisory board approved the $183 billion bid in early February.
The irony-and the catalyst, according to Vodafone executives-behind the deal involved U.K. operator Orange, a late comer to the U.K. market that has slowly made gains against the subscriber base leads of Vodafone and BT Cellnet. Mannesmann, which had partnered with Vodafone in several markets, caught the British company off guard earlier in 1999 when it acquired Orange’s majority stake from Hutchison Whampoa plc.
All commercial arrangements with Mannesmann ended after the Orange acquisition. Vodafone had no choice but to go directly to shareholders, according to Tim Brown, Vodafone group corporate affairs director.
“You have to relook at your strategy and relook at how you can do it,” explained Brown. “The only way to do it was to buy Mannesmann and dispose of Orange. We went to talk to them and could not get their management to agree to [a deal]. We had to agree to disagree. It ended up us asking their shareholders.”
“Having the audacity to take on Orange’s parent was quite bold, and it paid off,” said Saunders. “Because Mannesmann had gobbled up Orange, Vodafone was able to dispose of it and get cash for debts. Other operators are loaded to the guilds with debt.”
As part of its regulatory concessions, Vodafone sold Orange to France Telecom this year for $38 billion, making a huge dent in Vodafone’s debt ratio. And a lack of debt is something Vodafone’s competitors have not been able to accomplish. The end result is Vodafone enjoys many more strategic options than its over-indebted counterparts.
“On 14 November, 2000, Vodafone reported an excellent set of interim results, reaffirming our view that this company has a clear competitive advantage in European cellular,” said a recent report from Bear Stearns. “It is comfortably our preferred stock in the sector.”
The U.S. card
This year’s culmination of global expansion actually began a year ago on a different continent. Vodafone first set its sights on the United States in 1999, adding to the wave of consolidation that has engulfed the global wireless industry during the last few years, with a $62 billion bid for AirTouch Communications Inc. in January.
“[Gent] was able to look beyond his national borders … to look at what the Americans were doing and was willing to compete on their turf,” said Phan.
“Europeans have been wary of doing that,” added Phan, citing the PC industry as a high-tech field in which European companies have not directly taken on dominant U.S. players.
To gain the crucial nationwide footprint, in September of that year, Vodafone AirTouch agreed with Bell Atlantic Corp., a company that had also made a bid for AirTouch, to merge their U.S. wireless assets. The deal included cellular assets from Bell Atlantic Mobile, AirTouch Cellular, PrimeCo Personal Communications L.P. and some GTE wireless assets. The company was renamed Verizon Wireless.
“We recognized in order to be truly competitive, we needed to have a national footprint as soon as possible and ideally to achieve this without undue cost and complexity,” said Gent at the time.
And to make his point clear, he added: “Now that we’re nationwide, AT&T better watch out.”
AT&T had been enjoying strong subscriber growth based on its Digital One Rate plan announced in 1998, the first nationwide buckets-of-minutes initiative. However, with the combination of Verizon assets, the newly formed carrier overtook AT&T Wireless as the largest U.S. carrier by subscriber numbers. Verizon had nearly 26.3 million subscribers at the end of September, compared with AT&T’s 15 million.
A minority-stake initial public offering of Verizon, originally to be held this year, is still pending.
“I’m a great admirer of Chris Gent’s,” said Ivan Seidenberg, president and co-chief executive officer of Verizon Communications. “His commanding grasp of the telecommunications industry, his energy and his visionary leadership are all extraordinary.
“Since Vodafone and Verizon joined forces to create Verizon Wireless in the U.S. last year, Chris and I have formed a close working relationship, and I always look forward to our conversations. We exchange information and ideas, and I’ve learned a lot from him, although I’m still waiting for him to explain the inner workings of cricket,” Seidenberg added, referencing Gent’s enthusiasm for the sport of cricket.
Throughout 2000, Vodafone has done an excellent job of capitalizing on opportunities. The recent announcement that NTT DoCoMo would take a 16-percent stake in AT&T could have been a blow to Vodafone. Instead, Vodafone is making the most of the ensuing possibility that the U.S. carrier will have to sell its stake in NTT DoCoMo’s rival Japan Telecom because of the deal. This would allow Vodafone to step in and further establish its presence in the lucrative Japanese market, particularly because it already owns a stake in Japan Telecom’s J-Phone Group mobile subsidiary.
The challenges
Although Vodafone has outmaneuvered the debt issue that has plagued other European carriers, it has not been quite as lucky on the slow uptake of mobile Internet services. At the end of September, its U.K.
operation had only 75,000 mobile Internet portal subscribers out of a total 10.2 million wireless customers. With wireless Internet the cornerstone of future 3G services, Vodafone has its work cut out for it in boosting this crucial business.
Vodafone’s Brown notes WAP technology has been deterred by slow connection and transmission speeds. “We’ve been the victims of some of our competitors in that WAP was very much hyped,” he said.
The carrier contends GPRS will be a boon to mobile Internet use, and it plans to offer commercial GPRS services in mid-2001. Brown noted the importance of the availability of multislot GPRS handsets, which will provide higher data speeds than those currently available.
A large part of Vodafone’s mobile Internet focus revolves around its Vizzavi partnership with French company Vivendi, formed days before the Mannesmann takeover was finalized, effectively sealing Mannesmann’s fate, because Vivendi also had been in talks with Mannesmann. Vivendi brings cable TV subscribers to the deal, which are a critical component of Vizzavi’s plan for subscriber access from mobile phones, PCs or interactive television.
Vizzavi Ltd., a mobile Internet portal company officially formed in May, is operational to varying degrees in the United Kingdom, the Netherlands and France, with plans for further expansion. Numerous carriers are marketing their own portal options to subscribers, but it remains to be seen how the mobile offerings will fare against the likes of landline Internet companies like Yahoo! and America Online.
In addition, Vodafone has spent billions of dollars on 3G licenses, varying from $148 per pop in the United Kingdom to $3 per pop in Spain. Turning a profit on these investments is essential, and 3G technology offers no guarantees. Although he would not comment specifically on a timeframe for turning a 3G profit, Brown said the company’s internal targets are to increase its Earnings Before Interest, Taxes, Depreciation and Amortization by 20 percent to 25 percent “in the foreseeable future.”
Global branding is another challenge, with the carrier set to kick off a worldwide initiative in 2001 that will first see Vodafone added to the local carrier name of its subsidiaries, eventually to be replaced with just Vodafone, said Brown.
International branding is an interesting challenge for a company with beginnings as an underdog competitor to BT Cellnet, the mobile arm of former state-owned British Telecommunications plc, in the 1980s in the United Kingdom. Vodafone launched the United Kingdom’s first cellular network on Jan. 1, 1985, and had 19,000 subscribers at the end of that year. It has been a leader in the U.K. mobile market ever since.
Gent, 52, became chief executive of Vodafone in 1997, with the company’s most remarkable growth taking place under his leadership. Gent was born the son of a sailor, who died when Gent was young. After graduating from London’s Archbishop Tenison’s School-located by the Oval Cricket Ground in south London and perhaps explaining where his cricket passion developed-Gent took his first job at National Westminster Bank at age 19 without attending college. There and during his stint as chairman of the Young Conservatives in the 1970s, Gent made numerous contacts who would subsequently prove invaluable to his career. Gent later joined Racal Electronics, from which Vodafone was spun off in the 1980s.
“I would put him in same category as a Scott McNealy, (chairman and chief executive officer) at Sun (Microsystems Inc.), running his company through very tough situations, while continuing to exude a great deal of confidence,” added Phan. “He’s able to rally against his competition.”
