Wireless stock prices around the world have taken a beating lately. Vodafone Group has most noticeably suffered investors’ wrath and is now trading at less than a pound. To make matters worse, its shares fell an additional 5 percent last week after Goldman Sachs cut Vodafone from its recommended list. The U.K.-based operator’s stock has slid more than 45 percent since January.
The fact that Vodafone’s stock is now trading at below a pound is a bit of a milestone, albeit a negative one, for an operator that just a few years ago could do no wrong in investors’ eyes. And the once darling of the sector seems to be again setting the tone for other wireless operator stocks around the world.
MmO2 is trading at way below a pound, and Orange is trading at about US$5—down nearly 50 percent since its 2001 initial public offering (IPO). Sweden’s Telia has seen its share prices drop nearly 20 percent since announcing its merger with Sonera in March, putting the deal into question. Even SK Telecom, the largest wireless operator in South Korea, last week released better-than-expected net profits for the first quarter and still saw its shares drop following the announcement..
The industry can’t seem to get a break.
Markets are saturating, and operators are trying to shift analysts’ focus to average revenue per user (ARPU) and data revenues instead of total subscriber adds as in the past. But analysts are used to the break-neck growth of recent years, and revenues are not climbing as quickly as they would like to see. Add to that the looming costs of third-generation (3G) buildouts and the fact that revenues from those 3G costs are not likely to come anytime soon, and the sector’s future looks bleak.
The question is whether the industry can weather this transition from 2G to 3G, which appears much longer than most had hoped. Some say it is a sign of a new technology—the transition from analog to digital also took longer than most expected. Others say the technology is flawed, and there is little demand.
Time will tell who is right. Meanwhile, operators have to play the public-relations game in addition to boosting bottom lines. Chris Gent, Vodafone chief executive, who went on a road show to win support for his hostile takeover of Mannesmann in 2000—and was successful—needs to put those skills to use again. He has been mostly silent during recent weeks as his company’s stock price has tumbled. Part of the blame for the sharp decline is Vodafone’s poor communication with the market about its German and Italian operations.
Unfortunately, Vodafone is not the only company that could use an image overhaul. But because it is the largest global operator, its status reflects on the industry as a whole. Focusing on PR certainly cannot hurt at this point.
