Vodafone’s Rise Started With a New Year’s Eve Call
Britain’s first mobile phone call, 30 years ago, started a chain of events that led Vodafone from making radio equipment to becoming one of the country’s biggest companies.
Like millions of other revelers, you may well have celebrated the new year by using your smartphone to call loved ones, or to text, tweet, e-mail or even link up by video.
Reaching for your mobile might seem a commonplace, reflex reaction these days. But it is a far cry from the moment — exactly 30 years ago on Wednesday — when Michael Harrison stood in London’s Parliament Square to make Britain’s first ever mobile phone call to his father in Surrey.
Michael’s father was Sir Ernest Harrison, chairman of Racal — and later Vodafone. And though that first mobile call only lasted a minute, it would spark a global communications revolution.
It helped make Vodafone, with a value of £59 billion ($91 billion), the sixth largest company on the FTSE 100.
It’s a far cry from Vodafone’s roots as Racal, which specialized in radio equipment and nearly collapsed in the mid-1950s before Sir Ernest arrived to get the books in order. He was one of just 13 employees, collecting £650 a year, but by the time he retired in 2000 he had created more wealth for shareholders than any other businessman of his generation.
Sir Ernest, the son of a docker who kept a permanent suite in the Dorchester, was dubbed the “High Priest of Shareholder Value” by investors. Anyone who bought £1,000-worth of Racal stock when Sir Earnest took the business public in 1961 would have seen its value rise to £14m when he retired 40 years later.
He could easily have missed the telecoms call when the government decided to boost what was quaintly known as the “national radio telephone service” by offering two licenses, one to BT and the other to the private sector. Sir Ernest sat on the sidelines, questioning the risk involved into moving into a new venture, until a former employee told him he would be missing the opportunity of a lifetime if he did not join the bidding list.
A consortium headed by Air Call and with a blue-chip list of backers was quickly established as the front runner. Racal meanwhile had an 80pc stake in its smaller but tightly knit consortium and Millicom, the US company providing the technology for the service, 15pc.
Technical experts vetting the submissions concluded that Racal offered a stronger package providing greater industrial benefits and better prospects for a successful national rollout. Sir Ernest promised that Racal would invest £45m by 1985 to get its service off the ground and £300m by 1989 and provide cellular phone cover for 90pc of the population.
Sir Ernest predicted that Racal would take half the mobile market in competition with BT. His initial estimate of the size of the market also impressed ministers: all of £300m a year.
Ministers were further impressed by his prediction that the innovation could create 10,000 jobs. Salesmen, small businesses and the mobile businessman were seen as the main market, paying between 5p and 15p a call and £25.50 a quarter for renting “equipment.”
The inevitable teething troubles dogged the early days and the appearance, and weight, of the initial phone was a turn-off for many customers. But some smart marketing and acquisitions helped “Vodafone,” as the venture rebranded itself, consolidate and build to the point where with half the mobile business it had outgrown its Racal parent.
Sir Ernest accommodated the City’s complaints and put off potential acquirers by partially floating Vodafone in 1989. He retained a majority holding, however. Two years later Vodafone was able to show its full value when Racal sold the stake. The upshot was that Vodafone, with 700,000 customers at the time, had a headline value of £3.5 billion.
Independence provided Vodafone with more opportunities and scope but would take it to the brink of oblivion. Long-time marketing director Chris Gent, now Sir Chris, had played a key role in developing the business and wasted little time after his 1997 promotion to chief executive in attempting to add the global dimension.
Airtouch Communications was the first significant deal, in June 1999. To accommodate the anti-trust authorities Vodafone had to sell its 17.2pc holding in E-Plus Mobilfunk. It ended up with a 35pc stake in Mannesmann, the biggest mobile name in Germany, in return.
Sir Chris decided Vodafone should buy Mannesmann outright. It tabled a hostile bid in November 1999 and a battle royal ensued. German investors were not impressed.
Neither was the German government.
Sir Chris persisted and in February 2000 won what turned out to be a very hollow victory. Mannesmann accepted an increased offer of £112 billion to make it the most expensive acquisition in corporate history.
Sir Chris was later to suggest that he mounted the bid because Mannesmann had broken a “gentleman’s agreement” not to compete with Vodafone in Britain.
Sir Ernest, ready to retire, was not amused. Nor were investors, who have since suffered tens of billions of pounds of write-downs.
The next chief executive, Arun Sarin, who had joined the group in the Airtouch acquisition, took the helm in 2003. He continued Vodafone’s territorial spread into India, Turkey and South Africa. These markets are now central to the group’s growth strategy but Sarin was almost ousted in 2006 as its finances suffered the continued fallout from the Mannesmann disaster.
Sarin reared two years later to be replaced by Vittorio Colao, a genial Italian who remains chief executive today. His tenure has been dominated by efforts to simplify the unwieldy set of global assets built up by his predecessors. Sell-offs of minority stakes, including the £84 billion sale last year of a 45pc slice of the US operator Verizon Wireless, are helping Vodafone invest in its networks as the industry moves to a sales model led by data rather than calls and texts.
Now Vodafone faces a future where scale counts more than ever and rivals are seeking mergers. There were suggestions last year that the weakness of Vodafone’s core European markets could make it vulnerable to a US takeover, but it has emerged in a strong position to become one of the winners of a major consolidation.
Mobile and fixed-line telecoms are increasingly the same business, and media distribution is seen as the new battlefield. The next phase is Vodafone the television company, and it is unlikely Sir Ernest would have foreseen that.
Bloomberg
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