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Monday, May 14, 2007

Vodafone Espana: Edging ahead with Ya.com

It is coming through on the wires that Voda has won the auction for Deutsche Telecom’s Spanish Broadband Business, Ya.com, with the winning price of €400-500m (£273-£341m). This is a big strategic move in Spain at a price that will hardly trouble the beancounters with Vodafone Espana generating £432m of Free Cash Flow in the first six months of the fiscal year alone.

The Spanish broadband market seems entirely different in its structure to the UK setup with post-Ya deal the big four players being the three mobile operators, plus the Spanish cable network, Ono. I’m also sure that the Voda MVNO partner, Euskatel, also has a big share of the market in the Basque region. This to me seems quite a stable long term market setup, although I’m sure as in mobile Telefonica has more than its “equilibrium” share of the market.

It also helps the Vodafone board in approving the deal that the Spanish management team has consistently outperformed the Spanish market in mobile and has recently been making big inroads in the converged business market.

It also shows that Voda has on the quiet being heavily investing in the broadband market in both Germany (through Arcor), France (through minority interest in NeufCegetel) and now Spain. I’d also be surprised if Voda was not in the runners and riders for the Orange Netherlands auction which includes both a fixed and mobile element. It also makes sense for Voda to become a total communications player in several emerging markets where the land grab has not actually started: I remember in the recent Voda Emerging Markets strategy day, the lady from Voda Romania explaining how they were already a reasonable sized player in the fixed corporate segment.

Of course, this leaves the two big markets with question marks: Italy and the UK. I’m surprised that Voda lost out in the manoeuvring for FastWeb in Italy to Swisscom, but this can be easily explained by Voda knowing more about the true value of Fastweb than an outsider to the market. Swisscom also has been trying to move outside Switzerland for quite some time and perhaps the cash was burning a hole in its pocket. In the UK, given that there is no end in sight for the cut throat competition, perhaps a waiting game is the best strategy. In fact, Voda could just wait until the next financial crisis at Tiscali causes the main shareholder to revise his plans – this will kill both the Italian and UK presence problem in one roll of the dice.