Vodafone’s CWW bid shows backbone

Cable and Wireless has had troubled times of late. Two years ago, in an attempt to address and solve its difficulties, it split consumer and business telecoms functions into Cable & Wireless Communications and Cable and Wireless Worldwide (CWW) respectively.

When CIO met CWW’s director of IT operations Richard Wilson in August last year, he had already been through an extensive round of streamlining; he had introduced more efficient IT processes and his ‘team-desking’ has cut office costs.

Even so the company had found it hard to make its mark against huge rivals like BT and as a result CWW looked like a prime target for acquisition.

Sure enough, early this year a race began between Indian telco Tata Communications and mobile phone behemoth Vodafone.

By the end of April Vodafone had become the sole remaining bidder, putting in a bid of 38p for each share. This offer has already been endorsed by the CWW board and some key shareholders and is being put to remaining shareholders for approval.

One key shareholder, Orbis, holds 19 per cent of CWW’s shares and remains a fly in the ointment. Orbis is holding out against Vodafone’s terms, thinking the valuation of just over £1bn too low.

As Vodafone needs a 75 per cent shareholder agreement to go ahead, Orbis’ continued reluctance would put the deal in the hands of a small number of shareholders.

If the deal does go ahead, exactly what will Vodafone have bought and how will it complement its own lines?

Last year CWW revenue was split equally between voice and legacy and IP and data traffic, and in spite of CWW’s recent push in hosting and apps, such products still represent just 12 per cent of revenue.

So Vodafone is not buying CWW’s products, but its infrastructure.

In acquiring CWW, Vodafone gains access to over 200km of UK fibre infrastructure. This essential fibre capacity will help it reduce costs, increasing control and allowing network rationalisation.

A further step may be to make direct connections to the third of Vodafone’s mobile base stations that are within 100m of the CWW network, so allowing full ownership of the fibre back-haul capacity.

As a result of the shared network infrastructure deal made with O2 in 2009, there will also be the opportunity to offer back-haul services to O2 on shared sites.

Adding CWW’s £1.7bn UK revenues to Vodafone’s own £5.3bn UK figure would also catapult Vodafone from the fourth- to the second-placed UK telco at a stroke, where it would nibble at BT’s heels.

Globally Vodafone would get control of 425,000km of network across 35 countries, with an emphasis, because of the history of Cable & Wireless, on ex-Empire locations such as Africa and India.

Vodafone, as the mobile provider with the biggest international reach, would benefit from further cost efficiencies and ownership of a network able to deliver much of its internal data traffic worldwide.

The downside of this acquisition is the sheer size of the task in hand. There will be major rationalisation and efficiency needed in any new, combined, organisation.

CWW has already been through quite a bit of turmoil in the last few years, so further change will be challenging, requiring strong, decisive leadership from Vodafone.

For any UK CIO, such a development would be good news. Sure, there may be some added short-term complexity in maintaining and migrating existing CWW contracts, but the long-term outcome of this acquisition will be more competition for BT and further erosion of its monopoly of UK back-haul and network capacity.

And it will be competition coming from a company of comparable size.

Although we won’t have a final decision on the proposed acquisition for a while yet, it is clear that a smaller number of large, credible, competitors for UK telecoms business makes perfect sense for any CIO who has to buy telecom services in the UK.

Everyone, in other words…