Could Vodafone become takeover target for Japanese telco?

SoftBank might eye Vodafone Hutchison Australia (VHA) as the Japanese telco continues its global expansion, mobile industry observers have told Computerworld Australia. They said VHA, which has lately suffered large customer losses due to network problems, may be open to such an acquisition.

SoftBank is Japan’s number-three telco and recently announced a $20 billion agreement to acquire Sprint Nextel, the number three carrier in the US. The company has bought a Vodafone company before, acquiring Vodafone Japan in 2006.

I am a man, and every man wants to be number one, not number two or number threeSoftBank founder Masayoshi Son quoted in the Wall Street Journal

During SoftBank’s press conference to acquire Sprint Nextel, this is how founder Masayoshi Son reportedly summed up the company’s hunger for world growth: "I am a man, and every man wants to be number one, not number two or number three."

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SoftBank’s acquisition history has been like “Richard Branson on steroids,” said Gartner analyst Geoff Johnson. “They’ve been pretty hairy chested about some of the acquisitions they’ve done over the years.”

China Telecom, another company that has been rumoured to have interest in VHA, has not displayed the same aggressive attitude and is therefore less likely to make a bid, he said.

“Singtel has done it with Optus so it's not impossible and given Vodafone's various challenges it might be a deal worth investigating from their side of things,” said IBRS analyst Guy Cranswick.

“The local market is worth the investment and will be more engaging in a NBN future if that fully comes to pass.”

However, risks for a foreign company entering the Australian market include capacity, scale and the dominance of Telstra, Cranswick said. There would have to be “some very careful examination ... of the options relative to the worldwide telecoms scene and where money might be put for solid returns.”

And VHA may not be a priority acquisition for a foreign company like SoftBank, said Moore Wright Associates partner Stephen Moore. “I could see SoftBank coming here before China Telecom, but I would think that they would both have other things on their list before Australia,” he said

“I would not be surprised for Vodafone to leave this market at some time in the future,” said Moore, who worked for Vodafone in the early ‘90s. It’s unlikely Hutchison would be sold without the rest of Vodafone in Australia, unless the deal was for brand and customers only, he said.

“Distressed assets are always going to be retired one way or another,” Johnson said. “Question is, do you put them to sleep with bankruptcy or do you take them out the top with something that’s got synergy in it?”

Vodafone has continued investing in its network in recent years, spending $1 billion on it from mid-2009 to the end of 2011. It has spent $700 million upgrading its network this year.

“Vodafone’s got deep pockets if it chooses to invest [more money in VHA], but what’s maybe needed is more than straight dollars,” Johnson said. Another company could bring “extra synergy or something else to revitalise that business,” he said.

Australian regulators are more likely to favour a foreign acquisition than more national consolidation in the mobile market, said Telsyte analyst Chris Coughlan. The Australian Competitions and Consumer Commission (ACCC) “is unlikely to allow any consolidation in the mobile network market, as a reduction to two networks would likely create a cosy duopoly and therefore not be in the interests of end consumers.”

“Should the owners of one of these mobile networks think of exiting, then they will most probably look to an off-shore entity as a possible buyer,” he said.

Johnson said that “whatever happens, it needs to occur promptly before the 2013 spectrum auction where Voda looks like a no-bid.” The Australian government is selling 700MHz spectrum that’s ideal for 4G LTE in next April’s Digital Dividend auction, but Vodafone has hinted that it may sit out.

Vodafone declined to comment for this story. SoftBank was approached for comment but hadn’t replied by time of publication.

Follow Adam Bender on Twitter: @WatchAdam

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