Vodafone’s share price jumped in late July after the group announced plans to sell off the European mobile mast business via a stock market floatation, which could raise as much as €20 billion.
The group aims to spin off the unit in the first half of 2020. Vivek Badrinath, the head of Vodafone’s rest of the world division, has been named as CEO of Tower Co – the new company.
Vodafone plans to pay down debt
The cash raised from the planned disposal will be used to pay down Vodafone’s debt. The telecoms giant racked up debt due to the acquisition of Liberty Global’s cable network in central and eastern Europe. Heavy investment in 5G in Italy as well as Germany also added to the firm’s liabilities. Long-term debt is in excess €48 billion.
Vodafone revealed a tie-up with Telecom Italia Group in relation to 4G and 5G. The network sharing partnership is mutually beneficial as it should deliver faster 5G, at a lower expense, over a larger area. The move should equate to cashflow gains of at least €800 million over the decade.
Vodafone share price hit by dividend cut
In May, the company cut its dividend for the first time, as a way of addressing the debt situation. As expected, the announcement put pressure on the Vodafone share price. It’s never a good look when a group has to lower its returns to investors as it shows weakness, but nonetheless, it was a prudent step. Over the years too many companies have tried to keep the market sweet by maintaining a dividend, but failed to address debts which were building up at the same time.
In July, BT suggested it was considering cutting its dividend to assist with the costs of expanding the fibre optic network in the UK. This despite the group maintaining its full-year dividend when it revealed its annual numbers two months ago. BT also said it is exploring other options like cost-cutting as well as increasing borrowing.
Heavy investment weighs on industry
The sector as a whole seems to be suffering under the weight of such heavy investment, and the tough competition is keeping margins under pressure. Consumers are savvier these theses as there is evidence that people are lowering their outgoings, and price comparison sites are making it easier to scout out deals.
BT’s share price took a knock last week after Virgin Media announced it was dropping its BT contract for a Vodafone agreement. The contract will run for five years and it will provide 5G as well as other services to 3 million clients. Oddly the news had little impact on Vodafone’s share price, but seeing as Vodafone pipped BT for the contract, it suggests the group is doing something right.
Vodafone’s share price could be volatile this week as the company releases its first-half numbers on Tuesday.