Vodafone Mulls Fixed-Line Move With C&W Bid

Mobile operator Vodafone is mulling a possible bid for telecoms operator Cable & Wireless Worldwide (CWW).

The bid, said to be worth up to £700m according to some media reports, would instantly give Vodafone its own fixed-line assets in a 150 countries around the world, including the UK.

Evaluating A Bid

“Vodafone regularly reviews opportunities in the sector and confirms that it is in the very early stages of evaluating the merits of a potential offer for CWW,” Vodafone confirmed in a statement. “There is no certainty that an offer will be made nor as to the terms on which any offer might be made. Any offer, if made, will be in cash… A further announcement will be made in due course, if appropriate.”

Vodafone said that in line with takeover rules, it will issue a firm intention or denial no later 12 March 2012. Meanwhile, the board of CWW revealed they were aware of the possible bid from Vodafone.

“The Board of Cable & Wireless Worldwide plc notes the announcement by Vodafone Group plc today that it is in the very early stages of evaluating the merits of a potential offer for C&W Worldwide,” said the CWW statement. “The Board will make any further announcement as may be required in due course.”

Why CWW?

CWW is a standalone entity after it demerged from Cable & Wireless Communications in March 2010, and since that time CWW has struggled with a number of profit warnings. Cable & Wireless Communications on the other hand operates mostly in the Caribbean, Panama, and Macau regions.

CWW is still attractive to Vodafone because its international cable network spans approximately 425,000km, while it also has the UK’s largest fibre network that stretches some 20,500km in length.

Unlike BT or Virgin Media’s networks however, C&W’s fixed-line network is mostly dedicated to business users and offers voice, data and hosting services to companies such as Next, Tesco and United Utilities, according to Reuters. Its fixed-line is used by mobile operators to provide links to mobile transmitters and switching offices – a process known as wholesale backhaul.

In the UK, CWW has a nationwide network that combines fibre, digital, microwave, radio and leased circuits. This network has presence in over 400 towns and cities in the UK, with more than 864 unbundled exchanges covering 56 percent of the population. Hence the interest from Vodafone.

The UK mobile sector is stagnant, as it is heavily saturated (i.e. everyone has a mobile phone) and is incredibly competitive because there are four national mobile operators (Vodafone, Orange/T-Mobile, O2, and 3UK – plus virtual network operators such as Tesco, Virgin Mobile etc).

This means that it is tough for Vodafone to differentiate itself from the others, and broadband is one of the areas where it could make a difference. However it risks running into competition from the likes of BT and Virgin Media.

But the CWW network would also give Vodafone a potentially valuable fixed-line network to offload mobile data onto because of the so called “data strain”  felt by mobile networks (thanks to data hungry smartphones etc).

Vodafone would in one move also gain itself some valuable corporate customers. But it may have to move smartly, as other operators such as Spain’s Telefonica (owner of O2) could also be mulling a possible bid as well.