Can Vodafone Save Ghana Telecom?

Reaction to the news that UK-based Vodafone has finally secured a deal with the Government of Ghana to annex 70 per cent stake in state-owned Ghana Telecom has been mixed.

Many people, mainly from the opposition parties, believe that even though the capital injection would improve GT's fortune significantly (GT's enterprise value would be approximately US$1.3 billion plus a cash injection of US$500 million, totalling US$1.8 billion after the deal), Vodafone should have paid more.

Most of the sceptics believe that GT is worth about US$2 billion. But this “imaginary valuation” is not reflected by the performance of GT currently.

More needs to be done before the company can be valued that much. In fact, the main opposition party, the National Democratic Congress (NDC), has threatened to look into the deal further, if voted into power at the December 2008 polls.

They have warned that they might even reverse the deal if anything untoward is found! On the government side, however, as would be expected, the Vodafone deal has been registered as one of the government's best efforts to improve the Ghanaian economy through employment, and, therefore, job creation.

A statement signed by Stephen Asamoah-Boateng, Minister of Information, emphasised the importance of the deal to Ghana, stressing how Vodafone's global image could improve the telecom sector in Ghana generally.

"Vodafone's brand and successful customer propositions such as ultra-low cost handsets will accelerate Ghana Telecom's growth," the statement said.

Vodafone has experience in over 25 countries and has partner networks in an additional 42 countries with over 260 million customers worldwide.

Arun Sarin, CEO of Vodafone, is equally upbeat about the deal, claiming that "Ghana is one of the most attractive markets in Africa with mobile subscribers growing at more than 55 per cent per annum and mobile penetration around 35 per cent.

“Our extensive operating experience together with our portfolio of products and services positions us well to deliver a superior mobile experience to Ghanaian customers and significantly improve financial performance.

"I expect that our investment will generate substantial benefits for Vodafone and for the Ghanaian economy and we are delighted that we will be working in partnership with the Government of Ghana."

The truth, however, is that Vodafone has come for profit, and not for charitable causes. The stiff telecom market in Europe has forced Vodafone to look for prospects outside the continent.

Competition in Europe has driven down prices, and Vodafone has found the market a bit tough sometimes.

In fact, Vodafone has become a subject of takeover in the past, when it became so much troubled by the harsh telecom market in Europe.

At one point in early 2006, it was rumoured that a venture capitalist group was considering a GBP£100 billion takeover bid for Vodafone.

The company was troubled then and sacked marketing director Peter Bamford, promising to institute a marketing review.

Under pressure from shareholders, Arun Sarin had to look into the company's strategy, and shed off entities it thought were not performing well, or could best be let go.

The company's turnaround strategy seems to have worked, and it is now focused on ensuring that it keeps its brand strong, and improve on shareholder value through value creation.

 Acquisitions and joint venture agreements have been the main growth strategy of Vodafone. It has acquired entities in India, Japan and Australia, among other countries, to ensure that it is able to leverage its expertise.

With regard to the GT deal, it may be one of the lowest ever payment for a takeover deal by Vodafone to acquire a telecoms company in any country, but it could, potentially, be the best deal it has ever done.

Vodafone takes over GT at a time when the company has managed to strengthen its mobile network division.

 GT has managed to improve its performance significantly, and the mobile phone division supports the whole company in a major way.

The mobile phone brand is gradually gaining acceptance in the Ghanaian public, and the introduction of phone TV by the company seems a good move to boost its market penetration strategy.

The challenge for Vodafone, however, would be how to significantly improve on the company's market development strategy, to ensure that the service is well appreciated by Ghanaians.

Additionally, this would prove a significant challenge because of the entry of GLO, the Nigerian telecoms operator that has won a licence to operate in Ghana.

The competition has, therefore, intensified. The key success factor for Vodafone would be to provide efficient service to customers.

But can Vodafone achieve this? When Vodafone took over Japanese mobile carrier J-Phone Company, the deal looked like a sure thing.

J-Phone was coming off of five straight years of market-share growth; it had a hip reputation, and it was within spitting distance of second place in Japan's cellular market.

But at one point, the company's market share tumbled to 17.8 per cent since peaking at 18.6 per cent in 2003 — just before the J-Phone name was dropped in favour of Vodafone.

Analysts believe that Vodafone did not get its strategy right from the onset. In fact, market commentators claim that rivals' data services offered download speeds up to eight times as fast as Vodafone's, resulting in the fall of Vodafone's customer base.

In India too, the company had a bit of bad press following customer complaints. Despite all these, however, in most cases, Vodafone has managed to steer clear of trouble, improving its performance after hitting problems.