CEO Sarin Hands Over a Better Vodafone

Having guided the telco to improved sales, double its global customer base, and a presence in India, Arun Sarin plans to retire

Britain's Vodafone is ringing up the changes. On May 27, the world's largest mobile-phone operator by revenues announced that its Indian-born chief executive, Arun Sarin, will retire in July after five years at the helm. His deputy and the former head of Vodafone's European business, Vittorio Colao, will succeed him.

Sarin leaves Vodafone (VOD) in better shape than when he joined it. His surprise resignation overshadowed the company's return to full-year profitability also announced on May 27, with Vodafone posting net profits of $13.2 billion for the year ending Mar. 31, compared with a loss of more than $10 billion the previous year due to writedowns. Sales rose 14%, to $70 billion. And during Sarin's tenure, Vodafone's global customer base has more than doubled, from 120 million to 260 million today.

For Sarin, the strong results are vindication of the strategy he pioneered two years ago. With growth in Europe slowing to a stutter—Vodafone's organic growth from existing businesses last year was just 4.2%—Sarin sought acquisitions in emerging markets (, 11/14/07), expanding into Romania, the Czech Republic, Turkey, and most recently India.

A Turnaround in Two Years

At the same time, he slashed more than $1 billion in costs and increased the amount of revenues the company gets from so-called data services, which include everything from music downloads to business e-mail and laptop connectivity devices. "I feel that I have accomplished what I set out to achieve," Sarin, 53, said in a statement.

Just two years ago, few figured Sarin would make it this far. The company's board was driven apart by factional infighting, Vodafone's share price was falling, and institutional investors were furious that Sarin refused to part with the company's 50% stake (along with Verizon Communications (VZ)) in U.S.-based Verizon Wireless. At the company's 2006 annual meeting, an estimated 10% of shareholders voted against his reelection as CEO.

Fast forward to today and both Sarin and the company are in much improved positions. Much of the credit goes to Vodafone's $11.3 billion acquisition last year (, 2/11/07) of a controlling stake in India's fourth-largest mobile operator, Hutchinson Essar. The deal gave Vodafone, which was mainly a European company, access to the fastest-growing cellular market in the world.

To succeed, Sarin had to overcome difficulties surrounding India's foreign ownership laws and difficult negotiations with the Indian operator's owners. "The deal marked a turning point for Sarin," says John Delaney, research director of consumer mobile at telecom advisory firm IDC. "There was no better or bigger way to make a convincing move into emerging markets."

Emerging Markets Pay Off

It's a move that is already paying dividends. On a pro forma basis, revenue from the newly rebranded Vodafone Essar rose 50% during the year. Since the acquisition, Vodafone has added 16.4 million new subscribers, bringing its total customer base in India to more than 44 million. Part of Sarin's bold plan to snare subscribers in emerging markets such as India is to use Vodafone's scale to sell handsets for as little as $20 (, 5/23/07).

Over the last year, the company has shipped 7 million Vodafone-branded handsets, mainly to India, making it the country's second largest supplier of phones after Nokia (NOK).

India isn't the only emerging market to post strong growth. As a whole, revenues from what Vodafone calls EMAPA (Eastern Europe, Middle East, Asia Pacific, and Africa) rose by more than 45% last year, as the number of subscribers in those regions doubled to 119 million. Vodafone's plan is to build on its EMAPA subscriber base by selling low-cost handsets, and through the introduction of new data services such as the mobile money transfer service M-Pesa that Vodafone and its partner Safaricom pioneered in Kenya.

The expectation is that his successor, Colao, will continue the strategy Sarin set out, at least in emerging markets. A longtime veteran of the company, Colao left Vodafone in 2003 after losing the top job to Sarin. He returned three years later as Sarin's heir apparent. During the last two years, he has run Vodafone's European operations, considered by analysts to be the most challenging of its units. Last year, revenues from Vodafone's European operations rose by just 2%. "[But] considering the maturity of the European market, even such modest growth is impressive," says IDC's Delaney.

The big question is what will happen to Vodafone's stakes in Verizon Wireless and France's No. 2 mobile operator, SFR, jointly owned with Vivendi (VIV.PA). "[Sarin] refused to cave in to calls to sell out or spin off the stakes in Verizon and SFR," says Emeka Obiodu, telecoms analyst at market research firm Global Insight in London. And many observers expect that at least initially, Colao will do the same. But if Colao is to make his mark on Vodafone, Obiodu says, just like Sarin did following in the big footsteps of his predecessor Christopher Gent, eventually he will have to make some bold moves of his own.

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