Vodafone Manessmann Case

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So, what?

Vodafone’s focused wireless strategy has placed in it a favorable spot to capture a huge market share (forecasted a 29% growth). On the other hand, companies which have extensive fixed-line networks in the EU will have the added benefits of already established customer relations to tap into. If Vodafone, steps up its play and acquires mobile phone customers, higher economies of scaled can be achieved as being a first mover.

Public Policy/ Political Climate

While convergence, take-overs and acquisitions were favored by EU, Germany was not comfortable with a hostile take-over. Licenses for the wireless spectrum were auctioned buy the European regulations. This meant financially sound companies had a competitive advantage.

So, what?

If Vodafone acquires Mannesmann, it gains access to the fixed network market share of Mannesmann. While this acquisition would have huge cost impacts which might hinder in the purchase of spectrums during auctions. Further, Vodafone needs to keep in mind the German customer response to its hostile take-over.

Recommendation

Considering the synergies, economies of scales and financials it is recommended that Vodafone AirTouch initiates a takeover of Mannesmann-Orange. In the past year, Vodafone has posted operating profits signifying its operational efficiency at lower costs. Further, high amount of liabilities could be attributed to their constant expansion with the aim of obtaining high market share.

Owing to a lack of product differentiation, the only way Vodafone can maintain its customer and technological leadership is by continually expanding in the EU markets. Vodafone’s two options were to acquire Mannesmann/Orange or a different firm to match operations. Considering, Mannesmann’s significant power in certain markets were Vodafone had no foothold, this acquisition would give Vodafone leadership opportunities in new territories helping it establish a stronger global foothold.

While Vodafone could have individually strived to achieve its goal, by acquiring Mannesmann it would be able to gain cost advantages along with market share and market power. It will help them in diversifying into fixed-line networks and take advantage of those capabilities thereby reducing capital expenditure.

Further this acquisition keeps Vodafone at a favorable spot while analyzing the five forces of competition. Vodafone’s position as being cost-effective (low Capex and high Return on Investments) is putting competitors in tough position. Being a cost-leader, Vodafone has a stronger bargaining power with buyers and suppliers. Gaining market share and power guards Vodafone against new entrants and product substitutes.

Vodafone AirTouch + Mannesmann Orange would be one of the largest players in the telecommunications industry building up on economies of scale and technological innovations. Alignment of two different strategic goals would be a initial hiccup. But the industry trends will help them tide over this.