Vodafone Group to review Australian stake if cash flow targets are met

Vodafone Group chief executive Vittorio Colao​ has poured cold water on Telstra and other major companies that invest in start-ups and venture capital funds to grow profits.

He has also said his company will review its 50 per cent stake in Vodafone Hutchison Australia once key cash flow targets are hit.

Vodafone Group global CEO Vittorio Colao says the company is currently focused on turning around its Australian operations.
Vodafone Group global CEO Vittorio Colao says the company is currently focused on turning around its Australian operations.  Photo: Christopher Pearce

British-based Vodafone Group owns half of Vodafone Hutchison Australia and is the world's second-biggest telecommunications company behind China Mobile, with more than 446 million subscribers.

Mr Colao, its global chief executive, told Fairfax Media in a rare interview that the best start-up businesses were actually hindered when established companies tried to invest in them.

His comments come as Telstra ramps up its investments in innovation and start-ups around the world. It has opened Muru-D start-up incubators in Singapore and China, while spending hundreds of millions of dollars buying stakes in high-tech software companies.

Telstra chief executive Andy Penn has declared he wants Australia's biggest phone and internet provider to become a world-class technology company.


"I'm a bit sceptical of telcos or any large ventures doing this because if you're a good, young and creative entrepreneur, I'm not sure you need too much of a big corporate [backer]," Mr Colao said.

"Google is the only exception and they are very successful, but they are successful because they have the competency and the scientific and analytical capabilities that are unique in the world.

"But outside of Google, I haven't seen many examples of these companies being successful, and as soon as they do you have this conflict with the mother company and different rules and different ways of working."

Vodafone Group itself opened a venture capital arm called Vodafone Ventures and start-up hubs from 2011 in an effort to grow profits. But it moved its main start-up hub from Silicon Valley to London in 2014 and has not generated substantial returns from the investments.

"We closed it essentially, [although] we made money off it, ironically," Mr Colao said. "Every single intelligent start-up that comes to Vodafone wants to have market access … and that I can do without making an investment.

"Vodafone invested maybe £80 million to £100 million in this and we made some money, but it was not really changing the nature of the company."

Mr Colao did, however, wish Telstra the best of luck and said he did not want to pass judgment on its strategy. "I've met some of the companies where Telstra has invested and they're good companies, so I'm not saying it's a bad thing, but then what's the point?

"One out of 10 will do well and Telstra will still be the same company as before. Now, if they get the next Google, I will be wrong and they will be geniuses."

Mr Colao also said the company will review its 50 per cent stake in Vodafone Australia once it hits key cash flow targets.

Vodafone Hutchison Australia is a 50-50 joint venture between Vodafone Group and Hong Kong's Hutchison Whampoa Limited.

London-based analysts including UBS have previously called on Vodafone Group to sell its stake in the Australian operations. In November 2014, UBS valued Vodafone Australia at £4 billion.

Vodafone Group could also buy out Hutchison Whampoa to take full control of the company – a move that would represent one of the biggest telecommunications acquisitions in Australian history and shake up the phone and internet market.

"We're really focused on the turnaround of the company," Mr Colao said. "One day something will happen and we will sit down like good partners and discuss it.

"We're really focused on this launch ramp and [Vodafone Hutchison Australia chief executive Inaki Berroeta] has to take the rocket at a higher level."

Vodafone Australia's value fell after major network failures in 2010 triggered a rapid drop-off in customers and profits. But after years of recovering, in December 2015 it become one of the least-complained about telecommunications companies per 10,000 services in operation, beating Telstra and Singtel-Optus.

Waiting for revenues and profits to rise above current levels will help boost the value of any potential sale. "When we're at outer space, we will probably have some kind of discussion," Mr Colao said. "But it's not in this moment."

When asked what Vodafone Group's "outer space" target would look like, Mr Colao said the local subsidiary's sales revenues would have to hit key targets and launch new areas of business. However, he declined to provide specific figures.

"At the end of the day, it's the cash flow generation of the company, so the ability to generate cash out of all segments," he said. "Today we are mostly consumer, mostly urban, so we can start to think of non-urban, enterprise and potentially fixed-line.

"Once you start seeing that, then the corporate events of Vodafone, Hutchison Whampoa and the market will determine what is the best thing."

Mr Colao also called on Australian authorities to make Telstra decrease the price it charges for using its infrastructure in rural and regional Australia, describing its market share in some areas as "not legitimate".

Telstra is often the only service provider in rural areas, with the lack of population density making it unfeasible for rivals to profitably build the infrastructure required.

In return, Mr Colao pledged to provide a firm investment commitment, outlining the amount Vodafone Group was willing to spend on building better services in the bush.

"With good conditions, we will invest," he said. "I can guarantee we can put a certain amount of commercial and technological commitments that we can do easily in every country.

"But this depends on how much access you have to the other things."

Telstra has previously rejected these calls, arguing that it has earned its advantage by spending substantial amounts of money where rival companies have not.