Jury still out on Vodafone's global chief

LONDON - Vodafone Group chief executive Arun Sarin assured employees in Japan twice last year that he had no plans to get rid of their unit. On March 17, he agreed to sell it for 1.8 trillion ($25.4 billion).

Sarin has vacillated over what to do with the global mobile-phone empire built by Christopher Gent since succeeding him in 2003, contributing to a 12 per cent drop in Vodafone shares during the past year.

Gent's March 12 resignation as honorary president puts Sarin firmly in charge. His next move may be to sell a stake in United States venture Verizon Wireless, Morgan Stanley analysts say.

"He's had one hand tied behind his back," says Christopher Nicholson, an analyst at Oraca in London, who on March 17 raised his forecast for Vodafone's share price to as much as 150p ($4.30).

"He should be given some more time, but he'll be watched very closely and needs to execute."

Retreating to Europe would allow England-based Vodafone, the world's largest mobile-phone operator by sales, to focus on building its brand across contiguous markets from London to Istanbul.

But Sarin may still struggle to revive slowing growth in a region where cellphone usage rates top 100 per cent.

"Everyone who wants a mobile phone has now got one," says Jim McCafferty, head of research at London-based Seymour Pierce, which has an "outperform" rating on Vodafone shares.

"It's a different kind of industry, suddenly more boring."

The agreement to sell Tokyo-based Vodafone KK came three weeks after Sarin cut his forecast for growth in mobile-phone revenue to as little as 5 per cent in the year to March 2007 and said he would write down the value of overseas assets by as much as £28 billion.

Sarin is selling the unit to Tokyo-based Softbank after 426.7 billion of capital spending during the past two years failed to increase profitability amid competition from NTT DoCoMo and KDDI, Japan's largest mobile-phone companies.

The transaction, which involves returning £6 billion to shareholders, has bought Sarin time to win investor confidence, says Robert Talbut, chief investment officer of Royal London Asset Management.

"Now he needs to follow things through and look at the rest of the portfolio," Talbut says. "If not, the pressure will come back on."

Vodafone's shares have lagged behind those of competitors since Sarin became CEO. The stock has risen 7 per cent to 125.5p during his tenure, compared with a 26 per cent gain in the Bloomberg Europe 500 Telecom Services Index.

Sarin, on a March 17 conference call with investors, said he's now focused on building on Vodafone's existing networks, describing the Japan sale as a "refinement," not a change in strategy.

Sarin, an Indian-born US citizen, has been on the Vodafone board since 1999. He spent 16 years at Vodafone and AirTouch Communications, a San Francisco-based company Vodafone bought in 1999, before leaving in 2000 to run ring-tone and cellular-game company InfoSpace. The shares of InfoSpace dropped 87 per cent during Sarin's nine months as CEO as the internet bubble burst.

When he was chosen to succeed Gent, Sarin was managing telecommunications investments for Accel Partners and Kohlberg Kravis Roberts from San Francisco.

"The jury is still out," says Robin Hearn, an analyst at market researcher Ovum in London. "His job was to integrate the different businesses, which isn't finished but hasn't faltered, either."

- BLOOMBERG