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Withdrawal symptom - Vodafone's decision to drop its Myanmar bid is an encouraging sign

14/06/2013

Andrew Lyddon

Andrew Lyddon

Fund Manager, Equity Value

Few things excite a telecommunications company as much as an emerging market with high GDP growth and a low rate of mobile phone penetration. So it is interesting to note the recent decision by Vodafone – whose prior forays into emerging markets, as we have seen in articles such as Dialling down, have not been universally successful – pull out of the bidding for a telecoms licence in Myanmar.

Pick pretty much any developing nation in Africa, Asia or Latin America and you will find at least one European, US or other developed market telecommunications company crawling all over it. Myanmar is, for fairly obvious reasons, one of the few markets where that has yet to happen. Furthermore, it has the sort of nascent mobile market metrics that would make the hairs stand up on the back of any telco executive’s neck.

With a population of some 60 million people, a mobile phone penetration rate of less than 10% (as a comparison, China’s rate is expected to pass 120% this year) and a GDP growth rate – though how much weight you attribute to this is up to you – officially stated as above 5%, Myanmar is potentially a very attractive market to invest in for the long term.

So attractive in fact that, in addition to Vodafone’s joint-bid with China mobile, 11 other global telecoms groups were competing for just two licences. Vodafone’s decision to withdraw, reportedly because the final conditions imposed by the Myanmar government suggested it could not meet internal investment criteria, does it great credit – especially given its record in overpaying to enter other emerging markets.

Vodafone’s ventures in other countries such as India and Turkey are now on a surer footing than they once were but returns are still hampered by the very high prices the group paid at the outset. its apparent acknowledgement that there is now such a thing as “too expensive”, however, is an encouraging sign – of the kind we flagged up in Ringing endorsement – that things may be different under current Chief Executive Vittorio Colao.

The chance to add one of the few remaining truly undeveloped mobile markets to its portfolio appears to have been trumped by the sort of capital discipline not always displayed by Vodafone in the past or by the wider telecoms sector even now.

Author

Andrew Lyddon

Andrew Lyddon

Fund Manager, Equity Value

I joined Schroders as a graduate in 2005 and have spent most of my time in the business as part of the UK equities team. Between 2006 and 2010 I was a research analyst responsible for producing investment research on companies in the UK construction, business services and telecoms sectors. In mid 2010 I joined Kevin Murphy and Nick Kirrage on the UK value team.

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