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Flush with cash, Vodafone to take on BSkyB and BT in pay-TV arena

Vodafone has big spending plans despite the fact that results published yesterday show that between the end of March and the end of September this year the company's service revenues fell by five per cent overall - and by a whopping 16 per cent in southern Europe.

However, chief executive Vittorio Colao beleives this to be indicative of structural changes taking place across the whole of the European comms market and as more of an opportunity than a threat. Hence the plan to move big-time into the pay-TV sector.

Satellite TV provider BSkyB has been king of the hill for a long time but is now facing a full-on challenge from BT. Earlier this year the UK's incumbent telco shocked the market and rattled the complacency of BSkyB when it secured the rights to show football matches that had previously been regarded as the perennial perquisite of of the Murdoch empire.

Then, last week BT paid some £900 million (and some analysts say that is well over the odds) for the rights to broadcast Champions League football. The move took a bit more of the bant out of Sky's wilting pants and opened the market to further far-reaching change. Who would have thought, a couple of years ago, that stodgy old BT would have the intestinal fortitude not only to take on take on the likes of Sky but also to beat it at its own ruthless game?

Speaking at the presentation yesterday of Vodafone's half-year figure, Vittorio Colao said, "We will offer unified, converged multi-screen services in all counties. What they will look like in Britain I don't yet know but we have a new chief executive of the UK business starting and he (Jeroen Hoencamp) will help deliver the strategy and we will be thinking about the impact of telecoms companies owning TV content".

Andy Halford, Vodafone's finance director said, "We can really make a difference in a way that our competitors cannot." He has probably made himself a hostage to fortune by making such a remark and the words could well return to haunt him in times to come, but, for now anyway, Vodadfone is on the attack and has promised to invest the huge sum of £19 billion to upgrade its networks between now and the end of 2015.

Of that £19 billion some seven billion pounds will come from the pot of cash raised by the sale of its holding in Verizon of the US. Some of the rest will go to pay down debt and to provide shareholders with a long-awaited dividend payout.

However, the bulk of the money - and more besides (Vodafone is decidedly cash-rich at present) - will go towards further expansion, mergers and acquisitions.

The market and industry is awash with rumours about what Voda will do next. They range from reaching a network-sharing agreement with either BT or Virgin Media through to the buyout of UK MVNO TalkTalk which has millions of users but no network to call its own.

That's short-term stuff and peering further into the future is a risky business but talk is that Vodafone could buy Liberty Global, the company that bought Virgin Media a couple of months ago. Such a move would make strategic sense but would be expensive and time-consuming.

There is even speculation that Vodafone could acquire BSkyB itself. It is not for sale and any takeover attempt would have to be very aggressive. Murdoch will hang on to the jewel in his tarnished crown for as long has he can and will use all that he has to prevent a sale but if BT, Virgin or even Vodafone manage to secure the rights to Premier League football for the 2015 season the game could be over for Sky.

And last, but by no means least, Vodafone itself could be takeover target. AT&T of the US is desperate to try again to get into Europe in a permanent and meaningful way (it has tried more than once before and came a cropper on each occasion) and has lots and lots and lots of money.

But that's for the future. Back in the present Vodafone first has to make good on its promise to offer "perfect" voice service. Yes, voice services, remember them? To that effect the mobile operator is pledging to ensure that users have "50 per cent fewer dropped calls" (not the 99.999 per cent recurring required by some corporate SLAs you'll note) and the "best 4G mobile Internet service in Europe." Vodafone is to concentrate its efforts on London and has earmarked £150 million "immediately" to improve coverage and services in the British capital. It could do with it.

I don't so much know about the 4G stuff but I can tell you from bitter experience that voice call dropout in my neck of the woods, (in a trendy suburb five miles whole from the throbbing centre of the Metropolis) is a constant and unacceptable annoyance. I cannot believe that 4G data is any better.

Vittorio Colao says, "We are seeing this as an opportunity to over-invest to prepare for [Europe's] economic recovery." Yeah, well, you could do worse than start in Chiswick, mate.

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