Vodafone AirTouch Public Limited Company (VOD)

Competition is increasing globally, and Vodafone is a target. It has exited Japan and Sweden, where it struggled to compete. European rivals are merging and becoming more global, and strong emerging-markets players are developing. It is sometimes difficult for Vodafone to compete in all its markets at once.

Vodafone has been trying to diversify it portfolio lately. Realizing that emerging markets are the place to be for hot growth opportunities, the company's been buying out smaller companies in regions in which Vodafone has little or no presence. While this is good, undoubtedly, the company's been spending tons of cash to make these acquisitions. In fiscal years 2005 and 2006, Vodafone had staggering net losses of £13.8 billion and £13.3 billion, respectively, followed by another, albeit smaller, loss of £4.3 billion in FY2007. These acquisitions could prove lucrative in the long term, providing the company is able to integrate them into its existing business, but five years of net losses of these proportions will take years to recoup. In the meantime, shareholders' equity is whatever's left after Vodafone's voracious appetite for acquisitions has been satisfied, which is to say, not much. Vodafone isn't the only company to recognize the growth potential to be had in these emerging markets, and competition has been growing steadily stiffer. Despite throwing the Vodafone name and resources into the Turkish wireless market with its acquisition of a large Turkish wireless provider, the company still lags the reigning champ Turkcell Iletisim Hizmetleri AS in terms of market share. Its recent acquisition of Hutchison Essar in India will face similarly tough competition, with giant Bharti Airtel Limited (BOM:532454) leading Hutchison's market share by a large margin. Especially with the massive amounts of money Vodafone has thrown into these emerging markets, this competition could seriously diminish the company's ability to earn back the billions of dollars it's spent, at least in the near future.

Vodafone could overpay for acquisitions, especially to buy complete control in France and Italy. It is also acquiring more minority stakes, which could lead to more of the same control issues in other countries.

The company has historically bet strictly on wireless. While it is initiating some converged offerings with the Internet, it is poorly positioned if a greater convergence of fixed line, wireless, and the Internet happens. Vodafone lacks fixed line infrastructure and would be disadvantaged by incumbent/reseller moves to bundle (or integrate wireline/broadband services.

Competition is increasing globally, and Vodafone is a target. It has exited Japan and Sweden, where it struggled to compete. European rivals are merging and becoming more global, and strong emerging-markets players are developing. It is sometimes difficult for Vodafone to compete in all its markets at once.