“It’s just an accounting change” said Vodafone’s Finance Director yesterday. But despite this, shares in the word’s leading wireless operator fell, at one point falling to a three year low, and headline writers sharpened their knives and prepared to talk about the tale of woe that is Vodafone.
Apparently, under changes to International Financial Reporting Standards, companies no longer amortise goodwill over time, instead, each year they take a look at their assets, and based on current market conditions, work out a value for goodwill. And over the last year telecom assets, especially the German subsidiary Mannesmann, have been falling in price. Yesterday Vodafone reflected this in its balance sheet effectively knocking up to £28bn off its total goodwill value, which prior to the change was £82bn. The change should have taken no-one by surprise.
Why then, have the critics come out? The Telegraph’s headline is, for example “Pressure grows on Vodafone’s Sarin.” There are several reasons.
Firstly, Vodafone had some more bad news. It has lowered its expected growth for mobile revenue, from 6-9% to 5- 6%.
But yesterday, the company also talked about growing competition. In Germany T-Mobile is slashing prices, and in the UK, the company is worried about the growing strength of virtual operators such as Tesco.
The company did refer to concerns about individuals making phone calls over the Internet via their mobile phones. But right now the impact of VoIP via wireless technology such as Wi Fi and Wi Max sill seems barely understood. In public, at least, the mobile phone network providers seem to have buried their heads in the sand over this issue. But, more surprisingly, the press and City analysts don’t yet seem to have cottoned on to this.
Right now, the fire that is VoIP is no more to mobile phones than a careless chef in Pudding Lane was to London in 1666. But it will take hold, and the ensuing blaze will be devastating. Right now, it seems, the industry and its analysts are doing little more than playing the fiddle.
© Investment & Business News 2013