This week Vodafone made a recommended £1 billion cash offer for Cable & Wireless Worldwide (CWW). The 38p per share offer represents a 92% premium on the value of CWW before Vodafone officially declared its interest in February. What value does CWW bring to Vodafone?

Fibre Network

CWW claims the UK’s largest fibre network dedicated to business users of telecoms, with presence in over 400 towns and cities in the UK, with 864 unbundled exchanges covering 56% of the population. Outside the UK, CWW’s network stretches to more than 425,000km, including interests in 60 global cable systems, enabling connectivity to more than 150 countries. For Vodafone, with its long term ambition to widen reach, this fibre network asset provides a relatively cheap way of handling escalating volume of 3G, and eventually 4G, data traffic.

Managed and cloud services

CWW’s next generation network capability, products and applications include a broad range of services that span contact centres, data management, infrastructure services and enterprise voice management. The competences, people and customer contracts will be a valuable addition to any business targeting enterprise spending. CWW will be brought under the Vodafone Global Enterprise (VGE) business, which already has a number of significant enterprise services contracts under its belt. And this is not the first VGE acquisition.

In December 2011, Vodafone acquired Bluefish Communications, a Reading-based consulting firm. Bluefish worked on network design and implementation, with a particular focus on unified communications. It also supplied skilled people and hosted managed services for some clients, but mostly it was a consulting house. Bluefish had around 50 full-time employees and a further 200 associates, and was also tucked under the VGE umbrella, which was already delivering fixed and mobile communications services to multinational companies, and was increasingly targeting convergence and the cloud.

Today, VGE has several cloud services, including Microsoft Office 365 and its mHealth Solutions. While VGE’s organic and acquisition driven cloud portfolio is filling out nicely, we are less confident about revenue growth potential. As Pim Bilderbeek argues in his “Twelve Reasons Why Telcos Will Not Dominate Cloud Computing” essay, the odds are stacked against companies that are not experienced in inventing fast. Pure-play services firms are inherently more agile, and speed is a critical factor in the cloud scene.

Management credibility

Vodafone’s path to finalise its bid was clear only after Tata Communications dropped its bid for CWW. And although Vodafone’s £1 billion offer has been received well, the reception has not been unanimous. Orbis, the biggest shareholder in CWW may still derail proceedings if it can muster an additional 6% of shareholders. Such public and protracted uncertainty cannot be good for employee morale or customer satisfaction.

Image credit: Spring time is swing time, by Shrapnel

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