The story at the UK’s two largest telecoms companies – Vodafone (VOD) and BT (BT) – is similar. Both need to invest a lot of money in 5G and fibre optic broadband. Both are trying to sell off slow growth parts of the business to fund this. And both now have large external investors with a history of activism.
In January, Scandanavian activist investor Cevian took a stake in Vodafone, raising the spectre of increased pressure on CEO Nick Read to speed up restructuring. In defence of Read, he has been moving quickly. Since he took over in 2018, he has completed 19 deals. Still, he did reject an €11bn (£9.2bn) plus offer for its stuttering Italian business from France's lliad.
Dealmaking is required because the cash needed to upgrade infrastructure and acquire 5G licences is substantial. In the first half of FY2022, Vodafone generated €7.03bn in operating cash. But after €3.37bn on capital expenditure and another €482mn on licences and spectrum, plus €727mn on debt interest, the net result was a €983mn free cash out flow.