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    As the following story from today's Total Telecom suggests, Vodafone PLC is continuing to position itself for the future.

    In particular, Vodafone is looking at the following options:

    Shoring up its 2G (or GSM) business to ensure that a critical mass is maintained into the future. Declining ARPU values can, in some circumstances, be arrested through buying subscribers, and then rationalising those subscribers on an appropriate economies of scale basis (ie: keep the good subscribers, siphon off the bad subscribers, and secure back-office economies wherever possible).

    Building a solid beachhead in the French market which, until now, has been restricted to a minority interest in SFR (France's #2 telco operator).

    Continuation of Vodafone's strategic theme of either owning majority interests, or 100% wholly owned interests, or exiting altogether from certain businesses.

    Positioning itself for 3G in Europe and particularly in France where it currently lacks a 3G licence in its own right.

    As for Australia, Vodafone Pacific is likely to fall further down the "curve of relevance".

    If a Vodafone bid for SFR were to eventuate, it is likely that Vodafone PLC would have to spend $12+B to acquire the target.

    Until recently, European brokers were valuing SFR at >$17B (for Vivendi Universal's 80%). With the overnight writedowns announced by Vivendi, however, it is entirely possible that the current carrying value of SFR may well have been reduced, making for a more affordable buying proposition from Vodafone's perspective.

    In moving on SFR, Vodafone already has a head's up directly owning a 20% stake.

    But, no matter which way things pan out, Vodafone's interest in Australia appears to be on the wane. If not, it is difficult to see how Vodafone Australia will be able to chase down and attract ongoing funding support from its parent.

    The recent comments of ABN Amro's Andrew Hines, therefore, takes on an increasing relevance, with Andrew remaining firm in his view that Vodafone will soon seek to exit from Australia, most probably through a merger with, or a sell out, to Hutchison.

    Most recently, Andrew Hines' comments in this regard were set out in a news article appearing in last Monday's edition of The Australian (29/4/02).

    The Total Telecom story appears below:

    Mobile & Satellite

    Vodafone eyes SFR – report
    By Reuters staff

    01 May 2002


    Mobile giant is preparing a takeover of French number two wireless operator, press reports claim.

    Europe's largest mobile phone company Vodafone Group Plc is preparing a possible takeover bid for No.2 French mobile operator SFR should its largest shareholder Vivendi Universal seek a sale, the Guardian reported on Wednesday.

    Word of Vodafone's plans came after Vivendi Universal shares fell to their lowest level in over four years on Tuesday, after it unveiled a mammoth 17 billion euro first quarter charge.

    Vivendi's poor performance, and widespread criticism of Chief Executive Jean-Marie Messier, has fuelled concern about a possible break up of the group, the Guardian reported. Estimates on the cost to Vodafone of acquiring the balance of SFR - based on its market share in France - range from six billion pounds upwards, depending on whether a takeover battle ensues, the Guardian said.

    A Vodafone spokeswoman declined to comment on the story. Vivendi was not immediately available for comment.

    Vodafone directly owns a 20 percent stake in SFR and indirectly owns another 12 percent of the company through its shareholding in French general telecoms firm Cegetel. Industry sources have long said Vodafone has been seeking to increase its stake in SFR, to add a French mobile phone service to its pan-European mobile phone network.

    But analysts said a deal would hinge more on Vivendi's intentions towards SFR than on the UK company's plans. They said any medium-term plan by Vodafone to raise its SFR stake was also more likely to involve the purchase of minority, indirect holdings in Cegetel owned by BT Group Plc and U.S. carrier SBC Communications
    BT, which owns a 26 percent stake in Cegetel - which in turn owns 80 percent of SFR - said last May it wanted to pull out of France to help cut debt and refocus on its domestic operations. SBC is also expected to want to concentrate on its home turf.

    Vivendi owns 44 percent of Cegetel through a combination of direct and indirect stakes, while SBC and Vodafone own 15 percent.

    Vodafone's share price had a muted reaction to the report. At 0852 GMT Vodafone shares were up 0.7 percent at 111-1/2 pence.

    "Strategically it could be a nice move, but the market wouldn't be too enamoured with a big deal at the moment," one dealer said. Jamie Mariani, analyst at ABN Amro, said in a research note on Wednesday the market could have two sharp reactions if a deal was confirmed. Mariani said a deal could be seen as "a good opportunistic deal to take control of a high quality asset in the attractive French market, with related pan-regional synergy benefits." But he said investors could "question further corporate activity given Vodafone's weak share price performance and Vodafone management's commitment to 'sweat' the existing asset base."

    The Guardian, quoting banking sources, said a substantial amount of work has already been done by Vodafone on a possible deal, which would involve unravelling SFR's complex ownership structure.

    (Additional reporting by Steve Slater and Kirstin Ridley).

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