HOWZAT

PART of Sarin’s problem, not for the first time, is Vodafone’s shaky communications with the City — an odd failing for one of the most widely held and widely researched companies in the world. Its tax disputes with Revenue & Customs and the German tax authorities are disclosed in its annual report, but this multi-billion-pound ticking bomb was overlooked by analysts in their financial forecasts.

“We are a transparent company,” Sarin said in an interview with The Sunday Times on Friday. “Had people fully crystallised (the scale of the tax-loss issue) in their minds? It’s out there. It’s in the medium term. But the medium term catches up with you with the passage of time.”

Again, investors knew Vodafone was cutting prices and investing in expensive handset subsidies to turn round its struggling Japanese business, its biggest by revenue. But they had failed to realise that the 6% cut in profit margins this year would be followed by a further hefty drop next year.

“We think we’ve got a good business in Japan,” said Sarin. “We will turn the business round. It’s not like we’ve not done this before. I’m completely confident that it will be a successful company.”

Critics complain that the promised turnround steadfastly remains 18-24 months away. McMaster said: “That’s the third time we’ve heard that and we don’t speak to him that often.”

One plan is to use Vodafone’s underused Japanese network to offer wholesale airtime capacity to companies such as Softbank and eAccess, the broadband internet firms that have just been granted mobile licences. However, investors are concerned that the new entrants will make the Japanese market even more competitive, making it harder still for Vodafone to close the gap on NTT DoCoMo and KDDI, which have a huge lead in the 3G market. Vodafone was two years late to market with 3G.

There is a more fundamental disconnect between Sarin and his investors. In the eyes of Sarin and his senior management, Vodafone is a growth business, one that will continue to expand as the widespread uptake of 3G makes the mobile internet a reality.

Mobile television is one much talked-about opportunity, and there are many more entertainment, information and business services that will become possible over a fast data connection.

But for many investors, the great days of growth are in the past. They increasingly regard Vodafone as a slow-growing dividend stock.

SCEPTICISM about 3G is widespread. The increased complexity of network equipment and handsets meant that 3G services were about three years late coming to market. And it was the enormous payments for 3G licences — £22.5 billion in the UK — that started the collapse in Vodafone’s share price. At 128p, they now trade for less than a third of their March 2000 peak.

McMaster said: “There’s very little confidence that 3G will deliver the goods. There are no new services on 3G apart from video-calling. Over the medium term, you’re dealing with a commodity — minutes (of voice calls) and bits of data.”

Cyrus Mewawalla, of Westhall Capital, takes an even more apocalyptic view of the threat to Vodafone. He argues that the company, used to a single radio technology in the closed mobile world, has failed to grasp the extent of the upheaval about to hit the telecoms industry. ()

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