Arun Sarin steps down, Colao to ascend
2 June 2008
Arun Sarin, Chief Executive of Vodafone for nearly five years, unexpectedly announced that he will retire after the company’s Annual General Meeting (AGM) on 29 July 2008, and that Vittorio Colao, his Deputy and the current head of Vodafone’s European business, will succeed him.
The announcement of Sarin’s departure coincided with the company reporting £6.76bn (€8.6bn) in net profits for the year ending 31 March 2008, which was ahead of analyst expectations, marking a return to full-year profitability after the company’s £5.29bn loss in the previous fiscal year. That loss was caused by impairment charges at Italian and German operations.
Although Vodafone’s share price has shown only modest growth compared to its level when he arrived, Sarin is generally considered to be leaving Vodafone in good fettle. Returns to shareholders over the period have been very positive, with dividends increasing from £0.0169 to £0.0751, an increase of more than 400%. Sarin has overseen an increase in Vodafone’s worldwide customer base from 120 million to 260 million, primarily thanks to his aggressive strategy of increasing the Group’s exposure to emerging economies, such as Africa, the Czech Republic, Romania, Turkey, and India, as well as paving the way for future expansion into Africa and South-East Asia.
“ Arun Sarin leaves with his reputation intact. [He] has successfully implemented Vodafone’s new strategy after coming under intense pressure a couple of years ago. ”
— ING bank research note.
“ It has been a privilege to lead Vodafone for the last five years and to have been involved in the company for such a long time. I feel that I have accomplished what I set out to achieve, particularly in developing and implementing a new strategy. I am very proud of what Vodafone and its 71,000 people have achieved and the good momentum we have in the marketplace. I know that the business is in capable hands with Vittorio Colao. Having worked with him for many years, I know that he has the experience and vision to take Vodafone on to future success. ”
— Sarin
Colao is regarded by many as a more than able successor, with analysts immediately expressing high regard for him, following the news of Sarin’s impending departure. In his role as head of Vodafone’s European operations, which analysts regard as the company’s most challenging units, he achieved revenue growth of 2% in the last financial year — “considering the maturity of the European market, even such modest growth is impressive” — commented John Delaney, Research Director of Consumer Mobile at IDC. It is expected that Colao will continue the strategy that Sarin set out, at least in emerging markets.
“ The key challenge is to follow Arun’s example, and he’s a very successful example. ”
— Colao.
Early challenges that Colao will face include moves by European regulators to cut roaming charges and reduce call prices by 10%–15% across Europe over the next two years. Colao said he plans to sell “more products in the home and the office”, and cut operating and capital expenditure to offset slowing growth.
It is less clear how the Group will proceed with regards to its high-value investments in Verizon Wireless, SFR, and China Mobile, which together could be worth over £50bn. It is expected that, in the short term at least, little will change, but, ultimately, Colao will need to define a strategy of his own, and this may prove to be where he chooses to deviate strategically from his predecessor and define his own vision and path.
“ Arun has done a tremendous job as Chief Executive. He has led the company with distinction and navigated Vodafone through a period of rapid change. He has developed a new strategy for the business and significantly expanded our footprint in emerging markets. The acquisition in India was very well-timed and executed. The Board has a great deal to thank him for, and I would like personally to thank him for all he has done for the business and wish him and his family all the best for the future. In Vittorio Colao, we have a fine successor and I am looking forward to working with him in his new role. ”
— Sir John Bond, Chairman, Vodafone Group.
At the same time, Vodafone announced that Michael Boskin and Jürgen Schrempp, both Non-Executive Directors, will not be seeking re-election at the AGM. Boskin has sat on the Board since 1999, while Schrempp, the Chief Executive of Deutsche Bank, became a Director in 2000, when the Group completed its acquisition of Mannesmann. Schrempp’s tenure has been mired by his central role in a scandal and law suits related to bonuses awarded by Mannesmann in the German company’s acquisition by Vodafone (Vodafonewatch, passim).
Comment: job done with Sarin’s impressively executed Vision 2.0
Sarin comprehensively redefined the Group’s strategy and direction, initially to a near-mutiny among investors and the ‘old guard’, who were appalled by his originally muddled-looking strategy. However, he appeared to quickly learn the importance of clarity and communication, returning with his five-point ‘Vision 2.0’ that, in retrospect, looks both inspired and visionary. Aside from targeting growth in emerging markets, he:
- Reviewed the asset base, shedding less promising and minority-held operations, and bulking up other holdings in emerging markets.
- Aimed to control costs while stimulating usage, revenue, and margins in the core, but mature, Western European cash cows.
- Extended the portfolio with Mobile Plus (value-added services) and Total Communications (adding fixed-line and converged propositions).
Together, these directives evolved Vodafone from its aggressively expansionist, pure-play, mobile phase, which both terrified and excited investors, into a more balanced and coherent multinational communications player that still maintained an attractive growth profile.
As part of this transformation, Sarin has overseen considerable structural transformation designed to build a global brand and extract the benefits of scale; an approach the Group can, with some justification, claim makes it unique among its peers.
Barring unexpected surprises that might cast a less favourable light on his sudden departure, Sarin appears to be leaving Vodafone in excellent shape — well primed to exploit opportunities presented by emerging markets, mobile data, fixed-mobile substitution and convergence, and globalisation.
Nevertheless, Sarin leaves Vodafone as a work in progress — hence the surprise that he has decided to leave at this point — leading to the question of what sort of successor he leaves? Will Vittorio Colao continue with Sarin’s strategy, which he has with seeming success been executing in Western Europe, or is he ready to unleash his own agenda, which may have been formed at least in part under the mantle of Sarin’s own predecessor, the buccaneering Chris Gent.
Areas that Colao might want to attend to include an ostensible failure to fully export some impressive local knowledge, successes, and best practices between OpCos, with the Group instead perhaps relying too much on an overly homogenised regional portfolio. While OpCos appear to retain sufficient autonomy to innovate locally, sharing of these achievements can seem stifled by top-down efforts to exploit synergies and scale across the Western Europe division.
Another area is the feeling of lethargy relating to multi-play integration of mobile voice, mobile broadband, and personal computing, which appears to get far more talk than action. The huge recent success with data cards and dongles looks dangerously like developing into a bubble that could rapidly burst to expose a terribly commoditised business prone to ‘race-to-the-bottom’ pricing, unless the Group (and rivals) quickly start adding real added value and convincingly meld mobile broadband propositions with traditional voice-oriented offers. It seems long overdue for voice and mobile broadband to be seamlessly bundled, and for personal computer integration to be made so deep and compelling that defection to a rival becomes far more than just a matter of price and HSxPA (3G) rollout credentials. Its operating companies in Germany, Portugal, and New Zealand have made interesting moves in this direction, but even here there has been no obvious sense of urgency.
A lingering question is why Sarin has opted to leave now, and where will he turn up next? It is hard to imagine Sarin retiring to what he might jokingly term a ‘surf’ lifestyle in California, and suitable new challenges within or beyond the mobile sector are not exactly numerous. However, Vodafonewatch’s wild suggestion is that, once he has worked out his non-compete clause, Sarin could within six- to eighteen-months re-emerge to take the helm at one of the emerging Indian players as they gear up to go global, with Bharti Airtel appearing a natural fit. As a US citizen of Indian birth, seemingly with his heart tied to California, this might suit Sarin well.
One possible explanation for the timing of this succession might be that a deal was struck in 2003, in less confident times, whereby Sarin secured a five-year tenure in which to deliver on his vision, while Colao gained the opportunity to prove himself on a large and challenging scale in the critical Western Europe theatre of operations. Now, with both having executed well, a deal could well be in the process of being honoured.
Colao had been lined up as heir-apparent
Rumours had been circulating for a while that Arun Sarin was preparing to leave Vodafone; and in early-May 2008, the Financial Times reported that Vittorio Colao was being tipped by industry insiders to take over the reins at Vodafone by the end of the year. Colao had been the frontrunner to succeed Sarin since returning to Vodafone in 2006, but, until this announcement, the likelihood of Sarin leaving soon had seemed relatively small.
Colao’s candidacy was previewed in a report that was so laden with praise that it appeared planted, leaving the suspicion at the time that Colao was either being waved in or set up for a fall. Until then, any play for the top job by Colao had been very low key, and he is said in his current role as Deputy-Chief Executive to have never given press interviews.
Colao’s ascendancy was said to be largely based on the performance in the recent results for Vodafone’s European business, which he oversees.
Vodafone insiders were said to be able to identify only two real internal alternatives to Colao: Andy Halford, Chief Financial Officer, and Paul Donovan, Head of Eastern Europe, Middle East and Africa, Asia Pacific, and Affiliates (EMAPA).
Colao is described as a good motivator of staff, intelligent, and ambitious. However, it is also said that Colao has areas of weakness that include a propensity to micro-manage and an incapacity to compromise once he has made a decision.
His role as head of Vodafone’s European business is considered the most challenging after that of the Chief Executive, with a saturated European mobile market offering limited ‘green field’ opportunities for growth. However, much of his recent success could be said to lie in the execution of Arun Sarin’s strategy of raising average revenue per user by increasing mobile data activity.
“ The results in Europe in the last six months were excellent. ”
─ Nick Delfas, Analyst, Morgan Stanley.
- Vittorio Colao biography: Aged around 46 (born 1961, in Brescia, Italy), Vittorio Colao studied business at Bocconi University and completed a Masters of Business Administration at Harvard Business School. He joined operator Omnitel Pronto Italia (Vodafone Italy) in 1996, where in 1999 he rose to the role of Chief Operating Officer (CEO), joining the Group’s board in 2002, before heading the Group’s then-Southern Europe, Middle East, and Africa region from 2003. Colao left in 2004, reportedly after losing out on the Group CEO role to Arun Sarin (who is said to be a friend) and having a proposed Bulgarian acquisition rejected by Sarin, to run Italy’s RCS MediaGroup, where he apparently fell foul of shareholder politics and resigned. He then returned to Vodafone in 2006, in his current roles of CEO for Western Europe, Group Deputy-CEO, and board director — reports that Colao had been parachuted in to replace Sarin were denied at the time, with the suggestion that it was Sarin himself who had lured Colao back. In 2007, Colao is reported to have denied interest in the politically charged role of Telecom Italia CEO. Prior to Omnitel, Colao also worked at McKinsey and Morgan Stanley. He now lives in the UK with his family.
Sarin voted most powerful in telecoms and technology
In a recent Daily Telegraph ranking of the most powerful people in British telecommunications and technology, Arun Sarin came top.
The telecommunications industry dominated its IT counterpart, providing nine of the ten most influential players.
Nikesh Arora of Google was the only IT industry representative in the top-ten.
[Wikipedia; Financial Express, 24 April 2008; Financial Times, 5 May 2008; BusinessWeek, The Times and Vodafone, 27 May 2008; Daily Telegraph, 1 June 2008.]
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