Michael Pascoe writes:

If you think Telstra has a few problems,
check out Vodafone’s admission that its assets might be overstated by as much as 28 billion quid – a touch
more than A$66 billion.

On the other hand, if you want to add
another problem to Telstra’s woes, also check out the forecast slowdown in
Vodafone’s revenue and profit in the same story. Vodafone is a mobile giant –
they have none of those tired old copper land lines that dominate Telstra talk,
but increased competition is expected to slow revenue growth to between 5 and
6.5% next year, down from a forecast of 6 to 9% this year. With
margins slipping, earnings before interest, tax, depreciation and amortisation
is forecast to fall by 1% in 2007.

That knocked Vodafone shares down to a
three-year low overnight, but it should also ring alarm bells here. While the massive over-valuation is about the
sins of the boom catching up with the company:

Most
of the impairment charges relate to the value of the group’s German assets but
operations in Italy
and possibly Japan
are also overvalued.

The
write-down relates mainly to the 112bn pound takeover of Mannesmann, which at the
time was the biggest in corporate history.

The
deal caused dismay in Germany and sparked
controversy when it emerged that a handful of Mannesmann directors were paid
hefty bonuses once the merger was complete, while many rank and file employees
lost their jobs.

The local implications though are twofold:
Can Vodafone afford to maintain its marginal Australian operation and is its
overall outlook a message that the mobile phone market, like every other
market, does mature eventually?

The brighter forecasts for Telstra still
assume competition in mobiles doesn’t get much more serious ie Telstra is
allowed to maintain a massive profit margin of about 50% and that the
market itself still has enormous growth ahead. Those Vodafone forecasts will have the
smarter analysts wondering.

Peter Fray

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