'Now the payback for investors begins'

AS BETS go, it's a big one. But Arun Sarin betrays no sign of nerves as he talks about the billions of pounds he has spent backing Vodafone's crucial third-generation service.

The figures are frightening, even for a huge business like this. In Britain alone there has been £7bn of investment in the licence and network.

The licence in Germany cost a further £6bn and across the 13 nations where Vodafone is simultaneously launching 3G, the total bill comes to a whacking £19.7bn. Spending this year will add a further £1.6bn.

At long last - about three years later than expected - the new phones are in the shops and Sarin will now find out whether he has got it right.

'Now the payback for investors begins,' he says reassuringly.

Other chief executives might sweat just a little, but Sarin, 50, is an understated character - not for him the bombast of predecessor Sir Chris Gent, despite his military background. His father was a colonel in the Indian army and Sarin attended military school in Bangalore before moving to America, where he completed his education.

And with investors terrified that new services such as video-calling, music downloads and film clips tied to a cinema booking system will never generate the kind of returns that pay the bills, perhaps Vodafone needs Sarin's calm manner. Sarin, pleased as he is with all this fancy stuff, thinks that the terror is misplaced and the stress is wrong.

'I don't think that it'll just be the young and trendy who use services like video and music downloads,' he says.

'The other night, I had a few spare minutes and downloaded a Robbie Williams track. Now, I'm no music fiend or video freak, but when I've got spare moments, I am interested.'

Poised between the launch of 3G last week, which featured model Eva Herzigova, and releasing financial figures this week, Sarin is trying to prove that Vodafone is still a growth story.

He says that by the end of next year, about 10% of Vodafone's 140m customers will be using 3G and they will be spending an undefined amount more than the plain old voice customers.

'But people focus too much on the new services,' he says. 'Voice is 85% of our revenue and is not going to go away - it is always going to be the single most important thing.

'With 3G, I now have far more capacity to compete. I can sell phone services more cheaply and still make more money.'

So almost as much thought has gone into designing the packages of free minutes and messages as into video services.

Sarin says: 'We are offering big bundles of free minutes and we need to know how many people are going to go from paying £30 a month to paying £40 a month for a lot more minutes. And we need to know how many people who are spending £80 or £100 a month will decide to take a £60 a month package. We are focusing on the higher value users to start with.'

Pitching the tariffs correctly will mean that average revenue per user goes up - even if consumers are slow to start downloading one-minute tailored 'mobisodes' of drama series. 'That's Time Warner's name for them not ours,' says Sarin.

When Vodafone reports on Tuesday, Sarin will underline his confidence in cashflow. He is widely expected to double dividends and announce a £3bn share buyback scheme.

And City sources predict that the company is 'not going to disappoint' investors with growth or profit figures either.

Nothing about 3G has been done on the cheap and Sarin is also making big promises about the robustness of his network. 'Three launched too early in the UK and had big problems,' he says.

'Customers won't lose phone calls when they move from 3G coverage to the old network. We have 20 years' experience in this business. And we learned from Japan, where we ran into problems recently, that the network needs to be deep.

'You need enough capacity on the cell sites so downloads don't slow when the network is busy. You need to be able to use the services inside buildings.'

Vodafone did indeed run into problems in Japan - losing subscribers in a growing market. Sarin has shaken up Vodafone's structure so a newly recruited chief of the Japanese business will report direct to him.

It was the second sticky patch for Vodafone since Sarin joined. He unsettled investors earlier with an abortive bid for America's AT&T Wireless.

But Sarin should know what he is doing. He was chief executive of Airtouch, the US group acquired by Vodafone in April 1999 for £37.5bn. He stayed on running the business until April 2000 and went non-executive before returning as Vodafone chief in July 2003.

In the meantime, he headed Infoseek, a much-hyped dotcom software house and later ran Accel-KKR, a US venture capital group.

Sarin denies that his job is at risk if 3G is not an immediate success: 'It's never about only one thing. We have learned a lot that will be very important in the rest of the world. The whole customer experience matters. All services have to have an instantly recognisable Vodafone look and feel.'

The next few months will show how well the lessons have been learned and if Sarin has made the right call.