Vodafone plays the waiting game

WHEN it comes to expanding Vodafone's French coverage, new chief executive Arun Sarin seems ready to play it softly.

Like his predecessor Sir Chris Gent, Sarin is keen to acquire the 56% of France's second-biggest mobile operator, SFR, that Vodafone does not already own. But that ambition is, for the moment, blocked by Jean-Rene Fourtou, chief executive of ailing French media conglomerate Vivendi Universal, which owns the rest.

Gent tried to mop up SFR a year ago with a £9bn buyout offer. Fourtou thought that was too low and exercised a pre-emption clause to acquire 26% from British Telecom for e4bn (£2.8bn), thus winning control. Vodafone gained only 15% from US operator SBC.

Fourtou gave Sarin fresh hope this month when he mulled demerging Vivendi's telecoms arm, which also includes 35% of up-and-coming Maroc Telecom.

Fourtou has now ruled out a demerger until 2005 at least but, behind the scenes, the links between SFR and Vodafone are getting ever closer. SFR, which has 13.6m customers and a 35.3% share of the French mobile market, collaborates with Vodafone in handset purchasing.

It sells its French customers the Vodafone Card, which opens up internet and message services to mobile users. When Fourtou met French Finance Minister Francis Mer this month to discuss kick-starting European telecoms, Sarin was there too.

Fourtou acknowledges that the future of SFR lies with Vodafone, the British-based world mobile leader which last year had revenues of £30.4bn. This week, he said: 'We are part of the Vodafone family.'

French analysts say that Vivendi remains undervalued at e16.9bn, and note that its telecoms arm, with operating profits of e1.27bn on revenues of e4.3bn, accounted for almost all first-half group operating profits.

Vodafone, with net debt of £13.8bn, could afford a break-up bid for Vivendi but Sarin's business is telecoms, not demergers. An agreement that prevents Vodafone buying Vivendi shares expires on 30 January next year but Sarin will wait until Vivendi's media debris is cleared. For now, he prefers to draw SFR ever-closer, and let Fourtou tidy up the rest for him.