Can Vodafone lift telecom gloom?

Vodafone hopes it can find the winning formula to boost the company's flagging share price

LONDON, England (CNN) -- "How are you?" Vodafone asks in its multi-million dollar global advertising campaign. Investors are likely to reply, "Could be better. What's happened to the price of my Vodafone stock?"

Investors might also ask, "When will you roll-out high-speed mobile phone services? Will you increase dividends? And how much more are you likely to spend on acquisitions in France and China?"

Chris Gent, the chief executive of Vodafone (VOD), which has more than 100 million mobile phone subscribers around the world, is expected to have all the answers on Tuesday, when it delivers full-year results.

Analysts are almost certain of one thing, Europe's biggest mobile phone company is likely to admit it paid over the odds for acquisitions. It wrote off £18.6 billion ($27 billion) in goodwill -- the equivalent market value of smaller UK telecom operator Cable & Wireless (CW) -- in the 18 months to September 30 last year.

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It is expected to take another whack on its balance sheet with a write down of as much as $25 billion associated with the $178 billion acquisition of Germany's Mannesmann in February 2000.

The hope is that write down will stimulate its flagging stock price, which dropped to a four-year low of 96.5 pence earlier this month. The stock has dived from a peak of 402 pence at the height of the telecom boom in March 2000.

"We believe that an exceptional charge of £22.5 billion is appropriate," analysts at Bear Sterns wrote in a note to investors. "We view the potential booking of an impairment charge as catching up with share price events."

But Vodafone is not alone in slashing the value of acquisitions, Deutsche Telekom (FDTE), France Telecom (PFTE) and BT Group (BT-) have all washed their hands with multi-billion dollar write downs. Many have been forced to under take the move as European telecom stocks slide about 80 percent from their 2000 peaks.

While the write down will make headlines, investors will seek reassurance on prospects for the year to March 2003, now that potentially lucrative third generation services (3G) are not expected to catch on until mid-2003. (more)

Vodafone's decision to cut the earnings forecast for its operations in Germany and Italy did not go down well. Some analysts hope a drastic cut in spending could provide some cheer as revenue risks persist, particularly in the volatile U.S. market where Vodafone has a 44 percent stake in market leader Verizon Wireless.

CEO Gent may offer investors hope

"Additional capital expenditure reductions would help to substantiate recent claims by Chris Gent... that it could generate 'buckets of cash' if it pared back expenditure in a no growth market," said Bear Stearns.

Gent has said Vodafone would begin to wring more money out of its customer base by introducing more services and put an end to its acquisition spree. But investors would like more clarification amid speculation it may raise its stake in SFR, France's second-largest wireless operator. (more)

Bear Stearns forecasts proportionate revenues in the year to March 2002 to rise 36 percent to £30.2 billion, while earnings before interest, tax, depreciation and amortization (EBITDA) -- a figure that reflects a company's ability to pay debt -- is expected to rise 41.9 percent to £9.95 billion.

Vodafone's stock was up 2.3 percent at 113.4 pence in midday London trading on Friday after Commerzbank Securities upgraded its rating on the British-based mobile phone giant to "hold" from "reduce," valuing the company shares at 106 pence but added it believed the shares could drift as low as 76 pence in the next few months.

But Bears Stearns is more bullish on the stock, telling its investors to "buy" Vodafone and saying it expects the stock to rise to 175 pence per share or $25.6 per American Depository Receipt, its equivalent U.S. traded stocks.