BUSINESSWEEK ONLINE : FEBRUARY 21, 2000 ISSUE
INTERNATIONAL -- EUROPEAN COVER STORY What's a Cell-Phone User Worth? (int'l edition) The flights are boarding at Paris' Charles de Gaulle or Berlin's Tegel Airport, and the cell-phone hard-liners are lingering near the gate. They have their tickets and passports in one hand, while making just one last call with the other. These are Chris Gent's people, his champions. In his $183 billion buyout of Mannesmann, the chairman of Vodafone AirTouch PLC spent a startling $12,400 per subscriber. And for such premium callers, who can spend $2,000 a month on cell-phone calls, Gent probably got a bargain. But Gent also bought millions of lower-rent subscribers. These are the folks dallying on the subway steps in Munich or Milan, finishing a call before ducking out of reception. They're kids for the most part. Many of them pay $100 for a cheap cell phone with an hour or two of prepaid minutes. They restock the phones with minutes when they have an extra $20 or $30. As Europe's cell-phone population exploded last year, from 93 million to 170 million, most of the newcomers were penny-pinchers on prepaid cards. This raises key questions about how much a cellular subscriber is worth. BUSINESS WEEK's European technology correspondent, Stephen Baker, analyzes whether Gent paid the right price for Mannesmann in his bid to dominate Europe's wireless market. Q: Did Vodafone overpay? A: Based on most available comparisons, yes. In AT&T's cable deals, which are the heart of its Internet strategy, the company spent an average of $5,000 per home. Just last fall, Deutsche Telekom spent $6,000 per customer in buying Britain's One 2 One, and Mannesmann dealt out $7,000 per customer two months later, when it bought Orange. Gent criticized Mannesmann for overpaying. Q: How can he justify spending so much for Mannesmann? A: First, look at what he's spending: his own sky-high stock. Gent traded a hair less than half his company for Mannesmann. While he nudged up the percentage a couple of times, it was the market that placed the astronomic dollar valuation on it. Q: So the investors overpaid. A: That depends on two things. First, can Gent turn his new dominance in Europe into a strategic advantage, giving him leverage over suppliers and a marketing edge over competitors such as Deutsche Telekom? Chances are good that he can. More important, can Gent develop Vodafone into a mobile Web power? He's counting on the Web to link him for life to his 50 million customers. After all, if you operate your bank account and receive mobile e-mails through your phone company's service, you're not likely to switch carriers. Q: How does this translate into earnings? A: Web valuations are tied more to dreams than hard numbers. But still, this mobile market could reach 1 billion people by late this decade. Gent is working with France's Vivendi, Finland's Nokia, and others to develop a mobile portal. He claims he can become the America Online of the mobile Net, selling services wrapped in advertising all day long. Q: Can he? A: Are Bell Atlantic or AT&T kings of the U.S. Net? Phone companies are great at connecting voice lines but usually bad at selling Web services. To win in mobile cyberspace, and to justify the pile of stock he's spending for Mannesmann, Gent must prove to be the exception. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS The Race to Rule Mobile (int'l edition) EUROPEAN COVER IMAGE: Why Europe Loves Mobile TABLE: Three Titans Face Off What's a Cell-Phone User Worth? (int'l edition) The Wizards of Telecom (int'l edition) TABLE: Telecom Gold Commentary: Auf Wiedersehen, Germany Inc. (int'l edition) TABLE: A Deal with Impact INTERACT E-Mail to Business Week Online

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