Vodafone expandsits empire

Japan Telecom and its J-Phone became more jewels in the Vodafone crown Thursday as the British wireless giant secured a controlling stake in the company. Not only does Vodafone now control the third-largest wireless carrier in Japan, it also has avoided the pitfalls of another lopsided partnership.

Vodafone learned its lesson from its deal with Verizon Wireless, the joint venture that combined Vodafone's AirTouch operations with Verizon's Bell Atlantic and GTE wireless assets. With only a 44.1% stake in the venture, Vodafone has had to let Verizon make critical decisions on network technology and 3G migration that don't necessarily gel with Vodafone's manifest destiny, said Roger Entner, manager of The Yankee Group's wireless mobile services program.

“In this country, Verizon and Vodafone are condemned to succeed together,” Entner said. “The venture is doing well by all means but it isn't exactly following Vodafone's global vision…. In Japan, Vodafone wants to avoid being the silent partner. They want to avoid another situation like Verizon Wireless entirely.”

While Japan Telecom is the target, J-Phone is really the prize. Japan Telecom itself is a wireline voice and data carrier, businesses Vodafone has shunned in the past. Vodafone's combined minority stakes in J-Phone and Japan Telecom give it a 60% economic interest in the wireless carrier.

But the economic stake means little because Japan Telecom holds a majority share of J-Phone and, therefore, the voting power. To control the wireless venture, Vodafone had no choice but to take over its partner.

Vodafone succeeded in increasing its stake by 22.7% in a $2.7 billion deal with major Japan Telecom stockholders. The deal boosts Vodafone's stake to 66.7%.

Vodafone is no stranger to this kind of maneuvering. In the last 18 months, Vodafone has assumed control over several carriers worldwide — often by force. After months of maneuvering, Vodafone CEO Chris Gent executed the largest hostile takeover in history by buying out Mannesmann AG in February 2000. Vodafone later sold all of Mannesmann's non-wireless businesses and realigned the carrier under the Vodafone banner. A similar fate may be in store for Japan Telecom, analysts said.

But Vodafone's control-oriented strategy includes two notable exceptions — the Verizon Wireless partnership in the U.S. and SFR, a venture with France's Cegetel. Both carriers are huge, serving a combined 38.6 million subscribers. Vodafone is negotiating with Cegetel to gain majority control of SFR and reportedly is trying to initiate similar discussions with Verizon.

Winning J-Phone would certainly bolster Vodafone's position of global dominance. Until it purchased BT's Japanese assets in May, Vodafone had no presence in Japan, one of the world's must lucrative wireless markets. With its current bid, however, Vodafone has positioned itself to compete directly with Japanese powerhouse NTT DoCoMo, just as DoCoMo prepares for a wireless battle on Vodafone's home turf in Europe and in the U.S.

Despite Vodafone's past success internationally, Vodafone should tread cautiously in Japan, warned Jake Saunders, director of The Strategis Group in Europe.

“Vodafone can't just swagger into Japan and say, ‘Do things my way,’” Saunders said. “In many ways, the Japanese are far ahead of the West in terms of wireless. They are very sophisticated wireless users, and Vodafone would be careful to not change J-Phone up too much.”