Internet-Hungry Consumers Force Vodafone to Consider a C&W Offer

Vodafone

said on Monday that it is seriously considering making an offer to purchase Britain's Cable & Wireless. VOD is the world's largest mobile operator by revenue, but the acquisition of Cable & Wireless would be a huge benefit, with the fixed-line network boosting bandwidth for customers who cannot get enough of the internet. According to

, VOD said on Monday that, “Vodafone regularly reviews opportunities in the sector and confirms that it is in the very early stages of evaluating the merits of a potential offer for CWW. Any offer, if made, will be in cash, but Vodafone reserves the right to change the specie of consideration." C&W Worldwide demerged from Cable & Wireless Communications in March 2010 and, since then, has issued a string of profit warnings. The company has fixed lines in place that could easily be used by mobile operators to divert traffic from wireless networks that are creaking with the strain. It is part of a bigger question that AT&T

, Sprint

and T-Mobile are also having to deal with. As the handsets become increasingly technologically advanced and are able to cope with a lot more in terms of streamed data, music, film and the like, are the providers in a place to be able to deal with the extra strain? Internet usage on phones is becoming more popular with each passing day. People are using Facebook on the phone, sending pictures and film clips from handset to handset, and are expecting a lot more in general. The providers are playing catch-up. The merger would be a big step for Vodafone, and the traders know it. VOD's shares moved up 31 percent on Monday to a three-month high of 25.8 pence while VOD shares rose o.7 percent to 174 pence. Mark James, a telecoms analyst at Liberum Capital, told Britain's

that, “Vodafone already pays the likes of CWW for backhaul in any case, so they can offset that saving against the purchase price.” The problem is very real though. The amount of data traffic on British mobile networks increased 40-fold between 2007 and 2010, and it is expected to grow 10-fold around the world by 2016. VOD, with its miles of fixed line cables already in place, is perhaps best placed to capitalize on the handset internet boom, but the C&W deal would solidify that position. On the back of the news of VOD's interest in C&W, Bank of America Merrill Lynch said in a report on Monday that it believes there are a number of reasons why Vodafone would be interested in C&W, including its corporate customer base, metropolitan backhaul network and considerable tax losses (4 billion pounds of capital allowances gross). “Gavin Darby (CEO of CWW, ex-Vodafone) provides a link between the two companies. The acquisition would be bite-size (£700mn for the equity being mentioned in the Sunday Times), for a company of Vodafone's scale. However, CWW's recent operational performance would, in our view, be a major hurdle / concern for Vodafone.” Meanwhile, Goldman Sachs said that, from a strategic perspective, a fixed and mobile network owner would have a competitive advantage in the UK. “In our September 2010, UK Fixed Line note, we interviewed 20 FTSE 100 telecoms buyers. All said they would prefer a telecoms provider that owns both fixed and mobile networks primarily because it would make fixing problems faster. We also note CWW has £4 bn of losses worth up to £1 bn to offset UK taxes, which are only available to a UK telecoms company.”