breaking out from ascending wedge/traingle, page-7

VODAFONE Group could set its sights on Australia for acquisitions and target emerging players like iiNet or TPG Telecom after its chief Vittorio Colao revealed he was exploring possibilities for buyouts funded from the $US130 billion ($144bn) the company will bank from selling its mobile business to Verizon Communications in the US.

The Australian understands that Vodafone Australia has informally approached iiNet and TPG in the past 18 months about a possible tie-up, but the mobile operator's advisers Goldman Sachs and UBS have not yet been engaged to work on any deal.

While it is understood that Vodafone Group is in no rush to complete a deal, sources have indicated that the company wants to make a serious play in the fixed-line broadband market in the next 12 to 18 months.

Vodafone has long considered entering the fixed-line broadband market and has even trialled services on the National Broadband Network as it seeks growth away from the fiercely competitive mobile sector.

The company's ambitions to crack the fixed-line business were put on the back burner during the past two years as it focused on repairing its brand and mobile networks under the guidance of Bill Morrow, who will soon leave the company to head NBN Co.

But with Vodafone on the mend and its parent soon to be flush with cash from the sale of its 45 per cent stake in Verizon, the company could pursue plans to look at acquisitions here instead of starting its own broadband arm in what is already a highly saturated and contested market.

Sources close to Vodafone and iiNet said the boards of both companies had "serious" discussions about merging in 2011.

At the time, iiNet, with its market-leading position in customer service, was seen as a perfect fit for Vodafone, which was in the throes of a customer exodus following a series of major network meltdowns in 2010 and 2011.

Vodafone and iiNet again held informal discussions about a possible deal in the past year, but it's understood the mobile operator is now more interested in TPG, which has quickly grown into a $4bn telecommunications company following a string of savvy infrastructure acquisitions in recent years.

"In the last 12 months there have been discussions, because Vodafone was fearing they had been left behind in the mobile space. IiNet was once considered the ideal partner, but now Vodafone is more interested in cosying up to TPG," said a source with knowledge of the talks.

A spokeswoman for Vodafone Australia said the company would not comment on speculation, saying it was busy "focusing on our business and not others".

IiNet and TPG also declined to comment.

Any possible tie-up is likely to hit hurdles.

TPG's media-shy boss David Teoh, who owns 37 per cent of the company, would probably want to run any merged entity.

And while Vodafone Group may have ambitions to increase its

investment in Australia there is a complicating factor in that its investment here is tied up in a joint venture with Hutchison Telecommunications, controlled by the conservative Hutchison Whampoa group.

But Vodafone is cashed-up, presenting it with opportunities including buying out its joint venture partner.

The Britain-based mobile giant's war chest is some $US130bn thanks to the sale of its stake in US mobile phone operator Verizon Wireless.

Analysts expect Vodafone Group to have as much as $US40bn cash after returning most of the Verizon deal proceeds to shareholders and putting aside another $US30bn for network upgrades over the next two years.

"We are looking at acquisitions that are sizeable and could transform the company," Mr Colao told reporters at a media round table in New York on Monday.

"The theory is that if an acquisition makes sense you should not be worried by the size because shareholders should approve it."

While Mr Colao would not name any acquisition targets, he said he was concentrating on a strategy to build Vodafone through acquisitions and investments in its existing assets and new growth opportunities for its mobile business in emerging markets.

Any tie-up between Vodafone and iiNet or TPG would be a major shake-up for the $40bn-a-year telecommunications sector and pose credible threats to the market leaders Telstra and Optus.

According to research from IbisWorld, Telstra commands 45.2 per cent of the market, Optus controls 19.3 per cent, Vodafone has 9.5 per cent, with the remaining 26 per cent being taken up by smaller players.

But by teaming up with iiNet or TPG, Vodafone's market share could climb to about 12 per cent.

The prospect of an acquisition or merger in Australia for Vodafone comes as the mobile operator rights its business after years of customer losses.

The company recently revealed that it had almost stopped the loss of mobile customers, with the number of subscriber defections falling from almost 600,000 in the September quarter to 22,000 in the December quarter.

Under Mr Morrow, Vodafone has embarked on cost-cutting exercises, reducing its headcount by about 40 per cent, and improving the company's mobile network with upgrades to 4G technology.

Mr Morrow joins the NBN Co in April. He will be replaced by Vodafone Romania chief Inaki Berroet