“The first phone call I will make after this conference will be to [BT CEO] Ian Livingston,” Vodafone CEO Vittorio Colao said Monday while outlining the UK operator giant’s proposed £1 billion acquisition of Cable & Wireless Worldwide (CWW) on an investor call.

Livingston was (I like to imagine) pacing up and down in his office waiting impatiently for his BT landline to ring and for his Vodafone counterpart to explain himself. A long-standing alliance is at risk: for years, BT and Vodafone have been striking deals to use each others’ respective – and complimentary – networks; but Vodafone’s purchase of CWW will not only see CWW plug many of the gaps in Vodafone’s network that BT currently provides, but also put Vodafone in a position to go after the big ticket enterprise customers coveted by BT. With friends like these etc.

There are several existing relationships in place between the two firms – and Colao says he sees no reason why they shouldn’t continue (Livingston may disagree). Unlike many of its European counterparts, BT sold its mobile business years ago so relies on Vodafone whenever it needs some wireless, notably for its BT Mobile MVNO. In return, Vodafone is able to plug into BT’s vast Openzone Wi-Fi network and use its state-of-the-art 21CN network for backhaul.

But the CWW acquisition is a major play by Vodafone to strike out alone. Vodafone has lost ground in its domestic market in recent years, being overtaken in terms of UK sales first by Spanish-owned O2 and then slipping back further following the ‘Everything Everywhere’ merger between Orange UK (French) and T-Mobile UK (German). But Vodafone says that the addition of the CWW business will see it make the leap from fourth-place to second behind BT. The addition of CWW will double the size of Vodafone UK’s existing enterprise business and give the combined firm almost £7 billion in annual turnover, behind BT’s £15.6 billion.

Vodafone will inherit some key corporate contracts too, including retail giant Tesco and the UK police force, providing a useful springboard for Vodafone’s enterprise unit to expand beyond its current SME focus. These types of big-ticket contracts have become vital for BT in offsetting declines in its legacy phone business – and it now has a serious challenger.

Another motivation behind the purchase is CWW’s physical infrastructure, which will provide Vodafone with the UK fixed infrastructure it currently lacks. CWW has 20,000km of UK fibre, a prized asset for a mobile operator looking for affordable backhaul solutions that will allow it to support rapidly rising levels of data. Vodafone noted on the call that a third of its UK base station estate is within 100 metres of CWW’s fibre network, paving the way for what it termed “network rationalisation,” cost savings and (presumably) less reliance on leasing from BT.

CWW’s overseas assets aren’t bad either; a reason the business was also the subject of interest from India’s Tata Communications. It has an international network spanning 425,000km with 127 points-of-presence across 35 countries. This will allow Vodafone to support global clients and also handle much of its existing international traffic that it currently outsources to third parties.

Enough reasons, then, for Vodafone to shell out £1 billion for a company with a long history of financial troubles (it is fondly known as ‘Clueless & Useless’ in city circles). But Colao won’t be worrying too much about the reputation; it’s the assets he wants. He may end up losing a golfing buddy in BT’s Ian Livingston, but that will be a small price to pay for opening up a potentially lucrative new revenue stream for Vodafone UK.

Matt Ablott

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