Business Watch: the imperfect science of predicting the future


Dominic White looks back at his predictions for 2012 and gives a brief insight into what he can see happening next year 

It’s that time of year where columnists get to reflect on the predictions they made in January and whether any of them came true.

After nine happy years writing Business Watch (this will be my last effort for this great magazine), I’m proud to say I’m no better at guessing the future than I was when I started.

But I didn’t get it all completely wrong.

My first forecast, which I’ve been making for nearly nine years, was that Vodafone would take over Three UK. Well, I mean, on paper it’s a no-brainer. Three doesn’t have scale; Vodafone wants more, and it now has lots of cash to play with, thanks to the resumption of dividends from its US joint venture, Verizon Wireless.

But it wasn’t meant to be. Three remains defiantly independent, profitable (at last) and is the fastest-growing mobile operator in the UK – which admittedly is not particularly hard when you’re the smallest, but still.

Whether Li Ka-shing, the ageing billionaire chairman of Three’s owner Hutchison Whampoa, swallows his pride and decides to sell sometime soon is another matter.

Not that pride stopped Three and Vodafone joining forces in Australia (although that exercise has proved something of a disaster that neither side would want to repeat).

This week Three joined the other UK networks in submitting an application for the 4G auctions taking place next year, which looks like a signal of intent to remain a standalone player.

Nevertheless, relationships remain strong between Vodafone chief executive Vittorio Colao (pictured) and Hutch supremo Canning Fok so you never know.

My second prediction – that Vodafone shares would finally break through the 200p barrier – very nearly came true. In August the shares peaked seriously close to that mark at 191.25p.

But they’ve since slid to around the 160p level, their lowest for more than a year. Vodafone continued to be the star performer of the domestic networks in the first half of the year but the dismally drawn-out recession in southern Europe is now hurting business more than Italian-born Colao could possibly have expected and investors are suffering too as a result.

At least the shares remain considerably higher than when he joined and he enjoys the backing of major shareholders, who’ve got some big additional returns from the Verizon dividend.

I was right that Vodafone would be looking at acquisitions, as the surprise £1 billion takeover of Cable & Wireless Worldwide (CWW) – which made it the biggest UK telco behind BT – proved.

It’s Colao’s most significant acquisition since he took the CEO role four years ago and a seismic change for the corporate UK telecoms market.

On making the acquisition, Colao said it would create “a leading integrated player in the enterprise segment of the UK communications market, and brings attractive cost savings to our UK and international operations.”

CWW boasts the UK’s biggest fibre network dedicated to businesses and owns an international cable network that spans Europe, India and Asia.

But it has also, as Nick Jeffery, who now runs the CWW business for Vodafone, said, been “a significantly under-invested company”.

As a result Vodafone is pouring more money into customer service even though revenue declines will probably continue for the next two years as fixed-line phone subscriptions continue to tumble.

Vodafone recently said that the deal will increase annual cash flow by £150 million to £200 million by 2016 when the two companies predict they will be completely integrated.

And Vodafone UK, which is starting to struggle after a good run, can expand its business offering into fixed line and cross-sell mobiles to existing CWW customers while taking costs out of the combined sales forces.

As I predicted, somewhat easily, job cuts continued to be a theme across the industry as the networks battled with weakened consumer demand and fierce competition.

Likewise, Nokia and Microsoft continued to struggle too.

Nokia has bet the house on Windows phones and thus far the strategy has failed to deliver, even though the Lumia phones it has produced have many fans.

The latest phones that are on sale this Christmas could be the last gamble for Nokia if it doesn’t have a good selling season.

The Finnish handset giant has racked up more than three billion euros in operating losses in the last 18 months, and slashed 10,000 jobs.

That’s because its share of the global smartphone market has been smashed from 50 per cent to less than 10 per cent.

The main reason of course, is the iPhone: it’s no coincidence that Nokia’s market share peaked just before Apple’s monster device was first unveiled in 2007.

Windows phones have secured just 3.7 per cent of the market, according to Strategy Analytics. It’s not a bad start but when you can consider that Google’s Android phones have 68 per cent and Apple has 17 per cent (with by far the biggest margins), it’s a huge way to go.

I failed to foresee the massive patent wars that are now threatening sales of certain Android phones, which a California jury decided copied features of the iPhone.

The ruling plays into Microsoft’s hands, although the full fall-out remains unclear. What is clear is that patent suits are the new reality of doing business in smartphones.

That’s also true of BlackBerry maker Research in Motion, which continues to risk falling into irrelevance.

As guessed, RIM’s beleaguered management made further efforts to get unhappy investors off their backs. Under pressure from shareholders, the Canadian company’s co-chief executives Mike Lazaridis and Jim Balsillie agreed to relinquish their joint chairmanship.

My prediction that Nokia would be involved in a takeover battle for the company failed to come true. But I’ll put money on it happening in 2013.

And I also predict that the UK government will not make anything like the £3.5 billion it wants to make from the sale of 4G spectrum.

Having been burned so badly in the 3G auctions back in 2000, the networks surely won’t overpay for licences again. Will they?

Thanks for reading.