Vodafone-Vivendi Carve-up at Sfr

Vodafone and media group Vivendi Universal yesterday patched up some of their differences as they simplified their joint ownership of French mobile phone company SFR.

The agreement, which comes almost a year after Vivendi thwarted Vodafone's attempt to buy control of SFR, will see Vodafone launch its Live service in France towards the end of the month.

Highlighting the half-way house nature of the deal between the two parents, the service will probably be known as Vodafone Live By SFR, and the mobile phone operation will not be changing its name to Vodafone France.

A Vodafone insider pointed out that the launch of Vodafone Live makes it harder for Vivendi to backtrack later and try to re-establish SFR as a standalone brand. Vodafone Live was launched just over a year ago and has so far attracted over two million users across Europe.

France remains the only large European market in which Vodafone does not have control of an operator. An adviser to Vodafone said last night that the decision to simplify the ownership structure of SFR should not be taken as signalling that Vodafone had abandoned its ambition of one day owning the company outright.

Vodafone still wants full control of the business, but Vivendi shows little sign of letting Vodafone gain control. Vivendi's chief executive, Jean-René Fourtou, said last week that talks between the two firms were not on his agenda.

SFR is controlled by French communications group Cegetel with Vivendi and Vodafone holding stakes in each business following the buyout of minority shareholders, including BT, last year.

Under yesterday's deal, the mobile phone assets of SFR and Cegetel are being rolled into one company called SFR in which Vivendi will hold 55.8% while Vodafone will receive 43.9%. The remaining 0.3% will be held by existing minority shareholders.

The ownership of Cegetel's fixed line assets, which are jointly held by the railway, SNCF, is also being simplified. The new SFR business will own 65% of the Cegetel fixed line operation with the rest held by SNCF.

SFR will pay quarterly dividends to its two shareholders from 2004. Last year Cegetel paid out €1.2bn (£840m) to its shareholders, with Vodafone pocketing €540m.

To sweeten the bitter pill of allowing Vodafone a direct branded presence in France, Vivendi is being given access to SFR's cash flows before it starts paying those new quarterly dividends.

In essence, Vodafone has granted Vivendi the power to borrow from SFR on the same terms as a short-term interest-free loan.

The two companies have agreed in principle that Vivendi can access up to €250m of SFR's available funds through a "cash pooling agreement". It will have to pay back advances drawn out under the cash pooling agreement from the dividends it is paid by SFR.

· Speaking at the ITU Telecom World 2003 conference in Geneva yesterday, Vodafone's new chief executive, Arun Sarin, gave a cautiously optimistic picture of the global mobile phone industry saying: "In general, I'd say things aren't getting worse and they may be getting a little better."