Outlook: Vodafone looks to the future with photo messaging launch

Merrill Lynch; Big Food Group Â

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Vivendi takes Vodafone to court in battle over SFR

Anger over Merrill levy on small investors

Big Food soars as Icelanders eye up Iceland

It is an oft repeated criticism of Sir Christopher Gent, chief executive of Vodafone, that he is much more at home doing deals than running the business. Well there he was yesterday attempting to deliver on both fronts – battling it out with Vivendi on the one hand for control of Cegetel in France, while on the other launching Vodafone Live!, a new range of mobile applications which Sir Christopher believes will project the company into an altogether higher dimension of revenue generation.

The deal first. Control of Cegetel will cement Vodafone's position as the most powerful patchwork of mobile phone networks in Europe. It's cost a lot to achieve this position but, as all chief executives know, market leadership is all in business and Vodafone has pursued its goal with masterful cunning.

Sir Christopher has swooped on this final prize, Cegetel, just when Vivendi is at its most weakened. Vivendi is doing all it can to match Vodafone's price, but even after recent disposals, the company is still pretty much bust and it's hard to see where the money is going to come from. In more normal times, the French banks would have come riding to the rescue, but already up to their necks in France Telecom debt, there's not much appetite on the other side of the Channel for yet more exposure to the telecoms sector.

Still, Vivendi is desperate. Cegetel is the only growth business left in the Vivendi stable and it is also the only one generating the sort of cash necessary to make a dent in Vivendi's mountain of debt. For now the most Vivendi seems capable of doing is playing for time. A series of stalling tactics are being pursued through the French courts. All references to Agincourt are strictly banned at Vodafone's Swindon head office, but the hot money has to be on eventual success. It will be the long bows that win it in the end.

The bigger challenge is as it has always been – that of demonstrating that mobile telephony is still a growth business. While Sir Christopher was off pursuing his overseas campaigns, Vodafone may indeed have taken its eye off the ball operationally. In the UK, market leadership has been maintained, but the company has been demonstrably complacent about the threat from Orange, which is now chasing Vodafone hard. Will Vodafone Live! and the related business offering, Vodafone Mobile Office, put the company back on track?

So far, experience in Europe with next-generation mobile telephony has been little short of disastrous. WAP was a write-off and GPRS has proved little better. The challenge is to provide applications with mass appeal. Neither WAP nor GPRS has provided them. However, experience in Japan and Korea, which are ahead of Europe in the roll-out of new mobile applications, is reasonably encouraging.

In Japan, Vodafone has found that picture messaging typically adds 20 per cent to average revenue per subscriber. Short video clips, which in Europe will have to await the launch of 3G services, adds 50 per cent. According to Sir Christopher, the picture messaging service offered by Vodafone Live! will be ahead of anything available in the Far East in terms of quality and user friendliness, so he's optimistic that even better results might be achieved in Britain and other European markets.

Vodafone shares have fallen an awfully long way since the peak at the time of the Mannesmann acquisition nearly three years ago. But the company has never faltered in either its vision or delivery. In the meantime, market expectations have sunk so low that they now seriously trail the reality. Vodafone is a well run company with an unparalleled market position. If Sir Christopher cannot make that happy coincidence of circumstances work to his advantage, then he fully deserves the criticism that is sometimes levelled at him. Having achieved so much, it's hard to believe he'll fail.

Merrill Lynch

Small investors are disadvantaged enough by the way the Stock Exchange and the big market makers operate. Now Merrill Lynch, the biggest market-maker in the City, wants to whack a £7 transaction charge on them every time they deal through the Thundering Herd on top of everything else. OK, so it's not quite as black and white as it seems. Merrill insists that for the time being it is only "exploring" the idea and £7 is a negotiable figure. Retail volumes have collapsed since the dot.com bubble burst two and a half years ago, and as things stand it is not commercially viable to offer retail services.

What's more, insist apologists for the transaction charge idea, spreads have narrowed considerably, and continue to do so, which would more than compensate in many cases for the imposition of a transaction charge.

Not many retail investors will recognise this narrowing of spreads. In many stocks, big market-makers like Merrill Lynch buy at a fraction of the price they sell at. The buy and sell prices that can be achieved bear little relation to the mid-market price you see quoted in the newspapers. But who am I to challenge the assertion that in fact spreads have narrowed? Merrill and others say they have, so it must be true.

The bigger problem is that stock exchange trading has become something of a two-tier system – a cheap and effective system for big wholesale investors, and an expensive and inefficient one for the little man. The main order-driven trading book is only for the top 350 companies and, in any case, is generally uneconomic for smaller transactions because of the costs of dealing with a central counterparty.

The little guy is left having to fall back on the old market-making system where competition is often limited and spreads can be high. The case for structural reform has never been greater and, if Merrill's proposed transaction charge helps concentrate minds, it may perversely end up doing some good.

Big Food Group

You couldn't have made it up – an Icelandic swoop on the Iceland foods group. Just as Bill Grimsy, chief executive of this most beleaguered of food retailers, was preparing to abandon all hope, in comes Baugur, flush with cash from the recent disposal of its stake in Arcadia to Philip Green. Even more surprising, they like the company, they like its strategy, and they even like Mr Grimsy. Perhaps there is a god after all, Mr Grimsy must be thinking.

None the less, the immediate question has to be: are they mad? At least with Arcadia there was a connection. Hard to believe, but in Iceland Top Shop is a big thing . No such association exists with Big Food Group, the holding company for the Iceland stores. Big Food has been a disaster in recent years and it is still hard to know whether there is a salvageable business in there at all.

Still, the same thing used to be said about Arcadia, and Baugur was right about that one. In this case, Baugur appears to have no intention of bidding. It's a straight passive investment but it may yet turn out to be an inspired one. Unless you believe the company is going bust, Big Food Group has got to be worth more than its current stock market capitalisation, which is barely any more than the value of a week's sales.

The original Iceland business seems to have fallen down a mighty crevasse and it's finding it hard to crawl out again, but the Booker cash and carry operation is still fine and cash generative. The Iceland/Booker merger only came about because no one else would buy them, so they bought each other instead. Potential buyers for the combined group look equally thin on the ground, but even so, Baugur could be right in thinking there's little downside risk.

jeremy.warner@independent.co.uk