11/14/2007 2:06:00 PM
Voda: Leaving no stone unturned
Vodafone’s MVNO deals could be compared to buses. The network made its first move into the wholesale market with BT way back in 2004, then waited ages for the next partnership and four came along at once.
That is, of course, putting Vodafone’s strategy rather simplistically. The network’s decision to make wholesale a key part of its business started in earnest last September, leading to the subsequent raft of MVNO deals in 2007.
Tim Stone, the operator’s business development and wholesale director, says: ‘We took a detailed look at our wholesale strategy and presented that to the board and said “we think there is an opportunity here and we need to be looking at this marketplace”. When you get involved in wholesaling, it is always tough because you have a retail business and a wholesale business and how much you wholesale or don’t wholesale is one of the big arguments. The important thing was to ensure the board buy-in, so that if we were going to do it, they would say “yes do it” and that gave us the remit to get on and do the job.’
While Stone was pushing forward with ambitions to tackle the untapped wholesale market, UK CEO Nick Read had been building his ‘winning in the market’ strategy for the UK, comprising four pillars of growth. The wholesale market was targeted as one of the key areas of focus for the network.
Stone claims that Vodafone has ‘high single-digit share’ of the £1bn market. ‘Our strategy, very simply said, is that we will aggressively grow our share of the wholesale market with the right partners. It will be selective, with very few, truly scalable, sustainable partners.’
Vodafone’s aims could only be fulfilled by ‘operating in a particular way’, says Stone. ‘If we wanted to get the right deals that could be sustained in the marketplace, we would have to be bloody good at what we do, otherwise we simply wouldn’t get them.’
Asked about the competition, Stone says up until a year ago, most operators were ‘not terribly interested, or pretty cautious’ about MVNOs. He says Orange’s MVNO with Blyk is ‘fascinating’, but the youth MVNO is ‘mixing two elements: advertising and mobile revenues. It is a challenge to get that balance right’.
More generally, Stone says: ‘My assessment is that T-Mobile will continue to demonstrate a clear interest in MVNOs. Orange is now interested when previously it wasn’t, O2 will be much more cautious, but would do business in this area and 3 would be interested. It is a lively marketplace. But all the networks will be careful about who they do business with because there is a lot to be done.’
Stone started out in the trade in 1989 as an account manager looking after service providers at Cellnet. ‘We had some good competition between Cellnet and Vodafone then.’ He later took on the Mobile Phone Centre franchise operation of 10 stores, after it approached him to grow the business.
He grew the chain to 50 stores and Vodafone bought a stake in the business. Then the operator bought MPC outright and Stone came into Vodafone to run the retailer. Stone moved up through Vodafone and, 15 months ago, was asked by Nick Read to run business development and wholesale.
Being ‘bloody good’ for Vodafone meant being seen as the ‘partner of choice in the marketplace’, getting an MVNO to market quickly and making money out of the market.
The art of building an MVNO is obviously much more difficult in practice. Stone has set out to look for future trends, has engaged with over 50 organisations in the search for the right MVNO partners and developed a wholesale team of nearly 40.
‘As far as partners are concerned, they have to have a great experience and believe that we were the people that could get them to market better than anyone else. For any MVNO, it is tough to find a network partner. We have a principle that we will speak to everybody, but there are very few we will do business with in the end.’
A recent research note from Ovum analysts Carrie Pawsey and Raymond Yu said that while Vodafone is expected to announce more wholesale deals, ‘it will be carefully selecting its partners and mapping those players that can complement its existing retail strategies. Expect quality not quantity’.
Stone is all for backing this statement. He insists it is not a problem finding new MVNO partners, but that there is a ‘tight fit’ required for Vodafone to accept its ‘ability to succeed in the market’. ‘We are looking for partners that add incremental revenue to us and great management teams in place already. We don’t want many, but we want them to be big. If we are open about this strategy, our partners will understand why we are saying no to them.’
Vodafone says it works ‘closely in partnership’ with its MVNO partners, which include Asda, Lebara and Carphone Warehouse. ‘There has been a lot of work over the past year and what you are seeing today is the culmination of some of our work.’ But the amount of work involved for each varies dramatically. ‘Asda have a lot less experience than someone like Carphone Warehouse.’
Asda: The big one
Stone claims the culmination of an MVNO deal is two-way driven because ‘it is unlikely you go to an organisation and persuade them to do it’.
Asda, the big one for Vodafone, was ‘a really exciting deal’, says Stone. ‘If you look at what Tesco has achieved in the marketplace and you think about who are the partners you would want to do business with, Asda is going to be the organisation you would choose. We are in something like 270 of their stores and well ahead of where we expected to be from that perspective.’ Stone says Sainsbury’s is also likely to enter the MVNO fray, but sources tip another operator to be more likely to team up with Asda’s rival.
Vodafone concluded the most recent deal – with ethnic prepay MVNO partner Lebara – after ‘an in-depth piece of analysis’. ‘We felt there was a market where there was an awful lot of money and Vodafone wasn’t getting much of that. We believe it is worth around £500m. And so having discovered a market that Vodafone wasn’t taking a lot of revenue from, we looked at who the players were in the marketplace. At the same time, there were many organisations speaking to us and Lebara fit our strategy.’
Lebara will offer a prepaid Sim card targeting ethnic customers with low-cost international rates to key destinations like Poland and other Eastern European and Asian markets.
Ovum says of the deal: ‘Lebara is a good fit for Vodafone as it targets ethnic minorities, a segment which all the UK MNOs are particularly weak at pursuing. It is interesting to note that only a few weeks ago, Vodafone launched its reduced international calling rates for the consumer market. It is obviously also trying other routes via its agreement with Lebara, who are a recognised success in this sector. We believe there is a market for its prepaid proposition as it is much more convenient than using calling cards, but we expect the deciding factor [for consumers] will come down to price.’
The tie-up follows another MVNO deal with Carphone, this time a contract MVNO called Talkmobile, targeted at prepay customers spending more than £12 per month. Asked how the two deals measure up, Stone says: ‘A prepay MVNO is more complex technically to build, so there is more to it from that perspective. We are looking for opportunities that are going to succeed. Whether it is contract or prepay, we don’t have a preference, they just need to be the ones we believe in.’
Vodafone has also extended its MVNO partnership with BT after an initial three-year deal. Stone said the new deal was for a ‘long period’, but would not comment on the terms. ‘It is consistent with the strategy that we have, which is long-term growth and scalable partnerships. It is