6/6/2007 11:41:00 AM
Vodafone: Euro market is tough
Vodafone, like every other UK operator, is making far less profit from the money it is pulling in. Its profit margins throughout the big European markets have taken a hefty blow. The operator, which has tried to lead many aspects of the market over the last couple of years, has acknowledged that it has exhausted growth in the traditional business of voice and text in the UK.
Cost cutting came in 2006 and now the company is poised to look at new sources of revenue to grow the UK and European businesses. In the UK, last year’s success of T-Mobile’s Flext pushed prices down across the market, with everyone having to discount to keep hold of customers.
Vodafone did better than most, bolting on 635,000 customers between April and December, and 472,000 in the first three months of 2007. This takes its UK base to 17.4 million, split 40:60 between contract and prepay.
Vodafone laid out the bleak reality last year when group chief Arun Sarin warned of intense competition in mature European markets and that the focus in places like the UK was to cut costs.
Sarin was criticised for his pessimism, but by beating those bleak forecasts, Vodafone appears to be in a solid position.
Despite the forewarning, there’s no avoiding the fact that the UK business saw a 27% drop in operating profits, despite a 2% jump in revenue. Profits for the UK now sit at £511m, compared with £698m last year.
The merry-go-round in the UK market of taking customers from one network while losing some to others has been recognised by Sarin and the UK management as no real model of growth. So the network focused on cutting costs.
Indirect partners have been terminated on all fronts: prepay; contract and b2b. Some were seismic changes in the industry, but all underlined Vodafone’s focus on taking control and cutting acquisition costs. A network-sharing deal with Orange in February slashed Vodafone’s capital and operating costs by 30%.
Internet for consumers
This week, Vodafone launches its latest attempt to convince consumers to use handsets for more than making calls and sending texts. Vodafone kick-started this idea when it launched Vodafone Live! five years ago, as part of its launch into 3G for consumers; however, Live!, as well as similar propositions from rivals, failed to reach the numbers that were expected.
Vodafone will now bring to its handsets the services and online brands consumers have already chosen on their computers, rather than ones the operators have created. The projections are not known, but it will be backed with a marketing campaign and a big push in stores. At the same time, the UK will also be Vodafone’s first territory to trial advertising on phones, due some time this summer.
Considerable research has gone into looking at various models which encourage customers to opt in for advertising, while generating quality response for advertisers, and winning new revenue for Vodafone. Profits from mobile internet for consumers and mobile advertising could be critical to the next 12 months for Vodafone UK.
Massive growth in India, Turkey and South Africa
While its traditional Western Europe markets are struggling to keep profits up, Vodafone is looking to emerging markets to drive its growth. The long-drawn-out £5.5bn acquisition of Hutchison Essar in India has now been heralded as a success, with Sarin aiming for between 50% and 60% of the population to use a mobile phone, up from the current 15%.
Sarin said he was working with domestic rival Bharti Telecom to improve the quality of the network, spending £800m. ‘The big premium is coverage and then setting up the distribution to reach that market,’ he said.
Vodafone has agreed a deal with Chinese manufacturer ZTE to make low-cost handsets exclusively for Vodafone’s emerging markets. The company’s Turkish and South African markets are enjoying huge growth on virtually all metrics. Sarin ruled out any immediate increase in its presence in China, other than its 3.25% share of national operator, China Mobile. He said it was ‘an interesting’ market, but would be waiting for the restructure in the market.