Vodafone’s big cost cutting drive

Vodafone’s big cost cutting drive

In the UK, and Europe in general, the name of the game for Vodafone is cost cutting and centralisation. In an interview on Sky News, Vodafone CEO Arun Sarin gave the impression of tough times ahead in the UK, suggesting that consumers are tightening their belts amid the gloom around the housing market and the wider economy.

Everywhere you look there is evidence of cost cutting and improving efficiency at the operator. Mobile reported last month that Vodafone’s UK marketing chief role has been removed, with an impending move for the incumbent, Tim Yates. The operator’s brand marketing has been moved to Ireland, taking a team of 20 to Dublin in what is believed to give the company a major tax break.

Ian Shepherd has been brought back into the UK as consumer director after a period as business development director, and bigger changes in the UK are believed to be afoot, with more announcements due soon.

Vodafone has also made attempts at running its property more efficiently. Last week, Mobile reported yet another example of property consolidation; Vodafone will open a new call centre in Stoke-On-Trent, with the aim of moving its staff closer together and making significant cost savings.

Last month the operator announced it would close its flagship office in Theale, with 300 employees moving to the HQ in Newbury.

Three areas of business will have local autonomy clipped in the move to pan-European management. The first and second are handsets and supply chain, third is technology.

Tax savings from handset buying

All handsets will now be bought out of Luxembourg, instead of each country’s handset buyer negotiating with manufacturers. The obvious economies of scale case has been presented, although some fear local market needs will be undermined.

One of the main benefits, again, is tax savings from running the handset purchasing from Luxembourg.

Local bosses will still have some clout. But Vodafone’s UK handset buyer, Chris Edwards (who now has a senior group role), will no longer report to consumer director Craig Tillotson. Instead, Edwards will report to the Group’s main handset buyer, Jens Schulte-Bockum.

Tillotson has now been moved into group marketing, although a title has yet to be finalised.

Network outsourced or shared

The other casualty from the move to a more centralised structure is the technology team. Technology used to be the soul of the company, with large numbers of people employed in each country. The Group CTO now has overall control with less autonomy for the regions.

In the background are the changes Vodafone has conducted in order to be leaner in terms of its technology. It has outsourced its networks to Ericsson and its IT systems to EDS. It also tried to save millions by entering a network share arrangement with rival Orange.

The very fact that Vodafone initiated network sharing, however, appeared to reveal an admission that Vodafone is no longer a technology company.

Remember the ‘best network bar none’ campaign? By removing the strength of its network as a competitive advantage, Vodafone believes there is more to be
gained by cutting the huge costs of managing a mobile phone network.

Similar network share deals have been struck in other markets, or managing the network has been completely out-sourced.

Remaining responsibilities for Vodafone’s in-house technology team is planning the network capacity, and the strategic planning of new services and convergence of fixed-line and mobile.

There is also speculation internally that Vodafone will even try to bring some elements of its online and business sales operations into more of a centrally run, pan-European office.

A senior Vodafone source said: ‘There is certainly a lot of local importance needed for both enterprise (b2b) and online sales in terms of promotions and offers, but there is a big feeling here that there is a lot of duplication in our individual Opcos (country markets) so it would make sense for one country to lead things, and we could even out-source more aspects such as logistics and fulfilment.’

Growth from emerging markets

The changes were seen as necessary by senior figures internally. ‘We had to break it up to become leaner and meaner when we’re staring at new competitors in the market and growth is slowing [in Europe],’ said the Vodafone source.

With the developed markets becoming less lucrative, Sarin said that most of the growth for Vodafone is likely to come from emerging markets.

He said it was ‘no mean feat’ that the UK business was growing at 6% per year. However, then he added that the Indian market is growing at 50%, Turkey and Egypt at 30% and the US at around 15%. There is talk that Vodafone is now looking at Africa, particularly west Africa and some other parts of Asia.

A land-grab is taking place in new markets where millions of consumers are contemplating using a mobile phone for the first time.

With so much at stake, Vodafone’s highly-rated enterprise director Kyle Whitehill, was given a huge promotion to COO of Vodafone Essar – the operator’s business in India.

Whitehill will be missed in the UK, but he is known to have been ‘itching for a bigger job for some time’, according to a well-placed source.

‘It will suit Kyle. It’s seat of the pants stuff out there right now,’ said another source, referring to the phenomenal rate of growth in the Indian market, with six million new customers per month.

New battle for mobile advertising

So what is Vodafone now if it’s not a technology provider? Like all operators it loathes the idea of being a utility company with nothing more than pipes. Vodafone wants to position itself to pick up the riches many believe lie in waiting from mobile advertising.

The company wants to become more of a media company, but it is aware that it can’t compete on the innovation stakes with the likes of Google and Yahoo!

Despite the fear towards Yahoo! and Google from virtually every big mobile company, Vodafone executives feel they enjoy a closeness to its customers that internet companies don’t.

Operators have ‘mind-blowing information’ on customers. The potential of taking that information to advertisers is seen as a major asset that Google and Yahoo! don’t have.

Vodafone, however, has been overly conscious of moving quickly in the past. The company is still kicking itself for its relatively slow response to moving into the MVNO market, estimated to be worth £5bn across Europe. Senior figures believe the company offered an open goal to rivals throughout its European markets, such as O2 in the UK, KPN in Holland and T-Mobile in Germany scoop up lots of profitable wholesale deals.

There is considerable uncertainty in the market, but Vodafone is clear on two things: it needs to cut costs, and be ahead of a growing group of competitors to capture new sources of income.

Network share saves less than expected

Vodafone and Orange agreed on a joint venture of their combined network assets in February last year. The deal would have saved the two companies significant sums of money, as well as give them an advantage over their competitors in rolling out high-speed data networks faster.

However, the ambitious plans have recently hit the rocks,

Written by Mobile Today
Mobile Today


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