Four experts weigh in on what the mobile giant should do next
Vodafone CEO Arun Sarin has moved swiftly to turn around the situation at Vodafone (VOD
). But industry experts are divided on whether the changes are enough and what else Sarin needs to do. BusinessWeek.com tapped some of the industry's leading thinkers for their thoughts. Here are excerpts:
Dean Bubley, the founder of Disruptive Analysis, a London technology consulting firm
It's not yet clear whether their new vision goes far enough or fast enough. Most commentators have pitched Vodafone's problems as a management issue. But it's actually a technology issue. The company shows every sign of having missed the IP [Internet Protocol] boat, and, importantly, how this is changing the fixed telecom world faster than the mobile world.
In all of Vodafone's top geographies, a standalone mobile story is looking increasingly shaky, unless Vodafone is addressing a particular niche, such as low-cost voice. For a market leader, the strategy is looking completely untenable. It's the equivalent of a modern-day Ford telling his customers they can have any color as long as it's black. If Vodafone intends to remain a player in its core markets, it needs to get serious about fixed/mobile convergence.
It could partner with or acquire fixed-line operators. For instance, it could sell Verizon Wireless to Verizon Communications and use the proceeds to buy a fixed-line operator such as Britain's BT (BT
), which has already committed to a big IP network upgrade.
This would allow Vodafone to offer high-quality voice over IP and other new services, including TV over the Internet. While there are a range of regulatory and other issues that might make this challenging, it would be a move in the right direction.
Vodafone also tends to be unrealistically greedy in trying to control all of its customers' time and spending, so that they are living the "Vodafone experience" from beginning to end. I think they are overdoing it. There seems to be a polarized view among cellular operators that either they will be full-service and content providers or they will end up becoming a dumb pipe, i.e. only offering access but no content.
I think there's a middle ground of being a smart pipe, where you take what the Internet has to offer and optimize it for the mobile user. Vodafone needs to be realistic and recognize that people have entrenched preferences for Internet brands like Google (GOOG
) and Yahoo! (YHOO
). They need to accept that their customers want these content providers and look to offer improved security and a better user experience and not act as the only gatekeeper.
They also need to get more serious about business customers. Here, what Vodafone has tried to do is the classic fixed-to-mobile substitution approach. But this has, to some extent, ignored the trend that business customers are tying together their business communication and IT. For instance, if you run a call center your staff will not be using mobile phones. So the idea that everything will go mobile is too limited.
One idea could be to buy a consulting or systems-integration business that understands enterprise IT and communication such as Damovo or Dimension Data. Any company generating the amount of cash Vodafone is should be able to invest its way out of problems. Vodafone is making a start in confronting these issues, but it will be a long haul.
John Strand, CEO of Strand Consult, a wireless consultancy in Copenhagen
Vodafone has to reinvent itself. Its dream was to create an end-to-end solution where it would take care of everything from designing the handsets to providing the content and operating the network. But this strategy is no longer viable. It needs to cut costs and forget the dream of designing its own handsets.
Today, voice and SMS account for 95% of the average users' mobile bill worldwide. So the winner in the mobile market will be the one that can produce voice and SMS the cheapest. Instead of adding new services and content, Vodafone should kill Vodafone Live [its mobile services portal] and focus on cutting costs.
The mobile industry is going through a paradigm shift similar to the one the airline industry experienced when faced with the emergence of low-cost carriers such as Ryanair (RYAAY
)and Easyjet (EJETF
). At first, the major airlines thought they could compete against the discounters by offering business-class products. But they soon realized that the only way to survive was to adjust their cost base.
It's a similar story for mobile players. Those operators who focus on their costs have a much better chance of surviving than the ones that have focused on "business class" concepts, where the operators have retained responsibility for the total customer experience from handset, to services, to network operations.
Vodafone is considered the big hero in this industry, but in my eyes it has not proved capable of maintaining its position whenever faced with real competition. It was forced to get out of Sweden and Japan, and now there are signs it is in trouble in Holland and Belgium. It should bail out of the U.S. and use the cash to give money back to shareholders, as it will take some time before Vodafone's new strategy shows signs of delivering.
Thomas Husson, mobile analyst at Jupiter Research, Paris
To get growth back on track, Vodafone needs to keep generating new revenue streams to compensate for the decline in voice revenues and to recoup its investment in 3G. Increasing revenue from data services is something most European operators are struggling with, not just Vodafone. Today, text-messaging accounts for an average of 85% of European operators' data revenues. But Vodafone has proved that it is possible to generate more revenue from new data services such as music, games, video, and TV.
In Germany and Britain, these services account for up to 24% of Vodafone's non-messaging data revenues. These are nascent markets, though, and Vodafone needs to educate its customers about the benefits of these services and how they work if it wants to drive uptake. Just because people have the latest handsets doesn't mean they know how to use them.
Vodafone could set up customer-care centers in its existing shops to better promote these services and demonstrate how phones can be used for something other than voice. Also, with mobile penetration reaching saturation in Europe, there aren't many new subscribers. So when customers upgrade their phones, as many people do every 20 months, it should be viewed as a marketing opportunity.
With regard to convergence, at the very minimum Vodafone should partner with an Internet service provider. A pan-European ISP would be ideal, but there aren't many around, as most are already subsidiaries of telecom companies. Instead, Vodafone will need to take a country-by-country approach to find local players with which to partner. Last, it should continue to invest in emerging markets, as this is where the real growth is going forward.
Robin Hearn, principal analyst at Ovum, a technology and telecom consultancy in London
The strategy Vodafone announced is not groundbreaking. All of these initiatives are worthy, and it was necessary for Vodafone senior management to return clarity and a sense of focus to the business after the turmoil of the past months. But there is also a sense that this is just more of the same. Sarin managed to placate the market without committing Vodafone to anything too ambitious.
Vodafone will never achieve the kind of growth it got before. It can grow at a reasonable rate, but if it wants to outperform, it will have to be a bit more ambitious. I'd like to see it go into emerging markets more enthusiastically. It could try to increase its stakes in operators it already has, such as South Africa's Vodacom, and look for [other] new opportunities.
Institutional investors would love for Vodafone to gain control of Verizon Wireless. But if it can't, the next-best thing is to stick around and wait to see if another opportunity arises. T-Mobile is surely the only alternative to Verizon. It has 10% of the U.S. market, less than Verizon's 24%, but it is growing strongly. If its owner, Deutsche Telekom (DT) is not able or willing to ramp up the investment needed to rol lout 3G in the U.S., that might open a window of opportunity for Vodafone. If it can't get another foothold in the U.S., that may mean it has to sell.
It has a toe in emerging markets, and if DSL starts to pay off then it may be better to put the money from Verizon Wireless to work in either of these areas instead of hanging on to an asset it doesn't control. This is a huge about-face for Vodafone to move into fixed line. Now we need to give it the chance to see if it has the mettle to do it.
Capell is a senior writer in BusinessWeek's London bureau
