[Hands0n]

A rather long article (in two parts) visiting recent activities at Vodfone. Will the big V survive this big dig into its costs? The notion that a mobile operator can function almost completely on outsourced networks and IT is a bit of a stretch. Can Vodafone actually pull this off without hurting itself, its customers and the market in general? They are beginning to think like a City Investment outfit. That may not be such a good thing for them to do. As they lose sight of what it is there to do, and the customer and their own suppliers become Vodafone's own personal cash cows. Can any of that bring good?

Vodafone will not ignore the mature markets, it cannot afford to. But clearly it is a sufficiently global brand to be able to turn its sights to the so-called emerging markets. It would be mad not to. But will all of this internal outsourcing and consolidation really help it? The balance sheet is not king, despite what the Finance Team might suggest. That title belongs to core business, the stuff that actually got Vodafone to where it is today.

I am particularly intrigued at Vodfone's intentions relating to handsets. That they want to strengthen their own brand handsets is fascinating. Until recently their choices were severely limited. But with the Chinese getting into the game the doors of opportunity are opening up all over the place. I cannot get out of my mind the ZzzPhone which Vodafone would do well not to ignore. Although they have stated their intentions reported in the article below.

It does rather look like Vodafone is going through some rather late in the day growing pains. Will it survive these intact, or will it come out somewhat damaged? They have set their intentions and direction, all that can be done now is to wait and see. But there will be lots of speculation to be had along the way.



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.’

[Hands0n]

The article is continued in this post.....



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. But 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 their 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, with Vodafone admitting that the plan was too complex. The two networks are now left with a watered-down version of the original deal, where they will share poles that hold the masts, but not the transmissions. Vodafone said the new version of the deal will result in a 10% saving for the company, but this is only a fraction of the originally calculated saving.

Vodafone’s cost-cutting challenge for handset manufacturers

Vodafone has set its sites on squeezing handset costs all over the world, including the high-end devices sold in the UK and Western Europe.

In the developing markets, where Vodafone sees most of the future action happening, it is setting out a clear strategy to sell own-brand handsets wherever possible to cut costs. For example, in India, where low-cost handsets are taking off, 50% of sales are Vodafone’s own-brand devices.

In Europe, Vodafone’s target is even more ambitious. It wants to compete with premium handset brands like Samsung and Nokia, and the centralisation of its handset operations will help it force the pace.

Global devices director Jens Schulte-Bockum told Mobile that the cost of big brand handsets added 20%-30% to the cost because of the extra advertising spend and the luxurious margins.

‘A big part of Samsung and Nokia’s costs is marketing spend. We are not interested in spending money to support their brands, so [own-brand handsets] allow us to take that out. There is also the margin of those companies.’

Vodafone will bring premium handsets into the UK and Europe over the next 18 months, working with Huawei, HTC and Sagem. As part of the drive, it will be involved in customising the user interface in the hope of creating its own ‘iPhone-like’ experience. ‘There will be lots more investment in customisation,’ said Schulte-Bockum.

No-one expects it to be an easy ride, though. Nokia UK MD Simon Ainslie predicted that Vodafone would find it tough to compete: ’Vodafone is a partner and we work together in a lot of what we do. But a lot people have tried to get into that high end space and there are many casualties down the line. It is not a simple job.’

Article Source: http://www.mobiletoday.co.uk/Vodafone_big_cost_cutting_drive.html

[Ben]

Well, I think Vodafone is probably playing to its major strength at the moment.

It's huge. Cutting costs by centralising as much as possible will not only be more efficient but also make the company more responsive to change. Potentially, Vodafone will be in a better position to roll out new technologies across all of its markets and operate unified pricing structures that could result in cheaper roaming for customers.

What's at stake is the national autonomy of each operator. Every market is different, which surely Vodafone appreciates, and a one-size-fits-all approach may not generate optimal revenues in each market. Hopefully the mobop will allow each business enough flexibility to cater, to a point, for each.

Own branded handsets... I'm not so sure. But hey, it's possible. Unfortunately they're in a rubbish position to do it. Apple, for example, make hardware and software. As do Nokia. Vodafone run the network that the devices go on to, but would be outsourcing the development of all hardware and software. Surely that's going to result in more Frankenstein phones that are a bit of a pork pie compared to the sleek sushi-like offerings of the 'real' manufacturers.

I'm really not sure where Vodafone will end up. I'm a firm believer that they have the best network right now, and their 3G and HSDPA rollouts have, so far, suggested that they have no intention of letting that change. But a media company? No. Stick to what you're good at.