It is not often the words ‘diversify’ and ‘converge’, being almost direct antonyms, are used in the same sentence. In the world of business, however, it is sometimes necessary to do the two at the same time – that is consolidate your products while extending your range. This is the remedy industry observers are prescribing to Vodafone, following news of the company’s huge corporate losses.
UK-based Vodafone, the world’s largest mobile operator, posted a net loss of GBP21.82 billion ($41.1 billion) for the year ended 31 March, 2006, compared to a net profit of GBP6.51 billion ($12.28 billion) the previous year.
However, the headline losses were much anticipated and were the result of a one-time charge of GBP23.5 billion ($44.31 billion) announced by Vodafone in February, after it wrote down assets in Germany, Italy, and Sweden. The write-down was mostly due to the acquisition of Mannesmann in 2000, which took place at the peak of the internet bubble, at a time when share prices in the telecommunications sector were unrealistically inflated.
If the write-down is taken out of the balance sheet, the Vodafone results in actual fact reveal a profit of GBP8.79 billion ($16.56 billion) for the year, and a rise in sales of 10% to GBP29.35 billion ($55.23 billion), compared with GBP26.68 billion ($50.22 billion) in the previous year.
During the same period, Vodafone increased its customer base by 21.5 million, an increase of 15%, making its customer base a total of 170.6 million. These figures do not compare that badly with Vodafone’s competitors. T-Mobile, for example, saw a 10.9% rise in its global customer base to 87.7 million customers, and revenue rose by 12.3% to E7.6 billion ($9.74 billion) compared with the first quarter of 2005.
However, the market for mobile voice services is saturated and mobile operators face new competitive pressures from companies such as Skype that provide free or low cost services using VoIP. There is also growing demand for converged fixed-line, mobile, broadband, and pay TV connectivity. T-Mobile will be able to offer these services from 2007 through its parent company Deutsche Telekom. In contrast, Vodafone has been slow to react to changing market conditions. The company is still primarily a pure mobile operator for voice and data, and, as such, it is trailing behind competitors.
The world’s biggest mobile operator appears to have focused too much on its core business and has failed to keep up with changes in the marketplace, let alone set the trend. Some of this can be attributed to disharmony in its boardroom, which has made the company more inward-looking and cautious than in the past.
The answer to this kind of corporate malaise is never simple, but it is time for Vodafone to put all that behind itself. Its market share should help it move forward quickly from its current position, but to do so Vodafone needs to develop a strong partnership with a fixed line/broadband operator to help it compete with its rivals, which are all part of bigger European telcos (T-Mobile and Deutsche Telekom, O2 is part of Telefonica, and Orange part of France Telecom).
It is interesting to note that BT, the fourth largest telco in Europe, is the only one of its group that does not have a mobile arm. A consolidated partnership between Vodafone and BT would therefore make a lot of sense, and could help Vodafone on its way to diversification and consolidation.
Source: OpinionWire by Butler Group (www.butlergroup.com)