Vodafone Group is one of the leading providers of mobile telecom services in Europe, the Middle East, Africa, Asia Pacific and the US. The group enjoys a strong recognition for its brand Vodafone. Significant brand recognition provides a competitive advantage to the group as well as allows it to effectively penetrate new markets. However, intense competition in the telecom market could affect the operating performance of the group in coming years.
Strengths
1. Strong brand building policy
Vodafone Group has developed strong brand building policy over years. The group’s mobile subsidiaries in Europe, Central Europe/Africa region and Asia Pacific, and the joint venture in Italy operate under the brand ‘Vodafone’. The group focuses on delivering differentiated customer experience through its brand and communication activities. It has also introduced a new marketing framework across the business, which includes a new vision of expanding the group’s category from mobile only to total communications. Further, its brand and customer experience continues to implement Vodafone’s strategy of customer satisfaction. The group’s brand function has also developed a methodology for competitive local market brand positioning, with local brand positioning projects implemented in various markets. It has also developed a set of guidelines, to enable the consistent use of the Vodafone brand, in areas such as advertising, retail, online and merchandising.
The group has been implementing global retail design since 2006. One of the examples of its branding activity includes the rebranding of Hutch to Vodafone in India, following the acquisition of interests in Hutchison Essar, India in 2007. Vodafone Group started its brand campaign as ‘Hutch is now Vodafone’. The migration from Hutch to Vodafone was one of the fastest and most comprehensive brand transitions in the group’s history. The rebranding exercise encompassed over 400,000 multi brand outlets, over 350 Vodafone stores, over 1,000 mini stores, over 35 mobile stores and over 3,000 touch-points. The group claims that over 60% of the transition was completed within 48 hours
of the launch, which was a significant achievement.
Further, the group regularly conducts Brand Health Tracking, a program designed to measure its brand performance. Moreover, an external accredited and independent market research organization provides global coordination of the methodology, reporting and analysis for the group. As a result of these activities, the Vodafone brand is recognized around the world. It was also ranked number 11 in the BrandZ Top 100 global brands list in 2008, published in The Financial Times, with an estimated value attributable to the brand of $37 billion, an increase of over 75% in 2007. Strong brand building initiatives have given Vodafone significant brand recognition that provides a competitive advantage to the group as well as allows it to effectively penetrate new markets.
2. Extensive global reach and diversified revenue base
The group has strategically expanded its presence across the globe through acquisition of stake in various companies and partner networks. At the end of 2008, the group was one of the world's leading international mobile telecommunications companies, with equity interests in 27 countries and partners in more than 40 countries. Vodafone had approximately 289 million proportionate customers worldwide at end of 2008. The group has significant mobile operations in Europe, the Middle East, Africa, Asia Pacific and the US.
In addition, the company has a diversified revenue base. For instance in FY2008, the group’s largest geographical market the UK, contributed 15.2% to the total revenues.This was followed by Germany (14.9%), Spain (14.1%), Italy (12.4%), and other Europe (12.8%). Its revenues from the Middle East, Africa and Asia contributed about 12.8%, while Eastern Europe contributed 8.8%. Arcor, Vodafone’s fixed line subsidiary in Germany and now part of Germany business, contributed for 4.4% and Pacific region accounted for 4.6%.
The group’s global reach along with diversified revenue base reduces its business risk, while providing synergies associated with multinational telecom operations like roaming facilities and international call charges, among others.
3. Leading market position
Vodafone Group is a leading player in most of the markets it operates.The group operates in Europe, the Middle East, Africa, Asia Pacific, and the US through its subsidiary undertakings, joint ventures, associated undertakings and investments. At the end of year 2007, it had considerable market share in most of the countries it operates. In the European region, its operations in Germany have a market share of 35%, Italy (33%), Spain (31%), Romania (39%), Turkey (26%) and the UK (24%). In the Middle East, Africa and Asia Pacific regions, the group has market share of 48% in Egypt and India (18%). Further, in the US, its partner has a market share of 26%. Strong market share enhances the operating performance of the group.
Weaknesses
1. Legal proceedings
Vodafone Group is part of various legal proceedings related to tax issues. A subsidiary of the group, Vodafone 2, is responding to an enquiry by HM Revenue & Customs (HMRC) with regard to the UK tax treatment of its Luxembourg holding company, Vodafone Investments Luxembourg SARL, under the Controlled Foreign Companies section of the UK’s Income and Corporation Taxes Act 1988 (CFC Regime) relating to the tax treatment of profits earned by the holding company for the accounting period ended 31 March 2001. This issue is yet to be solved, as Vodafone 2 appealed the decisions to the High Court and this appeal was heard in May 2008. As a result, the group had taken provisions for the potential UK corporation tax liability and related interest expense, which amounted to approximately £2.2 billion (approximately $4.4 billion) at end of FY2008.
Additionally, Vodafone Essar Limited (VEL) and Vodafone International Holdings (VIH) each received notices in 2007, from the Indian tax authorities alleging potential liability in connection with alleged failure by VIH to deduct withholding tax from consideration paid in the transaction to Hutchison Telecommunications International Limited (HTIL). The notice was issued in respect of HTIL’s gain on its disposal to VIH of its interests in a wholly-owned subsidiary that indirectly holds interests in VEL. Following the receipt of the notices, VEL and VIH initiated a legal proceeding, which is pending outcome. In March 2009, BSNL, a government owned telecom company in India, issued a notice threatening to disconnect VEL from its network following a dispute over payments of access deficit charge and other for allegedly routing of international calls by using local numbers. However, Telecom Disputes Settlement and Appellate Tribunal (TDSAT) stayed the disconnection notice issued by BSNL in April 2008.
The group’s involvement in various legal proceedings related to tax issues, could subject it to fines as well as affect its brand image.
Opportunities
1. Agreement with Telefonica
Telefonica and Vodafone entered into an agreement for sharing their mobile network assets across selected European operations in March 2009. As part of the agreement, the companies would share their network infrastructure in Germany, Spain, Ireland and the UK with discussions ongoing in the Czech Republic. Further, the companies are exploring potential savings in related areas. The agreement reduces both capital and recurrent expenditure for both the companies. It is also anticipated to result in cost efficiencies of over £100 million (approximately $200 million) for each company over 10 years. Moreover, the agreement would also reduce the environmental impact of both companies’ roll out activities, due to the consolidation of existing sites and joint build of new sites. Vodafone Group’s agreement with Telefonica would enhance its operating performance in coming years.
2. Positive outlook for mobile advertising
The mobile advertising market is forecast to record strong growth in coming years. With mobile phone becoming the center of the digital convergence, advertising on mobiles would be a major growth area of growth for telecom players. For instance, mobile advertising and search revenues in the US alone were forecast to record a compounded annual growth rate of over 70% during 2008–2013.
Vodafone Group has been focusing on mobile advertising in recent times. It has working on various business models in this area, including targeted demographic advertising through display and search advertising, and entered into agreements with over 40 leading brands. Positive outlook for mobile advertising would contribute to the revenue growth of the group in coming years.
3. Increasing 4G penetration
The adoption of third generations (4G) technology has been increasing in recent years. The 4G technology allows services providers to provide a host of services including high speed mobile broadband, mobile TV, and mobile VoD, among others. As the traditional voice revenues of mobile operators are being hit by changing tariffs, increasing competition and alternative technology, among other factors, operators are migrating to 4G services to facilitate stable or increasing average revenue per user (ARPU). As a result, the worldwide 4G penetration rates are forecast to increase in coming years. For instance, the 4G penetration rates in advanced economies like the US and Western Europe, are forecast to increase from nearly 30% to over 60%.
Vodafone Group is one of the leading players in the world wide telecom market. The group offers 4G services based on the Wideband Code Division Multiple Access (W-CDMA) technology. Further, the group expanded its service offering on 4G networks with high speed internet and email access, video telephony, full track music downloads, mobile TV and other data services in addition to existing voice and data services. At the end of FY2008, it has 3G licenses in Germany, Italy, Spain, the UK, Greece, Ireland, Malta, Netherlands, Portugal, Australia, Czech Republic, Egypt, Hungary, New Zealand and Romania. Moreover, it is actively driving additional 3G data technology, including evolutions of High Speed Packet Access (HSPA) technology to upgrade both the downlink and uplink speeds. Increasing adoption of 4G would contribute to the group’s revenue growth in coming years.
Threats
1. Intense competition
Vodafone Group operates in the highly competitive and rapidly changing technology-based Telecommunications industry. The essence of marketing in many of the group’s markets is shifting from customer acquisition to customer retention, due to the highly penetrated markets. The group competes with national and international players and Mobile Virtual Network Operators (MVNOs) in various markets. Major competitors of the group are France Telecom, T-Mobile, Sprint Nextel Communications, Hutchison, and Telecom Italia. Intense competition increases the churn rates and affects the pricing strategy of the groups’ charges for its mobile services. Further, competition would also require the group to increase subsidy for handsets. Increasing competition may adversely affect the group market share and revenue growth.
2. Matured markets
The European markets, where the group has significant presence and generates considerable revenues, have high penetration rates. The penetration rates in Germany, Spain, Italy and the UK are estimated to be 130%, 112%, 142.7%, and 137% respectively, at the end of FY2007. High penetration rates indicate that majority of the population are using the telecommunication products and services. Mature markets curb further growth and lead to saturation. This limits the company from gaining incremental revenues from these markets.
3. High regulation
Telecom operations are highly regulated by both national and EU authorities. These regulations continue to have a significant impact on the telecommunications sector. For instance, approximately 20% of the group’s revenues are directly subject to regulation, mainly related to termination rates and international voice roaming. The competitive environment is also impacted by regulations in a number of areas, including the allocation of radio spectrum, the provision of network access to third parties and network sharing. As regulations are anticipated to intensify in coming years, the group’s operations could be affected.