Following Vodafone’s 28 billion pound write-off last week due to its Mannesman acquisition in 2000 and its indication on Friday that it will concede the Japanese market the big issue for shareholders is Vodafone appearing to turn from a growth stock into, well, a non-growth stock. This has led to some investors arguing the company should be broken up, perhaps remaining only in Europe, but CEO Arun Sarin “rebuts the charge that Vodafone has gone ex-growth. ‘I am not in that camp at all, but nor do I believe that we are in the go-go years of the past,’ he says.” (from the Guardian)
Meanwhile, The Business Online sums up the issue pretty well.
But the biggest cloud on Vodafone’s horizon is the squeezed margins the company is beginning to experience in its voice services. Vodafone’s voice traffic provides the company with 80% of its revenues. The trouble is that voice is increasingly being commoditised and prices are set to drop, just as they did in the fixed line sector. But where BT appears to have been able to sell its phone customers other services such as broadband internet connections, business outsourcing services and, later this year, television and film services, Vodafone is still trying to interest its customers in paying for new services such as video conferencing and film clip downloads – with limited success.
This is true — one way for Vodafone to become a growth stock is to ride the coming wave of mobile content. The wave will be big, but whether it will be big enough to counter the problems with voice or arrive soon enough to prevent a revolt is a difficult question. Vodafone is certainly in a position to offer some unique services if it spends a little time thinking about what customers actually want.
The other thing, of course, is that Vodafone should continue its aim for a global footprint but not by buying into saturated markets. Lets face it, the growth in basic mobile services will come from emerging economies, including Latin America, ex-Soviet states and parts of Asia. And India, of course.
The biggest growth is predicted to come from Brazil, Russia, India and China. Of these, Vodafone has a 10% stake in an Indian telco (with around 1.6 million customers), a partnership agreement with America Movil in Brazil, and nothing in Russia or China. If Vodafone wants growth it should be targeting emerging markets that are looking to significantly increase the portion of their population using mobile phones, and it should be doing this in an aggressive way. Not a half-hearted partner agreement or buying a cheap operator but actually building a business and being part of the growth. That way it will get a large percentage of the user base.
There’s an added benefit to this — these customers in emerging markets will soon start buying mobile content. In most cases there are more mobile phone users in the country than people with fixed-line phones or internet connections, so digital content will mostly go to mobiles.
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