Global Insight Perspective | |
Significance | Vodafone has reported strong revenue and subscriber growths thanks to a solid performance in its emerging-market operations and its mobile data business. |
Implications | The strong results dispel any imminent concerns about the impact of the global economic downturn and positions Vodafone to push forward into new markets. |
Outlook | Although today's result is impressive, the focus will be on whether it is sustainable. Unless Vodafone moves fast to enter new markets, Global Insight expects the good times to be short lived. |
Vodafone has shrugged off worries about the current global economic state to post an impressive result for the quarter ending 31 December 2007. The Britain-based company said revenues were up 15.8% year-on-year to £9.2 billion (US$18.27 billion), boosted by strong growth in its emerging market operations and a big jump in the number of customers using mobile data services. Revenues from EMAPA, the group's division responsible for its emerging market operations plus joint ventures, rose by 46.8%, while total group data revenues were up 51.6%.
Vodafone Revenues (Quarter Ending 31 December) | ||||
2006 | 2007 | Growth (%) | Organic Growth (%) | |
Total Group Revenue (£) | 7,915 | 9,163 | 15.8 | 4.4 |
- Europe | 6,200 | 6,652 | 7.3 | 2.2 |
- EMAPA | 1,700 | 2,496 | 46.8 | 13.8 |
Data | 368 | 558 | 51.6 | 41.5 |
Messaging | 933 | 1,045 | 12.0 | 7.7 |
Fixed Line | 398 | 474 | 19.1 | 6.7 |
Voice | 5,534 | 6,303 | 13.9 | 0.7 |
Source: Vodafone, Global Insight | ||||
Importantly for Vodafone, its mobile subscriber numbers also rose impressively for the quarter, thanks to growth in most of its markets, but especially in India. The group's total proportionate customer base rose by 10.8 million in the quarter to reach 252.3 million at the end of December 2007.
Vodafone Proportionate Customers | ||||
30 September 2007 | 31 December 2007 | Net Additions | Growth (%) | |
Total | 241,475 | 252,301 | 10,826 | 4.5% |
Europe | 114,020 | 117,409 | 3,389 | 3.0% |
EMAPA | 127,455 | 134,892 | 7,437 | 5.8% |
- India | 35,658 | 39,865 | 4,207 | 11.8% |
Source: Vodafone, Global Insight | ||||
Outlook and Implications
Weathering the Storm: Vodafone's impressive quarterly result is a remarkable feat in today's increasingly uncertain economic conditions. Despite the adverse effects of the European Union (EU) clampdown on roaming fees in Europe—plus the effect of the Bersani Decree in Italy—the company managed to grow its revenues in most of its markets and was helped by some favourable exchange-rate fluctuations. At the group level, the combination of stringent cost-cutting measures and innovative new product offerings helped the company towards strong results. The group has now signed network-sharing deals in Italy, India and the United Kingdom. Similarly, Vodafone has outsourced parts of its operations in several countries and has consolidated its European data centres into two central hubs. In Europe, Vodafone's results have been helped by the group's strong sales of handheld business devices, the Vodafone Mobile Connect Cards/USB sticks, and an increasing number of Vodafone At Home/Vodafone Office customers. The group had 4.9 million Mobile Connect USB modem customers, plus 4.2 million Vodafone At Home and 2.9 million Vodafone Office customers (see United Kingdom: 8 February 2007: Vodafone and Orange Merge 3G Networks in United Kingdom in Cost-Saving Efforts).
Vodafone's Strategic Excellence: Although Vodafone has benefited from strong growth in its emerging market operations, much of the company's impressive performance is, admittedly, down to pragmatic strategic ingenuity. The company's decision to abandon its mobile-only strategy and sell off some minority and non-performing assets acquired in the glory days of the dotcom era raised eyebrows across the sector. However, less than 24 months later, the company has turned DSL into a major growth opportunity and now has fixed broadband operations in 11 countries, with about 3.1 million DSL subscribers. Also, having shed the Japanese and Swedish units—plus the seemingly meaningless 25% stakes in Belgium and Switzerland—the company has now focussed on the core markets in Europe and is strengthening its "total communications product" package. By offering fixed-mobile bundles, Vodafone was able to match the product offers from the incumbents in its operational markets, and effectively helped the company to eliminate a major churn agent. The company reckons that total communications products, where it provides for every communications need of the customer, would account for about 20% of its total revenue by March 2010, up from 13% of revenue today.
Is it Sustainable?: While it may be fair to eulogise Vodafone's latest results, there is no guarantee that this kind of performance will be sustainable. In Europe, Vodafone has already tacitly scrapped its asset-light DSL strategy, and will be under pressure to buy DSL assets in the United Kingdom, Portugal and the minority stakes in Arcor. Once Vodafone is pressurised to plunge into DSL roll-outs, the pressures on its margins—plus the dilemma of running competing mobile and fixed broadband networks—will become increasingly critical. Question marks still remain over the group's minority stakes in France and the United States, and, although Vodafone insists it is happy with them, any dip in performance will resurrect a latent shareholder demand for divestment. Crucially, India aside, Vodafone is yet to lay claim to China and South-East Asia, and in Africa, its Vodacom joint venture is becoming a quasi-liability, dithering while MTN and the Middle Eastern players carve out the continent. With "pedestrianised" revenue growth in Europe, and a potential slowing of growth in its present emerging market portfolio, the group will need to acquire more assets to guarantee sustained growth in the future. Unless Vodafone moves fast to enter new markets, Global Insight expects the halcyon days to be short lived.