Vodafone Plc: Its Future As a Network Operator - Research Paper Example

Identification number Vodafone Plc: Its future as a network operator Executive Summary Vodafone is the largest network operator in the world with equity interests in 25 countries and partner networks in almost 36 countries. The most unique thing about the company is the very local nature of it services. It uses its experiences of several other markets especially that of Europe in developing new markets either through joint ventures or buying out an established entity. The company despite its global presence offers customized services to its customers depending on the market type and the technology that can be easily observed but still the international flavor of its service clearly makes its a rival and every other local player vulnerable. Vodafone's customer centric approach can be understood from the fact which clearly mentions of ten business principles that the company has developed for guiding its employees in making communication with the customers (Vodafone, 2006). But in the last few years all mobile network operators mainly in develop nations have been severely affected due to factors like slackness in market growth, rising spectrum licenses fees and ever demanding customers for superior quality of service and widest possible coverage (Vodafone, 2006). This report analyses has been developed to analyze related to further growth of Vodafone which is now targeting developing nations like India for future expansion. The report continues with the description of other important as well auxiliary factors in context of its UK market and rest of the world. The report highlights the following - Vodafone's aims - Vodafone's vision - Vodafone's core business - Growth opportunities - Future options - Strategic choices - Performance of Vodafone across the globe This report highlights issues related to the market condition in UK along with Vodafone's option in this market and how the same is planning to expand further in several other markets where it has got some presence and also in developing nations where it desires to be a major player. Introduction Vodafone Plc is the world's largest mobile operator with over 198.6 million subscribers spread over 61 nations being serviced through 25 owned network and 36 partner mobile networks. With a market cap of 72 billion pound (on May 26, 2006), the company is ranked 22nd among world's largest company on market cap analysis. The company was awarded license to operate as a mobile company in the year 1982 and in this twenty five years have become one of the most valuable telecom company in the world with current employee strength around 61700. In addition to its core mobile telephony, internet and several other value added services, the company provides several revolutionary services which include Vodafone Passport, Vodafone Push email and Vodafone Live! (Vodafone, 2007). Vision To be the world's mobile communication leader enriching our customers' lives through the unique power of mobile communications (Vodafone, 2007). Values Passion for customers: "Our customers have chosen to trust us. In return, we must strive to anticipate and understand their needs and delight them with our service." Passion for our people: "Outstanding people working together make Vodafone exceptionally successful." Passion for results: "We are action-oriented and driven by a desire to be the best." Passion for the world around us: "We will help the people of the world to have fuller lives - both through the services we provide and through the impact we have on the world around us (Vodafone, 2007). Organization Goals To maintain high ethical standards To understand and respond to our stakeholders' priorities To ensure our operating standards are consistent across the Group To deliver on our promises in three key areas: responsibility to our customers; reuse and recycling of mobile phones; and energy and climate change To capture the potential of mobile to bring socio-economic value through access to communications (Vodafone, 2007). Core Business Vodafone has basically been a Mobile or cellular service provider right from its inception in 1982 and hence the mobile communication is going to be its core business. It's much focused approach on mobile and related service has made Vodafone the world's premier mobile service provider with presence all over the world. But in the last 25 years, the technology is no longer the same; the new age technology on the platform of internet doesn't believe in segregation and has actually integrated the whole digital world. So Vodafone has been moving into services that would make integrated mobile and PC communication services a day to day reality. The company's operation has got great diversification with the introduction of integration of mobile and PC in wireless mode using 3G technology and HSDPA (High-Speed Download Packet Access) and also through fixed line broadband services like DSL (Digital Subscriber Line). Now Vodafone is providing complete infrastructural communication solution to its customers. Apart from individual customers, Vodafone provides extended services to its corporate customers ensuring the delivery of richer business applications and integrated fixed and mobile services including higher speed internet access (Vodafone, 2007). Performance Vodafone has been regularly showing robust financial result with continuous improvement in both revenue earned and gross profit despite facing severe competition in the almost all of its markets. Its revenue has grown from 28249 million in the financial year 2003-2004 to 29322 million in the year 2004-2005 and again to 29350 in the financial year ending 31st 2006. Despite rise in cost of maintaining the network i.e., operating cost and other auxiliary expenditure, the company has been giving considerable return to its shareholders. The group revenue has swelled to 29.4 billion from continuing operations with revenue from mobile telecommunication increased to 28.1 billion thereby showing a growth of 9.3 %. Net proportionate customer added in the last financial year being of 21.5 million and non-messaging data revenue increased to 0.8 billion with a rise of almost 61.2%. Total dividends per share paid to the investors got raised by almost 49% and hence total payout amounted to 3.7 billion (Vodafone, 2004, 2005, 2006). Current Acquisition Vodafone has added another feather to its cap with an entry into India which is world's fastest growing mobile services market. On 11 February 2007, it acquired Hutchison Telecommunications International Limited's ("HTIL") controlling interest in Hutchison Essar after paying almost $19 billion. With current penetration level of around 13% in mobile market, the Hutchison-Essar is expected to grow at a much faster after coming under the fold of Vodafone. Both partners Vodafone and Essar have reached an agreement under which they will continue to work for the growth of Hutchison Essar Limited with target being making it India's topmost mobile operators. It has been widely acknowledged that there are substantial growth opportunities in the Indian mobile telecommunications market including mobile, internet and fixed line telephony and Vodafone being a leading international mobile operator with an extensive range of products and services may result another round of telecommunication revolution in India. Essar being a major industrial group has deep knowledge of India Inc. and is one of the first to enter the Indian mobile telecommunications industry. With these complementary strengths Vodafone and Essar plan to broaden the services currently made available under Hutchison-Essar platform under new the name i.e., Vodafone Essar (Vodafone, 2007). Vodafone's Market Analysis The UK mobile service market is perhaps the most competitive in the world with Vodafone leading the chart. The year 2006 clearly shows that this UK mobile service market is going to grow further since with every quarter number of additions goes on rising which is in sharp contrast if the same is compared with other markets. Hence UK presents a higher growth prospect for mobile service despite the fact that most of the developed market has started signs of saturation. But this rise did not go into higher revenue for Vodafone and the UK market showed a fall of around 0.3% in net revenue gathered in the year 2006 i.e., 5048 million when compared with what had been obtained in year ending 2005 i.e., 5065 million. Operating profit also fell from 779 million of the year 2004-2005 to 698 million in the year 2005-2006. But the company continues to maintain its strong consumer base and is expecting higher returns once it will launch 3G services in this telecom region. Vodafone performance in other markets has been considerably much better. In US where it is as US-Verizon network, its adjusted operating grew from 1354 million in 2004-2005 to 1732 million in 2005-2006. In other operating regions its operating profit increased from 2344 million in 2004-2005 to 503 million in 2005-2006 (Vodafone, 2004, 2005, 2006). Vodafone has been very successfully maintained its edge over its rivals with having relations with suppliers all over the world for the purchase of handsets, network equipment, marketing and IT services. The very dynamic Group's Global Supply Chain Management ("GSCM") team has been responsibly managed the company's relationships with these suppliers so that the price parity could be maintained at best possible level. Further expansion in GSCM activities and scope has brought significant progress in Vodafone plans of reducing per unit capital and operational expenditures and hence maintaining the firm's profitability through leveraging the Group's scale (Vodafone, 2006). Vodafone's GSCM currently works with more than 250 strategic suppliers and has applied a very congenial supplier performance management all across the Group's mobile operations and has been the key reason behind Vodafone's successful active management of both previous and new suppliers. With China being the factory of the world and one of largest producer of electronic equipments, this supplier performance management process has brought successful business through GSCM's China Sourcing Initiative (Voafone, 2006). PEST analysis Political Major markets for Vodafone have been the Europe especially UK; the United States and Japan. All these regions are economically liberal and least political interference. The major challenge is going to be when Vodafone is going to expand in developing nations. The company is yet to make an entry in China which is world largest mobile network market and has recently entered India after buying controlling stake Hutchison-Essar, India's fourth largest mobile service provider with a customer base of over 15 million. So the Vodafone's real test is how it actually performs in various developing markets where extent of liberalization is limited with high political and bureaucratic interference. Economical Customers from developed nation have been found to be much mature than their counterparts from developing nations and hence are more demanding. The operating losses in developed market are on a continuous rise and at the same time the industry suffers from high spectrum license fees. So the matter of fact is that customer retention through warding off stiff competition can only be achieved through better services at least possible cost while considering the economy of the nation. Hence whatever revenue that Vodafone earns from its Western Market is simply not going to get repeated in developing nations including India where call charges is as low as 1/40th of $1 for 60 seconds. Though these nations are developing at a rate of almost 7% per annum and have lower tele-density, hence the mantra for business in these places is the volume which will finally make way for higher revenue (Bromley, Mackintosh, Brown, & Wuyts, 2004). Socio-Cultural Again the matter starts from developed nations which have literacy rate with mature customer and higher incidence customer owning multiple SIM. The mobile is a necessity and has actually become a part of life and perhaps the most elementary communication device. Countries have higher GDP as well as Per Capita Income. Hence revenue collection per user is quite high (Vodafone, 2007; Bromley, Mackintosh, Brown, & Wuyts, 2004). Things in developing nations are very different. Mobile is still a luxury for the major part of the population. With some areas where daily wage workers are earning even less that $1 a day, maintaining a communication device like mobile is no less than a dream. But still the liberalization have brought large amount of capital through Foreign Direct Investment and the middle class is getting stronger and stronger. These are some of the silver linings which have become a reason for many multi-nationals firms to invest while depending on rising purchasing power capacity of the people and local resources for operation (Bromley, Mackintosh, Brown, & Wuyts, 2004). Technological Western markets are the major places where the most advance technology are being implemented first while the developing nations always have to rely on foreign direct investments for technology transfer (Kumar, 2007). Though resources available might be an able substitute but in most of the countries it's the imported materials which have been given higher preference. Some of the major companies who have pioneered infrastructure for telecommunication are Erickson, Siemens, Nokia and Alcatel. So irrespective of the market place or type, one will find either or some of these companies while implementing technology (Vodafone, 2006). SWOT Analysis Strengths 1. As being the world largest mobile operator, Vodafone being a biggest brand in telecommunication has a strategic psychological advantage over its competitors who are mostly local players with limited scope outside the country. 2. Strong as well world's widest infrastructure and therefore the mobile telecommunication coverage is one of the widest and best in the world. 3. With controlling authority in 25 nations and partners in other 36 nations, Vodafone is telecommunication giant with a global coverage. 4. With innumerable collaborations with various telecom companies all around the world, Vodafone further expands its global reach with roaming facilities and satellite coverage being made available even in technically inaccessible regions. 5. Aggressive marketing strategy amplified with innovative customer service and higher brand value, Vodafone carries forward its name and logo to every corner of the country or better to say world and has a good and stable Brand Equity. 6. The financial stability of the organization often gets reflected from its annual reports. But the value of this stability gets into view when the current investments are given a look. Vodafone is aggressively looking into various developing markets for its future expansion. 7. Quality customer service has helped in building Strong Public Relations over the years. 8. Technology leadership with highest level of innovation through the use of latest technical invention. The services like Vodafone Live!, Push email, Data Card and Simply etc. are the outcome of innovation through applied research and various development initiatives in areas such as GPRS, MMS, EDGE, Intelligent network services, DSL and HSDPA technologies. 9. Higher level of investors' confidence with continuous progressive annual report through responsible management and higher stock prices. 10. World's widest distribution network. 11. Greater level of customer satisfaction while following the guidelines from Vodafone 10 business principle. 12. Well established customer base in developed markets and is strong enough to make new in developing nation. 13. Technological superiority in providing product of every range and type. 14. Management team being one of the best in the world guiding highly skilled workforce. Weaknesses 1. No Clear focus for a newer market that is the developing one even though there is a huge investment on acquisition and value addition through technical innovation. 2. Expecting higher return from Internet services as an ISP despite the fact that it is one of the complex business sector both technology as well customer satisfaction. Hence the technology integration might not give the result in terms of revenue as has been expected. 3. Lack of innovation in product pricing for further boost in revenue from developed markets where saturation point is approaching fast. 4. Falling rate of growth in developed market and paying high amount for entering new market through partnership or acquisition. 5. Delays in the further development of handsets and their network compatibility so that developing markets can be captured through cheaper options as against those of competitors. 6. World wide presence and related expanse of the company actually may create similar nature of administration undermining local traditions ad cultures and hence loss of business. Opportunities 1. Telecom is one of the fastest growing sectors in developing nations and these markets are now going to be the growth engine for second phase of telecom revolution. 2. Possible ad revenue through the use of Mobile as a device of advertisement. 3. Continuous development of the communication industry through technological as well as process integration. 4. Low tele-density in developing nations makes these markets the best place to invest. 5. Further improvement in services with the introduction of new generation of services and more than hundred percent integration of internet , computer and Mobile will create further avenues in both developed as well as developing countries. 6. Strategic partnership with operators of unexplored market. 7. Potential to reap benefits of supply chain basics and technology integrated work culture. Threats 1. Innovative competitors in almost every market where Vodafone and its partner are providing services. 2. Computer telephony is going pose a serious challenge which provides phone services at cheapest rate. 3. Developing markets are mostly third world nations where approach is not service oriented but volume oriented. 4. New markets have established players who are well aware of customer's psyche and need. 5. Other technology which includes CDMA service may pose a different kind of threat. 6. Fight for cost leadership may take away revenues from new value added services 7. Due to customer awareness the rapid change in customer preferences and their growing needs. Conclusion Vodafone is the largest network operator in the world with a potential to reach each and every nation in the world. Even in current scenario it is serving customers in almost 61 nations either through self owned companies or partners. The company has successfully used its experiences in making presence in several other markets especially that of Europe and now developing new markets either through joint ventures or buying out an established entity. The company has been observing continuous customer centric approach and has offered services depending on the market type and the technology that can be easily observed. The very vast presence and international color of its service clearly makes it a clear and tough rival to every other local and international player (Vodafone, 2007). The last few years have been very depressing for almost all mobile network operators in develop markets and the current industry requirement is exploration and innovation. This is where Vodafone has succeeded and have been successful in warding off factors like slackness in market growth, rising spectrum licenses fees and have satisfied its ever demanding customers with superior quality of service and widest possible coverage. Though it has not been able to make considerable gain in highly competitive UK market which has been its parent market too but the company has aggressively behaved in other markets and is investing a lot to make massive entry into developing markets of India through an acquisition while 3G service in China (China Org, 2004). The company has expanded to several other value added services through technology integration and is raring to provide several revolutionary services in current scenario and in future. Bibliography Bromley, S., Mackintosh, M., Brown, W. & Wuyts, M. (2004).Making the International: Economic Interdependence and political Order. Pluto Press Kumar, A. (2007). Does Foreign Direct Investment Help Emerging Economies Insights from the Federal Reserve Bank of Dallas, vol. 2, no. 1 Vodafone Plc (2006) Expanding the power of mobile communication, Vodafone Group Plc Annual Report for the year ending 31 March 2006 Vodafone Plc( 2005) Building Our Future, Vodafone Group Plc Annual Report for the year ending 31 March 2005 Vodafone Plc( 2004) Our Aim is to delight our customers, Vodafone Group Plc Annual Report for the year ending 31 March 2004 Vodafone Plc( 2007) Vodafone Corporate Strategy, [online] available from: < http://www.vodafone.com/start/responsibility/our_approach/cr_strategy.html> Vodafone Plc( 2007) Vodafone and Essar agree partnership term [online] available from: Vodafone Plc( 2007) Vodafone :what we do, [online] available from: < http://www.vodafone.com/start/about_vodafone/what_we_do.html> Vodafone Plc( 2007) Vodafone Corporate Strategy, [online] available from: < http://www.vodafone.com/start/responsibility/our_approach/cr_strategy.html> China. Org (2004) Vodafone to Start 3G Businesses in China http://www.china.org.cn/english/BAT/111653.htm Read More