June 01, 2006
Vodapipe
Man: Waaaaah!!!
Spreaders: Good, Good! That’s it.
Man: Stop hitting me!!
Spreaders: What?
Man: Stop hitting me!!
Spreaders: Stop hitting you?
Man: Yes!
Spreaders: Why did you come in here then?
Man: I wanted to complain.
Spreaders: Oh no, that’s next door. It’s being-hit-on-the-head lessons in here.
Man: What a stupid concept.
— The Argument Sketch, Monty Python’s Flying Circus, Episode 29
They’re the biggest and baddest of them all, so there’s no shortage of justification for spending a few minutes perusing the Vodafone shareholder strategy update [PDF]. It’s quite an eye-opener, for it contains everything from the sensible and sound to the strange and surreal.
Let’s start with some of the things they’re getting right. The exit from the underperforming Japanese market, which is mature, makes sense. DoCoMo is busy tying to diversify into becoming a bank. Vodafone’s “bulk” rationale just doesn’t make any sense if you’re going to also have to dive into a telephony-free (or free telephony) future. What they don’t explain well is why emerging markets are so attractive instead. (They’re doing the right things for the right reasons, just not telling the story well.) The lower-end communications solutions offer greater opportunity for vertical integration (more technology and price constraints) and price discrimination of network traffic. The average Indian or Indonesian isn’t going to download a bloated Skype client onto their PocketPC, or attempt to bypass SMS charges with an expensive Symbian smartphone using GPRS. There’s more to the story than just being a “growth” market.
What is interesting is right up at the front of the strategy deck, you can see “Stupid Network = Shareholder Pain” written all over, but they never dare name the separation of service from connectivity under any moniker. Somehow the teleholic can’t quite admit that the source of one’s woes isn’t any one flavoured drink but the poison common to all.
“Growing choice of serivces” (Skype pain), “Converged mobile, broadband and Internet offerings” (more Skype pain), “Termination rates” (if you’re online, I’ll Skype you…), “Roaming” (…via the WiFi in your hotel room, anywhere in the world), “VoIP” (ow! stop it, you’re hurting me), “Integrated fixed/mobile” (ask EPlus — nice Skype handset by the way, where did you get it?), “Internet players” (it’s spelt S-k-y-p-e).
OK, I’m picking on one example over and over for a bit of fun. I can almost see Stuart now standing in front of their board and demanding in the nicest Californian-Kiwi manner, “So, what is your Skype strategy, then?”. He still doesn’t have his answer.
Notable by its absence though is any kind of strategic re-think, or acknowledgement that their “tax the value of bits” business doesn’t have the fat margin future it’s enjoyed thus far — much of which was an enforced lack of connectivity choice as an accidental by-product of spectrum allocation rules and 1980s technology.
Even the thing at the centre of their world, “Mobile industry”, is an anachronism. It’s a bone I have with many folk, who assume mobility is congruent with a “mobile network”. They’re a “doppler-tolerant radio distribution system”, and thus specialise in the ability to move fast (I’m typing on the train into London…). Doppler tolerance isn’t nearly as big a feature as “universally available and provisioned”, which we can increasingly emulate by cobbling together other technologies not under operator control.
I think their European cost reduction approach is only half-baked. There’s clearly an explosion of activity in the content, community and communications space. Vodafone aren’t capturing the attention of the users compared to competing Internet services (or their own SMS — shades of Microsoft having to compete against their last product). They need to consider more of a platform play here that keeps them in the game at least partially. I’m not convinced the MVNE route (where you wholesale access to other people with often equally broken business models) is either necessary or sufficient. Something richer and more granular is probably in order. How are you going to maximise the value of your payments, distribution, partner, and IT assets by making them participate in more value chains, whether or not they are variants of “mobile telephony”?
With the “stimulate voice usage”, I’d be wanting to know what they’ve been up to for the last, oh, decade or so. How come you haven’t configured the devices to ease the up-sell from SMS to voice? To prompt and promote voice calling, e.g. when there’s a birthday reminder in the calendar? How come this product that generates most of the profit hasn’t really improved at all since the launch of 2G in 1824 or whenever? Why has so much marketing budget been eaten up pushing content rather than communications and connecivity?
(Some kudos to Vodafone, though. They’ve got one of the few sensible marketing campaigns going on with their “Now!” convenience-store approach. Yes, you could get that information or content for free when you get to the office or back home, but do you really want to delay your gratification? Smart.)
When I see the phrase “address fixed line revenue opportunities”, my will to live as an investor kind of wilts. Tesco and Carphone Warehouse (or local equivalents) are going to massacre them here. Mobility, community, payments. None of your strengths play to this area. They probably haven’t even got the fuel to reach the enemy carriers and kamikaze divebomb their customer bases. Do you really want to attend the temperance party’s annual dinner dance? There punchbowl has been alcohol-free for a long time — freshly margin-squeezed fruit.
I totally fail to see how shareholder value is created by forcing the Verizon stake into the same asset basket. Why not just spin it off as “Verizon-Vodafone Holdings Inc” and end the confusion? You can have the advantages of collective negotiation with Verizon on a buy-out whilst achieving some liquidity independent of the other Vodafone properties. Bundling of these barely related assets is destroying shareholder value. If I were a cynic (heavens no!) I could conclude it’s really a bargaining chip between the management and shareholders, whose interests (as many an HBR article attests) don’t always align.
There are some good words on consolidation of suppliers, supply chain, and systems. More apple pie on family plans and better pricing. This was all old-hat when I left Sprint 2 years ago. It’s to be welcomed, but if you believe you’re the leading global player, it time to do some leading.
Fortunately, there’s some leadership on offer too. The “growth” Mobile Plus business unit is clearly a Good Thing™ and can get away from some concerns of cannibalisation and day-to-day issues of optimising the legacy business. I hope they can execute on the advertising promises — the usual tendency of trying to own the whole fruit pie results in a diet-sized just desserts. Partnerships (“humble pie”) will be key to health.
They say “Vodafone advantages vs. Internet Players — Vodafone has: … Control over devices”. Really? No, really really? Lord help them if Apple ever launch an iPhone. Customer expectations are changing. Carphone Warehouse are busy pushing SIM free handsets at only a small price premium. If the handset players have to dance to anyone’s ringtone, it increasingly is the public and the retailers/branders, not the owner of an high-latency, non-meshing, licensed spectrum radio network.
I’m impressed by the German FMC play, because it really brings together the network, identity, relationship and retail assets together. It’s about as good as it gets in the game of Telecom Survivor, where the top prize is not to be killed today. Still not quite as good as developing deeper new value from community, communication and cash, but good nonetheless.
To close off, here’s something that cuts to the central conundrum: is owning a network an asset or liability when price discrimination of traffic is getting harder? On their cost saving plan they’ve simultaneously got “Move to owned fibre and microwave network” (for backhaul) as well as “Outsourcing” and “Sharing assets”. Also, as Dean Bubley notes, if the customer seem keenest on buying a dumb pipe, how much value are you really adding with the rest of the business designed to stop people doing whatever they want? Until we get an answer to these questions, the beatings will continue.
Posted by Martin Geddes at 12:01 PMTrackBack URL for this entry:
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Your link to the Vodafone strategy pdf reports "File is damaged and could not be repaired". Intentional comedic relief ?
Posted by: at June 1, 2006 06:06 PMFinally a post where I can agree with you 100%, I could have written it myself, only you write it so much better.
"Even the thing at the centre of their world, “Mobile industry”, is an anachronism. It’s a bone I have with many folk, who assume mobility is congruent with a “mobile network”. They’re a “doppler-tolerant radio distribution system”, and thus specialise in the ability to move fast (I’m typing on the train into London…). Doppler tolerance isn’t nearly as big a feature as “universally available and provisioned”, which we can increasingly emulate by cobbling together other technologies not under operator control."
Over to you, Tomi...
Posted by: at June 2, 2006 03:50 AMHi Martin (and DJB and Paul)
LOVED the Python sketch. Leading to one of my personal all-time faves, the argument clinic.
Excellent analysis. I appreciate it that you took a wholistic view to the Vodafone announcement, covering it all. I myself took the easier road, ha-ha, in my blog just focusing on the futility of being the last to join the fixed telecoms wars...
Yes, you clearly show us all that this Vodafone announcement did have everything from the sensible and sound to the strange and surreal. Great posting!!
Tomi Ahonen :-)
author and blogger on mobile strategy
website www.tomiahonen.com
blogsite www.communities-dominate.blogs.com