Vodafone gambles on 2.5G Facebook phone

Vodafone’s launch of the world’s first prepaid Facebook phone, the Vodafone 555 Blue, shows that one of the carrier’s key aims is to grow the adoption of data among its users.
In the most recent quarter, its data revenues amounted to £1.5 billion (€1.7 billion), which represents only 13.8% of its total service revenues globally. Vodafone has a total of about 87 million mobile data users globally – out of 380 million customers – so only around one-fifth actively use mobile data. It is a massive opportunity, provided the operator can sell the right devices at the right price points and with the right features.
Another key target for Vodafone is to bring data-capable devices to the mass market at affordable price points, in this case €100. While smartphone penetration in Europe is relatively high compared with other regions, it is still only 19.5%. Therefore we can assume that the next wave of growth will be in the prepaid segment. However, these devices will not just be sold in emerging markets, but also in developed markets. So it is critical to bring devices to market that offer a great Internet experience even where high-speed networks are not available.
Vodafone will work with leading Internet players (like Facebook) to build a unique experience for customers. The operator sees own-brand smartphones as a critical to its objectives in mobile data revenue growth. Last year, it launched 14 Vodafone-branded handsets and sold 5.8 million, although that’s down from a peak of about 10 million a couple of years ago. It also works with Huawei, ZTE and now TCL.
However, the 555 Blue has no Wi-Fi and is 2.5G only, so no 3G. For the present, that’s the reality in many emerging markets. Although the handset isn’t a smartphone, Vodafone states that it does many smart things: Facebook, e-mail, IM, Web browsing, music.
But, with competition expected from low-cost Android and BlackBerry devices, are “smart things” enough for the end user? Is there a risk that this further relegates Vodafone to a dumb pipe as people buy a Facebook phone rather than a Vodafone device?
It could possibly lead to that, yes. The handset is branded Vodafone with a Facebook hard-button, and it does run Vodafone’s proprietary OS. It will be interesting to see what else the device can do other than accessing Facebook and these other “smart things” as it has no apparent app store.
Vodafone has not been successful in the past at providing apps - think Live! and 360. So it would seem it will probably be reduced to providing a dumb pipe, but only a 2.5G one.
Another area Vodafone will hope its device can target is BlackBerry. RIM has done well in some emerging markets with its devices - users seem to like the qwerty keyboard and BBM - and all at a competitive price point. Perhaps Vodafone also hopes to take some of this market as its device has qwerty, but will use Facebook as the communication platform.
As a Vodafone-branded product, it has no dual SIM, which could prove problematic as currently such devices are critical to ensuring competitiveness in emerging markets where as many as one in four devices sold have multi-SIM capability. The likes of Nokia now have dual-SIM devices in market to compete better against the growing number of low-cost local vendors that are cropping up, notably in India and China.
Ultimately, success in the prepaid emerging markets sector will depend on a numbers of factors including price and brand strength, but will also depend largely on the inherent needs of the users and their understanding of the value proposition of Facebook in some of these markets.
David McQueen is a Principal Analyst with Informa Telecoms & Media. For more information visit http://blogs.informatandm.com/authors/david-mcqueen/