Vodafone narrows focus; data at core of new strategy

Last week's interim financial statement from Vodafone surprised many--firstly by handsomely beating the forecasts made by stock market watchers, and secondly, by providing some much sought after clarity on its future strategy.

While observers were impressed that the company increased pre-tax profits in the six-month period to September 30th to £8.24 billion, up from £5.75 billion a year ago, they became almost ecstatic in their praise when the company adjusted its full-year guidance upwards. Vodafone now expects operating profits to be in the range of £11.8 billion to £12.2 billion, up from previous guidance of £11.2 billion to £12 billion.

Certainly a performance that Vittorio Colao, Vodafone's CEO, should be justifiably proud of.

But of perhaps more importance was the detail Colao has provided on where he next intends to take the company. Gone are the grand ideas of becoming a significant player in almost any territory, with the focus now sharpened to building on the opportunities in Europe, India and Africa.

The approach to these markets will not be along the established route of voice services, but building and promoting fast and reliable data networks to better support the burgeoning uptake of smartphones and tablets.

While Africa and some parts of Central Europe might be lagging in regards to mobile data uptake, the enthusiasm for mobile communications is evident in both of these regions given that they reported an increase in service revenues of over 20 per cent for the six-month period.

On an annualised basis the Group's mobile data business has now grown to nearly £5 billion, and it would appear that Colao wants this number to increase rapidly--and the expectation is that Central Europe and Africa will be high on the list of growth targets.

What the company has also decided upon, aimed perhaps at the more developed markets, is a focus on building enterprise revenue through the introduction of new services for the SME, SoHo and corporate segments. Evidence of this move can be seen by the heavyweight promotion of its Global Enterprise business unit and its new 'Vodafone One Net' service.

The company also seems positioned to launch into new segments, such as with M2M, m-banking and mHealth services, in selected countries. However, these ventures are very small in terms of revenue generation today, and are mid- to long-term investments for Vodafone.

On divesting itself of minority interest, Vodafone has made a final exit from Japan--gaining £3.1 billion, and has seemingly agreed with other shareholders to have finalised the sale of the Polish operator Polkomtel by the first quarter of 2011.

What is less clear is when, or if, Vodafone will sell its holding in SFR to Vivendi, which seems increasingly keen to buy.

The last word from Vivendi indicated that Vodafone wasn't ready to sell its 44 per cent holding in the French operator. However, given Vivendi's eagerness to call itself a telecoms firm--and thereby look to the French stock market for a better valuation, Vodafone might be happy to wait until Vivendi's frustration forces it into making an outrageous offer Vodafone couldn't refuse.

Altogether, Vodafone would seem to have undergone a transformation from being a sprawling empire with little idea of what to do next, to one that has some sharpness and clarity about its remit.

The next six months should be interesting to watch. -Paul

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