Moving forward, the best opportunities for growth lie in new wholesale customer segments. The nascent machine-to-machine market presents significant opportunities for the wholesale market as can be seen with the growing emergence of smart metering. However, Vodafone has opted to serve this sector through a separate division. Other opportunities still beckon though. Vodafone UK’s wholesale business has an international deal with navigation provider TomTom, and carries all the traffic for Amazon’s Kindle eBook outside of the US. If it is to achieve the growth it hopes for by 2013, these are the kinds of opportunities that it must identify and secure.
Recently, we met with senior executives from Vodafone UK Wholesale, including the director, Tim Stone, to discuss how wholesale has become an engine of growth for the company. In Ovum’s view, Vodafone UK is doing well with its wholesale strategy. Its carefully executed MVNO strategy has enabled it to secure some major successes, including winning the Gamma Telecom deal from rival UK operator, 3. However, to continue growing, Vodafone UK will have to seek out new wholesale segments to serve.
Wholesale has become important to Vodafone’s overall business
Wholesale revenues are extremely important to Vodafone. While data, messaging, and fixed services were the major contributors to the company’s strong growth for the period ending September 30, 2010, wholesale revenues in the Netherlands and the UK also had a noticeable impact. Accordingly, pushing for a bigger role for wholesale is an excellent way to neutralize the wide reaching wholesale strategy across Europe of other telcos such as KPN.
Other market players still appreciate the strategic value of wholesale revenues, and attracting new MVNOs is a competitive battleground in many large European markets. MVNOs use spare capacity that the operators are not using, and they can appeal to customers that the operators are unlikely to attract, either because they are too niche or because targeting them will corrode their brand. Strategically, MVNOs provide the “long tail” revenues for operators.
A push for bigger wholesale revenues sits well with efforts by operators to maximize the utilization of their assets. Across Europe, mobile operators have invested to create excess capacity for voice services, and earning additional income from these investments is both necessary and expedient. Unlike their fixed counterparts, which were forced by regulatory pressures to offer wholesale services, mobile operators have taken to offering them as a way to grow their business beyond the direct customers they already serve.
Much of wholesale’s success is hidden from public view
With the exception of the odd disclosure, much of the gains that operators make in the wholesale market are hidden from public view. However, operators do achieve some major successes with their wholesale strategies. The success of O2 and T-Mobile in the UK market can be linked to their wholesale relationships with Tesco Mobile and Virgin Mobile respectively, while KPN has used a wholesale strategy to reach new customer groups in Belgium and Germany.
For Vodafone UK, its goal to become the market leader in MVNO wholesale revenues appears to be yielding results. It has trebled its wholesale revenues in the past three years, more than quadrupled the number of MVNO customers it serves, and has the largest international voice minutes volume, which is largely due to its affiliation with ethnic MVNO Lebara Mobile. Recently, Vodafone UK scored a major coup when Gamma Telecom, an established UK fixed-line wholesale reseller, switched its business from 3 UK to Vodafone.
Future growth will require continued innovation in the MVNO space and an emphasis on execution
While Vodafone UK insists that there are still opportunities for further organic growth in the wholesale business, progress is more likely to come from innovative ideas and the superior execution of its existing strategy. Niche markets that can be served by specialized MVNOs still exist, and Vodafone UK has struck deals with Teleena, Cognatel, and Gamma Telecom to act as aggregators for potential MVNOs that serve these niches.
However, execution continues to be critical and is Vodafone UK’s key strength in the market. It has adopted a meticulous approach towards vetting potential new MVNOs, offers a flexible technical/commercial model, and runs a dedicated end-to-end partnership approach to joint objectives with their new MVNOs.