Vodafone Group Plc (NYSE: VOD) is the world's largest wireless phone company by market capitalization. The company provides a range of mobile telecommunications services, including wireless voice and data communications. It has equity interests in 26 countries and partner networks in another 32 countries. In the U.S., Vodafone co-owns and operates Verizon Wireless under a joint venture with Verizon Communications (VZ).
However, Vodafone's large scale in Europe gives it an advantage over competitors, allowing it to source handsets and equipment at lower prices. The firm can also develop a product in one country and roll it out to many others at minimal additional expense. Vodafone generally has done a great job of using these advantages to enter new markets, especially emerging markets such as India. Though emerging markets currently account for only one fourth of sales, they are expected to become the main driver of future growth. Finally, Vodafone aims to stimulate revenues with innovative developments in their 3G technology offerings and improve operational efficiency through cost reduction efforts.
Vodafone's principal mobile operations are located in Germany, Italy, Spain, the U.K., and the U.S., while the company's wireless networks also cover other regions around the world. In total, Vodafone maintains a mobile customer base of about 341 million subscribers as of March 2010.
In FY2009, VOD generated £14.7 billion in net income, a 10.5% increase from its £13.3 billion net income in FY2008. Total revenue increased 25.9% to £62.1 billion in line with a 25.5% increase in service revenue. Operating expenses totaled £45.6 billion during the same year, up 29.0% from £35.3 billion in 2008.
VOD's reportable segments are broken down by geographic region. In FY2009, VOD's largest source of revenue came from European countries, with £8.0 billion generated in Germany.
In 2007, VOD paid an estimated $11.1 billion for the 67 percent of Hutchison Essar (one of India’s fastest-growing telecommunications companies) owned by Hutchison Telecommunications International, the telecom branch of Hutchison Whampoa.
The wireless market is changing rapidly, presenting a number of significant challenges to Vodafone. Historically, Vodafone has seen its growth mainly coming from developed markets, particularly in Europe. With average penetration now around 100%, these markets are mature and have limited future growth potential. In addition, competitive pressures in these developed markets are increasing following recent new market entrants and greater competition from incumbents. These competitive pressures are decreasing Vodafone’s pricing flexibility and spurring “price wars”, which are expected to continue into the future. Lastly, the regulatory environment remains challenging with continued regulator-imposed interconnect rate reductions on incoming calls across many markets.
The revenue from outgoing voice traffic for Vodafone (and any other telecom operator) is driven by the size of its subscriber base and the amount of revenue that each customer generates. This average revenue is expressed by the industry as Average Revenue Per User (ARPU), which quantifies the average monthly revenue any customer is generating. Maximizing ARPU is key for VOD's success.
In addition to revenues from outgoing voice traffic, Vodafone generates interconnect revenues from incoming traffic. Interconnect rates are fees that competing operators charge each other for the use of their respective networks when customers call outside the network of their own operator. These interconnect rates are regulated by government agencies; in many of the mature Western European markets, these agencies have been lowering rates in an attempt to make wireless service more affordable for the average customer. This can both harm and benefit Vodafone; it doesn’t have to pay as much for interconnect fees, but it doesn’t collect as much either.
Vodafone's many markets have different regulatory issues and currencies. In most markets, it is the number-two wireless company, causing it to be the focus of competitors.
|Key market||Main competitors|
|Germany||E-Plus, O2 , T-Mobile|
|Italy||TIM, Wind, 3|
|Spain||Amena, Telefónica Móviles, Xfera|
|U.K.||Orange, O2, T-Mobile , 3, Virgin Mobile|
|U.S.||AT&T Wireless , Sprint Nextel, T-Mobile|
As Vodafone has a number of different competitors in each market, there are very few companies that could be considered "rivals" with Vodafone beyond one or two particular markets. As such, it's better to look at Vodafone's performance in each of its competitive markets and aggregate the results. Key metrics include customer growth, ARPU, service revenue growth, and EBITDA.
With Vodafone's focus on its 3G offerings to increase (non-voice services) revenues, the company managed to outgrow its customer base compared to market averages and maintain a higher than average monthly ARPU. Only in Italy, where competition has continued to intensify with the mobile network operators competing aggressively on subsidies and, increasingly, on price, has Vodafone grown below market standards. Through continuous improvement in operational efficiency, Vodafone hopes to maintain its leading position in its principal markets.