QUOTE AND NEWS
Equitymaster  11 hrs ago  Comment 
Posted by Equitymaster        The recently concluded telecom spectrum auction had largely been an exercise of survival for established players in the telecom industry. Large telecom companies such as Bharti Airtel, Vodafone and Idea...
The Hindu Business Line  Apr 14  Comment 
Telecom operator Vodafone today said that it invested Rs 480 crore in the last fiscal to enhance its network coverage in Eastern Uttar Pradesh. With this the company has added over 800 ne...
guardian.co.uk  Apr 14  Comment 
How can a company do this without warning the owner? On a business trip to Mexico in January my phone was almost immediately, and rightly, blocked as I had reached a predetermined data cap. A call by my wife unblocked the phone and allowed me to...
Cellular News  Apr 9  Comment 
Vodafone and Botswana Telecommunications Corporation (BTCL) have jointly announced a new Partner Market agreement for Botswana. Click here for more.
The Hindu Business Line  Apr 8  Comment 
Vodafone India has invested more than ₹1,000 crore to ramp up network and distribution and retail presence in its Mumbai circle over the past 12 months.The investment was made between Ap...
The Hindu Business Line  Apr 8  Comment 
The Economic Times  Apr 8  Comment 
The three leading operators are reported to have already paid Rs 7,690 crore, including Bharti's Rs 4,725 crore, Vodafone's Rs 1,030 crore.
The Economic Times  Apr 7  Comment 
"Although launch of 4G service is on our radar and it will take at an appropriate time, we still see big growth opportunity in 3G and voice data services," Singh said.
Cellular News  Apr 6  Comment 
Vodafone UK's policy of recycling dormant phone numbers is being blamed for the death of a 78-year old woman who found her phone cut off when she needed to call for an ambulance. Click here for more.
The Economic Times  Apr 3  Comment 
With this expansion, Vodafone would now cover around 385 towns and villages, and more than 27 per cent of the population in the state, it said.
The Times of India  Apr 1  Comment 
The government has received almost Rs 11,000 crore from mobile phone operators including Bharti Airtel, Vodafone India, Idea CellularBSE 0.11 % and Reliance Jio Infocomm as part of upfront payments for airwaves following the just-concluded...




 

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.

Business Overview

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.[1]

Business & Financial Metrics[2]

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.

Business Segments

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.[3]

VOD metrics by geographical region
VOD metrics by geographical region[4]

Trends and forces

Market Saturation

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.

Revenue generation

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.

Interconnectivity

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.

Comparison to competitors

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.

References

  1. Group Press Releases (18 May 2010). Vodafone Announces Results for the Year Ended 31 March 2010. Vodafone.
  2. VOD 2009 20-F pg. B-3  
  3. Heather Timmons, New York Times (12 Feb, 2007). Vodafone Wins Control of Cellphone Giant in India. Retrieved on 6 Sept, 2010.
  4. VOD 2009 20-F pg. 85  
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