Vodafone plans one-for-all European strategy to boost profits | Light Reading

Vodafone plans one-for-all European strategy to boost profits | Light Reading

Big telco groups are often a Frankenstein’s monster of incongruous parts and products whose ugly stitching is all too visible. A Vodafone customer in Italy is offered different services, built on different IT platforms, than his British counterpart. But the UK operator now hopes it can ditch the gothic horror.

Vodafone will this year embark on a major overhaul of its technology and IT estate, replacing systems that cater to individual countries with tools and products that can be used or sold across its entire European footprint. “These are significant changes we are doing on the operating model of the business,” said Nick Read, Vodafone’s CEO, on a call with analysts this morning. “What we are doing is driving greater standardization across network and IT and digital.”

If the plan works out, it should make Vodafone look more like an Amazon or Google, whose employees and customers can access the same technologies regardless of their physical location. It should also aid tie-ups with those companies. “We’ll use standardized platforms and have an integrated organization to make it easier for third-party strategic partners like Microsoft and Amazon to connect with our platform and go across our footprint seamlessly and at speed,” said Read.

Vodafone CEO Nick Read hopes a new strategy will 'turbo-charge' his business.

Vodafone CEO Nick Read hopes a new strategy will “turbo-charge” his business.

The impact on Vodafone’s costs and profitability could be dramatic. Rather than maintaining product development teams for each country, Vodafone will have centers of excellence with a global remit. “It is a great move in terms of return on capital,” said Margherita Della Valle, Vodafone’s chief financial officer. “We will get more growth by investing once and deploying many times.”

Scott and Alberto’s excellent adventure

The starting point, as previously reported by Light Reading, is a restructuring of the operator’s technology divisions. Scott Petty, the chief technology officer of Vodafone UK, will become digital and services director at a group level, while Alberto Ripepi, the group’s deputy chief technology officer, will have responsibility for all network-related activities. Both executives will report directly to Johan Wibergh, Vodafone’s chief technology officer.

“Today we are an organization with CTOs in each of the markets and then we have group functions,” explained Read today. “We are vertically integrating those functions networks and IT digital for the whole European group, so they act as one organization driving a standardized roadmap.”

The hope is that shifting to a new, group-based product development process will reduce costs and speed up service rollout. Resources for the “Internet of Things,” for instance, are currently scattered around Europe. A center of excellence could eliminate duplication and concentrate expertise.

The overhaul should certainly make Vodafone look more attractive to prospective partners. Under its current strategy, it is to launch a new edge-computing service with AWS on a country-by-country basis, starting with the UK this spring and Germany later in the year. That and a recent security partnership with Accenture are deals that could benefit from the new, footprint-wide approach, said Read. “This is turbo-charging Vodafone to deliver on a bigger vision of a next-generation telco from more of a classic telco historically,” he said.

News of the looming shake-up may unnerve staff. Vodafone has already made substantial cutbacks to its workforce in recent years, slashing more than 16,000 jobs from the headcount total since the end of its 2015 fiscal year. Divestments explain much of the damage, but jobs have also disappeared in European markets where there have been no mergers or takeovers. “There are significant synergies,” said Read about his latest plans, using a word that may terrify anyone concerned about job security. “It will help support the 1 billion [$1.2 billion] opex target, the three-year target we talked about before, but also it provides us with resources to invest in growth.”

On the other hand, an important component of the new scheme will entail the “insourcing” of IT, in what sounds like a potential threat to some of the technology specialists on which Vodafone has previously relied. “We’re going to insource IT development engineering capability,” said Read. “We are really going to scale that to develop our own IP [intellectual property] to make our differentiation stronger.”

Hang on a minute

As bold as it all sounds, there will be execution risks with such an overhaul. Nor is it the first telco attempt to imitate an Internet model. Germany’s Deutsche Telekom previously tried on a “pan-European” network strategy and found it an awkward fit. Its goal was to collapse numerous service platforms developed for individual countries into a small number of regional, cloud-based technologies. But the task proved much harder than Deutsche Telekom had imagined. While the “pan-net” initiative was still alive in 2019 (according to the operator’s last annual report), it has not had a noticeable impact on Deutsche Telekom’s performance.

A one-size-fits-all approach has been even more troublesome for VEON, an operator controlled by Russian billionaire Mikhail Fridman. Earlier attempts to create a single, app-based digital platform for the entire group ended in disappointment and sparked the resignation of then-CEO Jean-Yves Charlier in 2018.

More recently, VEON has done the opposite to Vodafone and torn up a group technology strategy. Decisions about new digital and technology initiatives will be delegated to individual operating companies, each with its own chief technology officer. Yogesh Malik, who performed that role at group level, was ejected in June 2020. He recently popped up as the head of a combined technology and IT unit at Tele2. Industry consensus on the right strategy simply does not exist.

Positive signals

Vodafone’s update came on the occasion of its latest trading update. These typically make for a tasteless platter, serving up an assortment of numbers without any real spice. The UK operator’s financial strategy is largely about slashing expenses and paying off debts, and yet it studiously endeavors not to say anything meaningful about its profits in written materials. The very word “profit” turns up only three times in the latest offering once in reference to a non-profit environmental organization that gave Vodafone a green-fingered pat on the shoulder last year and twice in the “definitions” and “forward-looking statements” sections.

While analysts never expect anything different, what they are left with is the meager gruel of updates about sales performance across Vodafone’s jumble of international markets. These would be more appetizing if Vodafone were an Indian Jio or a T-Mobile US, storming past rivals to record double-digit growth rates. It is not. The best anyone can hope for is a very shallow decline, or barely noticeable growth once all sorts of negative factors are discounted.

Want to know more about 5G? Check out our dedicated 5G content channel here on Light Reading.

The good news this time around is that Vodafone has “returned to service revenue growth,” in the words of Read, for its fiscal third quarter (ending in December). The improvement of 0.4% lifted service revenues to about 9.7 billion ($11.7 billion). Factor in the impact of roaming plus other negatives and overall sales were down 4.7%, to just less than 11.8 billion ($14.2 billion).

That was good enough for investors in the middle of a pandemic, however, and Vodafone’s share price rose 6% during afternoon trading in London, to about 134.72 pence sterling. Five years ago, before setbacks in India, a splurge on new spectrum licenses and operational difficulties in several markets, it was valued at 221.20.

Investors are encouraged by the operational improvements in Germany and the UK, even if Spain and Italy remain a concern. A forthcoming IPO of Vantage Towers, a newish infrastructure subsidiary, could raise capital for debt reduction. And “digitalization” is proceeding fast. In the UK, 40% of sales now happen online and the figure hit 55% for the recently launched iPhone 12.

It seems analysts also managed to overlook concerns about the cost of the green revolution at Vodafone which aims to power all European networks with renewables by July after Read supplied some persuasive rhetoric. “It is more a question that we can’t afford the cost of not taking action than obsessing about the cost of taking action,” he said. Vodafone’s energy bill last year was about 700 million ($842 million), he revealed. New carbon taxes, and a customer backlash against operators that do not adapt, could be a far greater concern.

Related posts:

Iain Morris, International Editor, Light Reading

No Comments

Sorry, the comment form is closed at this time.

error: Content is protected !!