Vodafone exits Japan, Sweden where next?
March 26, 2006 - report from Strand Consult
There has been a lot of press coverage the last few days about Vodafone
selling their Japanese operation - this is the second time in just
six months that Vodafone have given up and chosen to sell one of
their operations having spent a great deal of time and effort trying
to make that operation a success.
There are many reasons why Vodafone have chosen to sell off Vodafone
in Japan, technological reasons, marketing reasons etc etc. But
maybe one should ignore those reasons and examine the fact that
Vodafone in Japan have not been able to ensure that a large mobile
business - on one of the world's largest mobile markets - has been
the success that Vodafone's management and shareholders had dreamed
of.
Here at Strand Consult we see this sale of Vodafone Japan as just
one more of many examples that the mobile industry is entering a
paradigm shift - a paradigm shift that we have described in detail
in our latest report "Mega Trends in the mobile industry -
a question of life or death". What Vodafone experienced in
Japan is actually happening on many other markets and is basically
the same scenario as the last time Vodafone chose to give up and
leave a country - just six months ago in Q4 2005 in Sweden.
If you view the mobile landscape today there are very many similarities
between the airline industry and the mobile industry - in fact there
are so many similarities that it would take day's to outline them
all in a brief newsletter like this. The main points are that the
airline industry thought they could compete against the discount
airline companies like easyJet and Ryanair by offering business
class products. But the reality was that companies like Swissair,
KLM, Sabena and many others had to admit that their large organisations
made it impossible for them to run a profitable business when competing
against the discount players. They had to give up and those companies
are today either non-existent or have lost their independence. A
company like British Airways realised very quickly that there would
only be one option in the airline industry - to adjust their costs
and organisation to allow them to compete against the discount players
that had entered the markets.
When you have been in this business as long as we have and delivered
information to over 140 mobile operators worldwide, it is very important
for us to be able to point out good business cases and markets,
where operators have been successful with strategies that we helped
them envision and implement. Today there are many good examples
of operators that have focused on their costs and thereby had a
much better chance of surviving than those operators that have focused
on "business class" concepts, where the operators have
retained responsibility for the total customer experience from handset,
to services, to network operations.
Let us examine Sweden, the market where Vodafone also gave up and
sold their business after having to write off millions of Euro in
investments. In Sweden, Tele2 chose to switch to a discount concept,
reduced their subsidising of handsets and instead focused on selling
cheap voice minutes and SMS. The results speak for themselves. In
the period Q4 2002 to Q2 2005 Tele2’s margin went from 53%
to 44% - despite a price drop of over 60% and their MOU increased
by 25% in 2005. Vodafone Sweden focused on their classic Vodafone
concept and their margin fell over the same period of time from
39% to 14% and their MOU only increased by 7% in 2005. The result
- just like in Japan - Vodafone chose to sell off their business
and leave Sweden.
The same thing is happening in other countries. In Holland, O2
chose to sell their operation for just 25 million Euro. The management
of O2 in Holland renamed the business to Telfort, reduced their
costs as they changed over to a low-cost business model and focused
on getting traffic through their network using deals with MVNOs.
Just 2 1/2 years later they sold Telfort for 1.2 million Euro! O2
believed in the business class concept - Telfort focused differently
- and the sales price of Telfort reflects what the market believes
the same business is worth before and after a change in strategy.
In Belgium, KPN chose themselves to turn their business around
using their Base brand. The company had a negative bottom line,
high debts and a market share of around 10% - three years later
the company's market share has doubled, profitability is excellent,
their debt is gone. KPN have changed from being an operator with
large problems to a successful operator with satisfied shareholders.
The medicine needed was focusing on their cost infrastructure and
using sub-brands and MVNOs to attract interesting customer segments.
In Denmark, Telmore succeeded with just 67 employees over 4 years
to acquire almost as many customers as Orange - with their 1500
employees - had after 7 years! The result was that Orange Denmark
- just like O2 in Holland and Vodafone in Sweden and Japan - chose
to give up, sell their business and leave the country. That story
about the Danish mobile market is legendary and in our report "The
Moment of Truth - A portrait of the Discount MVNO / Mobile Operators'
success" we describe in detail how Telmore and other MVNOs
managed to achieve their enormous success that so many have since
copied.
The list of companies that now have success with a cost leader
/ price leader strategy is long, companies that have realised that
the business class model that many mobile operators and technology
providers have believed in over the past 10 years is possibly becoming
obsolete. The question is whether what has been happening in Denmark,
Holland, Belgium and Japan will spread to other countries? Evidence
that it will is already there: for example Vodafone's current results
in Germany speak for themselves!
We believe Vodafone will have to re-evaluate their global strategy
and admit that if they continue to sell an operation every time
they run into problems they cannot handle - they might as well sell
their whole world-wide business tomorrow!
These are harsh words - but for Strand Consult the above events
are exactly what we have been predicting the past 3 years and are
part of the 10 Mega-trends we have described in our latest report
"Mega Trends in the mobile industry - a question of life or
death".
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