Imagine if Boeing in 1950 had said "no the future is not going to be these airplanes that we sell, we are going to shift into the trains business." Or more currently, if in the 1990s Microsoft had said no, this e-mail thing will not be significant to the future of the internet, we will now start to push fax on the web and into the Microsoft Internet Explorer/Outlook. That is the level of strategic blunder that the world's largest mobile operator Vodafone is now contemplating.
First the announcement. Earlier this week Vodafone signalled that it will shift from its previous position of a mobile-only offering, to include a fixed-mobile offering to its customers.
And why not? Their biggest European rivals like Orange/France Telecom, T-Mobile/Deutsche Telecom, and Telefonica of Spain all have major fixed network assets in their home markets and all are pursuing converged solutions around fixed and mobile telecoms. In Vodafone's home market, UK, British Telecom sold its mobile network arm, O2, which operated independently for a few years before being bought up by Spanish Telefonica. Meanwhile BT has come back into mobile by launching its own MVNO - Mobile Virtual Network Operator - business in the UK (on Vodafone's mobile network). But BT itself is one of the global innovators with its Fusion phone (a converged fixed-mobile technology)
Everybody is doing it. So why would it be wrong?
Vodafone should know better. First, there is a global trend, irreversible and unstoppable, from fixed to mobile. Today there are almost twice as many mobile phone subscriptions worldwide as there are fixed landline phone connections. In advanced countries all over households are abandoning fixed landlines altogether. Finland has over 40% of all landlines already abandoned, Portugal is at 30% etc. The fixed landline business is a dying market by users.
What of the future? Who uses landlines? Old fogies thats who. And those who are very poor. The young clearly prefer mobile phones for everything. So the future will be even more mobile-oriented than today. Vodafone KNOWS this. Better than almost anyone. They have a presence in many of the most demanding mobile markets, from Italy (Europe's highest penetration) to Finland (via Elisa their affiliate) to Japan (where they are divesting the underperforming Vodafone KK)
But its not only the users. Its the competition. Being a mobile network operator like Vodafone, brings very much protection in the competitive sense, from the physical limits of available radio spectrum. There is a real scientific limit to how many mobile network operators can operate in any one market. In Mobile telecoms, therefore, there are typically from three to six network operators in any market. But on the fixed line business, if you are willing to invest in some switching equipment and pull some cable (or set up wireless transmission systems) you can be in business with mostly just handing in a form to the regulator. Typically in the fixed landline markets, there are dozens of competitors in all mature markets, not a handful. It is a much more contested market in landline, while its a strongly protective market (for those with an existing cellular licence, like Vodafone) in mobile.
Then there is technology. Skype and other Voice over IP (VoIP) technologies like Vonage are slashing any remaining profits in fixed telecoms. Why why why why WHY would a mobile operator want to enter this dead market where there are no profits left?
Once fixed telecoms was the big brother of all telecoms. International calls sustained the industry generating from a third to even half of all revenues, and easily half of all profits. I know, I was there, back in the 1990s when I was the Product Line Manager for the Finnet Group's and Elisa's international call business. I even set a world record for taking market share from the incumbent in those heady days of big international teecoms volumes. But that time has irrevocably passed. Back in 1996 I led the project to design the world's first fixed-mobile telecoms bundle with what was then the little brother of telecoms, our mobile arm (called Radiolinja back then, the world's first GSM operator). Many laughed at this project saying it was pretty irrelevant, as mobile would never become a mass market.
But today mobile telecoms dwarfs fixed landline telecoms. Mobile telecoms still sustains global EBITDA margins ("gross profit margins") of 35%. Few industries in the world can sustain those levels of profits year after year.
Mobile telecoms is still growing dramatically. Mobile phones are the most pervasive technology on the planet - 33% of all humans now have a mobile phone, more than TV sets, PCs, internet connections, cars, or owners of credit cards.
Vodafone is the biggest mobile operator. I can understand that they sit on a war chest and want to spend it on something. But to go into fixed telecoms is totally focusing on the wrong battle. Who cares if Vodafone could come in and outperform the competition in this space. In some years it will be such a small niche that people simply won't care.
But the Vodafone managers who led this strategy will be remembered for severely bad judgement. Vodafone knows better than this.
If they have money, where should they go? There is convergence. The "growth" convergence. Not in fixed-mobile, but in the new convergence. Telecoms and internet convergence for a start. And yes, its a small industry (yes, the internet is a small industry when compared with mobile telecoms - the global internet industry ie adding up all the eBays and Googles and Amazons and Yahoos and AOLs is only about one tenth the size mobile telecoms) but one that is vibrantly growing, and obviously merging with mobile. Already 25% of all paid internet access is through mobile phones (with the majority of that in Japan, China and Korea obviously). Perhaps Vodafone Live could be seen as a step in that direction so Vodafone management probably thinks this part is covered already.
But more than that, there is the convergence of content and delivery, of telecoms/internet and media. Like Alan and I have been lecturing about it, the "Y of convergence" (three streams coming togther - like the letter Y - converging streams of telecoms, internet and media). Here we find the big opportunities. And Vodafone should know better. Let me show you:
The music industry says that the future is not music on the web, or music on iPods and iTunes - all which will show significant growth yes. But the music industry itself says that the future of music is on mobile phones. We see that future in Korea and Japan today.
The videogaming industry says their future is on mobile. Not on Playstation 3 or Xbox 2 or internet gaming - all of which will show a lot of growth. But the gaming industry executives themselves say that the long-terms future of gaming is mobile. And that future? Exists in Japan and Korea already today.
The television industry says their future is on mobile. Not on IPTV, not on web TV not on digital TV - all of which will show a lot of growth. Yet the executives in TV say that the future is - yes same pattern holds - on mobile. And that future? It saw its dawn last autumn, when digital set-top boxes were integrated into mobile phones, yes in Korea.
How about money? The biggest bank in Korea says their competition is not American Express and Visa and Mastercard, or the other traditional banks. Their competition is money on mobile phones. More people own mobile phones than own credit cards. If it takes an age limit of 18 years to get the first credit card, many teenagers get their first consumer credit when they get their first post-pay/contract mobile phone account. For many Europeans now the first phone is received at age 8. That is ten years before they are eligible to a credit card. Look at the success of G-Cash and Smart Money in the Philippines; of Felica in Japan. In Korea there are five separate mobile phone payment mechanisms and already over half of Koreans pay regularly using their mobile phones. I don't mean to buy the odd ringing tone or vote for Big Brother. I mean to pay for regular groceries in the supermarket, to pay for petrol at the gasoline station, etc.
Or even more, what of the future of advertising? Alan and I write about the emergence of the Alpha User - the super-influencer for any community. The ultimate target audience for any marketing campagin. The true influencer and evangelist. We trust the opinions of the members of our communities four times more than we trust the opinion of marketing communications from the brands we use. But like we write in the book, no other mechanism can identify Alpha Users automatically. They cannot be recruited accurately, and measuring internet traffic or fixed telecoms behaviour will not identify Alpha Users. But mobile networks can map Alpha Users automatically. The whole advertising industry will be revolutionized. A bigger change to that industry than the introduction of internet search. Imagine Google today? The moment Vodafone (and any mobile operators, obviously) have their Alpha User systems in place - they will totally control ALL advertising and marketing. Get into THIS space and dominate it.
If Vodafone wanted to invest in a future, and believed in convergence, there is a red herring story and a real opportunity. The red herring is the "backwards convergence" of fixed telecoms. It is as silly as me recruiting you, readers of this blog, to sign up for a mailed monthly newsletter. If I already have the readership here in the new media, why on earth would I ever bother to expend resources - and time - to try to fight in a media that is dying (print publishing of periodicals, that Alan and I have often blogged about here).
The real opportunity for Vodafone is the convergence of the future. Get into the future of internet, TV, music, gaming, credit card/money, advertising, search, messaging, etc etc of the future. That is where the growth is. Yahoo in 1995 was smart to understand search and e-mail would be big in the internet. They did not try to push fax or voicemail.
What Vodafone needs to do is to try to discover the new market spaces, like what Apple did with iTunes and iPod. No, I don't mean to try to re-invent music on mobiles. But with Vodafone's size and resources, certainly they could invent and innovate in the big future converging space.
Now as a final thought. For those operators who already own a fixed landline asset, whether its Verizon in the USA or TeliaSonera in Scandinavia, or SK Telecom in Korea etc, these of COURSE should build their fixed-mobile innovations, to maximise the utilization of their assets. I do not mean that fixed-mobile convergence is bad per se. Only that it should be limited to those operators who own a fixed asset already, and want to extract maximum performance out of it.
But for any operators that are pure mobile plays. You are already in the inevitable future. Don't waste one minute harking for the past. Fixed will never come back. Leave the VoIP/Skype battles to the dinosaurs and watch them price-war each others out into extinction. Invest all of your creativity and innovation in a truly mobile future, and you will be the winner.
Rather than Boeing attempting to build trains in 1950, they should go survey airline passengers to see what passengers (and airline carriers) want to enjoy air travel even more. To make BETTER planes. Or in the Microsoft example, rather than trying to push fax onto the web (and yes, dozens of such initiatives were launched in the 1990s to miserable success), Microsoft should have (and no doubt did) learn what early e-mail users want, and bring those into its intergrated office suite/windows/internet explorer/outlook package.
Vodafone. Please don't lose sight of the strategic goals. Stay true to your vision and become a winner in the big future: the one which is mobile. Ignore the fixed temptations.