Reiterating: It is utter folly, Vodafone to fixed

When this was rumoured last month, I wrote a scalding warning that Vodafone should not entertain illusions of entering the fixed telecoms game. Its a total fool's errand. Now Vodafone has released its querterly results and as part of that announcement, Vodafone officially states it will abandon its mobile-only strategy, and enter fixed telecoms competition.

I won't bother to rewrite my stern posting from April, you can link to it if you missed it (or perhaps want to read it again). I will only summarize the main reasons why this is madness by Vodafone.

Vodafone is the world's largest mobile operator by revenues, and one of the largest by subscribers. They also are one of the world's largest 3G mobile operators. This is wrong for many reasons including because:

Moves into bad competition. Cellular telecoms is limited in available radio spectrum, and typically any market has only from 3 to 6 network operators. In all markets there are more fixed landline operator competitors.

Fixed landline telecoms business is a dying industry. It is not dying this year or even this decade, but it has stopped growing and has started to die. In total users households are increasingly abandoning fixed landlines in favour of mobiles. Total voice traffic in fixed telecoms is shifting to VoIP - services like Skype with free, or near-free voice minutes. We already reported that 8% of the WORLD'S fixed telecoms customers have signed up to Skype. Come on. Its a death-spiral. Total revenues and total profits in fixed are an endangered species.

Wrong investment. All investment and innovation into fixed is effort away from the future that Vodafone has a rare licence to. Vodafone has a 3G licence in almost every one of its markets. This is the obvious future of telecoms. This year twice as many people will have mobile phones as have fixed landline phones. By the end of 2006 something like 15% of all mobile phones in the world will be 3G phones.

Is a waste of marketing effort. To do fixed-mobile convergence in any way adequately, requires a lot of effort. Not only in service creation, synchronization and harmonization, but also in the marketing activities. Not only does Vodafone have to build competence in areas it does not really need, it has to expend enormous marketing resources to now educate its markets of this crazy shift in their positioning.

Mixes priorities in-house. Up to now Vodafone's focus has been clear. Now internally there will be conflict. Do they build for the future, or try to fight to win a part of the past? Internally it will lead to chaos and conflicting goals.

Vodafone now in its announcement has said that it aims to get 10% of its total revenues from fixed (broadband internet) business. That means it goes against EVERY established broadband provider, including every fixed landline incumbent operator like BT in the UK, Deutcshe Telekom in Germany, France Telecom in France etc. Plus every new broadband provider in those markets. Plus every cable TV operator who wants to offer tripple play. Plus every newcomer WiFi and WiMax operator. Plus the OTHER mobile operators, both those who have fixed and mobile assets, plus any mobile-only operators on their 3G and HSDPA offerings.

Broadband? Broadband!! Worldwide there are about 200 million broadband users, and forecasts suggest there will be near 300 million at the end of this year. But there will be more 3G USERS at the end of this year, closer to 400 million! Vodafone should focus all of its efforts to capturing more than its fair share of those 3G subscribers, where it only has 2, 3 or 4 other competitors with 3G licences, and where Vodafone has legitimate strengths from its SCALE as a huge buyer of handsets. But to now go into broadband and get that gear and competence and all the hassles the roll-out of a new technology will cause to the Vodafone brand now? This is sheer madness!

But Vodafone says they will not build the fixed network, they will lease it. So now Vodafone says it will come and succeed in buying wholesale and selling retail - without even controlling the technology, on a strategic goal aiming to deliver 10% of total revenues. Dream on. This is a complete counterproductive misallocation of resources.

Here is what Vodafone should do rather than blunder into fixed telecoms. Its current SMS text messaging revenue is 14%. Its leading rivals like O2 have nearly 20% of total revenues out of SMS. Text messaging is the MOST PROFITABLE service ever created. If Vodafone had one ounce of intellect, it would pour all of its efforts into catching O2 and then passing it - pursuing Norwegian and Irish levels of SMS usage (and then spy on the South Koreans, Singaporeans and Philippinos to find out why these send even more messages). In SMS text messaging Vodafone has a captive audience who are addicted to the service. SMS is so severely under-utilized and mis-marketed and misunderstood, that with the simplest moves Vodafone could raise revenues, profits, AND loyalty.

Here is what Vodafone should do rather than stumble into fixed telecoms. In Japan in 18 months, the second largest mobile operator, KDDI has converted 5 million out of its 22 million subscribers, or 23% of its customers to buying music on its mobile phones. KDDI reports sales of 40 million songs over the last 12 months, or about 8 full-track MP3 songs per music customer per year.

Here is what Vodafone should do rather than wander into fixed telecoms. In South Korea the incumbent SK Telecom has launched CyWorld, and in two years has achieved 30% of all Koreans to upload photographs and blogs via their mobile phones.

In my over 150 conference speakershps I have shown over 800 separate service ideas for mobile telecoms. In my four books I have 400 of them. Any one that Vodafone could launch, where they would be creating a marketspace all to themselves (like we write in the book, that was the brilliance of iTunes with Apple's iPod. The brilliance of creating a new marketspace which Apple could then exploit for many years)

The strongest internet company - GOOGLE - just came out and said the next internet is on mobile. WHY WHY WHY would Vodafone, which HAS what Google could only dream for, abandon its lead and waste its efforts to go against the internet brands in fixed broadband business?

This move by Vodafone into fixed telecoms business is sheer madness, a very bad business move, shows a lack of strategic understanding of mobile, and reflects a badly mis-analyzed fixed-fixated outdated view of telecoms. It is an active attempt at rejecting an obvious leadership position into the future, by suddenly switching to fight for a doomed past. It is snatching defeat from the jaws of victory.

I could understand it, if this was proposed by some fixed landline, WiFi or internet player, or perhaps a media company. Or if it was proposed by a total newcomer who maybe didn't really understand the fundamentals of mobile. But that this comes as the preferred new strategy clearly driven by the CEO of the biggest mobile operator group in the world is totally unforgivable. Sorry. This is simply wrong.

I don't want to write more. You can read my original posting at this link [Catastrophic Strategic Lack of Focus: Vodafone into Fixed]. You can rest assured I will return to this theme with time and we'll track Vodafone's misfortunes on this lost cause.

Comments

[Alan Moore]

Tomi,I think some board memebrs of Vodafone really should give you a call :-)

It amazes me that they think they are still selling baked beans when actually they should realise as Murdoch did that the value is created in niche mass markets and peer to peer flows of communication.

And we know, how you chnage behaviour around technology. We have the evidence and insight. Sorry, I am feeling a bit punchy.

Mobile telecoms is NOT ice cream/ Jeans / cars or any other mass market proposition

Service based propositions are the way to go.

sigh :-)

[owen sinclar]

dude, you're crazy.

you start by saying you won't go over the same thing twice then do just that. and you were wrong the first time.

sticking to mobile calls only clearly isn't working so why not branch out? the fact that there is more competition in a market doesn't mean that you should enter a market. if you're confident enough of being able to provide a better product than your competitors - or at least convincing people that you are - then why not go for it?

the days of a company doing one thing well are over, especially in the telecoms arena.

when all the warnings are screaming 'keep moving or die' why would you want to stand still

[Tomi T Ahonen]

Hi Alan and Owen

Thanks for commenting.

So, "Dude you're crazy"? Is it really crazy, if I suggest that Vodafone's own existing business has tremendous opportunities, that Vodafone is underperforming to its own competitors currently in the most profitable parts of the business? This by the biggest player in the world (by revenues) and the one with knowhow from almost leading markets in the world. If they cannot outperform in their "back yard" why would they suddenly outperform in an industry (fixed telecoms) where they will face a vast array of entrenched competitors. Is that crazy.

Is it really crazy if I show that Vodafone's current business is growing (customers and revenues) while the market they are attempting to go into is shrinking both in customers and revenues (and profits)?

Is it really crazy to suggest that there are growth areas open to Vodafone where there is LESS competition than they currently have. And that if they went into fixed telecoms, there are many times more competitors than they currently have?

Where am I crazy? I do hear you when you say that Vodafone should be allowed to expand.

No problem with that. None at all. There is nothing inherently wrong with fixed telecoms. If you are a utility like an electicity provider, or a cable TV operator, DEFINITELY you should consider getting into fixed telecoms, as fixed telecoms is a larger market than electricity or cable TV< and you already have some assets that are needed (eg billing relationship with households) and can bundle services.

If you are a fixed landline operator/carrier and own a mobile network, OF COURSE you should go into fixed-mobile convergence. Maximise the assets you have.

If you are a fixed operator who foolishly sold the mobnile arm, like BT British Telecom and AT&T in America, then YES you should get back into mobile either by buying a mobile operator like AT&T or through a virtual network model like BT and its Fusion phone on Vodafone's network.

But if you are a pure-mobile operator, you should ABSOLUTELY NOT bother with any dying market like fixed telecoms. There are huge ROWTH opportunities in - mobile voice, SMS text messaging, mobile data services, mobile-TV, etc. All of these are areas where there is a limit to competitors due to licensed spectrum. Vodafone has a presence in all of them. In all of those areas the global market is GROWING. In all of those areas Vodafone's business is growing. But in all of those areas industry analysts suggest that most operators are not fully capitalizing on the opportunity.

So if it was KPN in the Netherlands or Telenor in Norway or Telefonica in Spain, yes, fixed-mobile is absolutely the right way to go.

But for Vodafone it is not. They don't need to bother fishing for ever fewer catches in the shrinking pond of fixed telecoms. Vodafone is the biggest mobile operator group by revenues and has 3G licenses in most of its markets and can has a unique opportunity to focus on building the growing future.

Like I said, its like Boeing suddenly at the start of the jet age around 1960, announcing it shifts focus to making steam engine trains. YES there was a steam engine market in 1960, but certainly the big opportunity - and the market where there were few capable competitors but a huge opportunity - was jet passenger airplanes.

But as I've promised, I'll return to this. Vodafone will not manage to get 10% of its total revenues from fixed telecoms. Not without buying some of the competition. This is utter folly.

Thank you for writing.

Tomi Ahonen :-)

[emanuele mazza]

Vodafone owns the mobility concept; everybody would like to be in that position, expecially now that more powerful consumer devices will allow to create and share digital experiences "on the fly".
Let's see the market reaction to this decision.

[Tomi T Ahonen]

Yes, its fascinating

All fixed line operators who sold their mobile assets, like BT in the UK, AT&T in USA etc, are rushing to return to mobile.

Broadcasters rushing into it, like the BBC saying all TV content will be on mobile

Music publishers all say the future is not iPods, it is on mobile

Advertisers like BDDO the third largest advertiser group said mobile will be the domiant ad platform

Media groups like Publicis the second largest, say all media content will be on mobile

Even internet giants, like Google's new CEO says the next internet will be on mobile.

Now, suddenly, the biggest mobile operator shifts focus from creating that future, and refocusing on a diminishing pond of vanishing profits? What is going on in the minds of Vodafone management? Very bad thinking indeed. We'll see, and yes, I'll be returning to this.

Thank you for writing Emanuele

Tomi Ahonen :-)