Vodafone cuts lines to challenge rivals

When asked if the quotation mark in Vodafone’s new 15m corporate identity looked more like a tear, the company’s chief executive Chris Gent said wryly: “We don’t think it will end in tears.”

If it does, Gent, brought in seven months ago, will be out of a job. But in truth the company has no option. Vodafone has grown massively in the past 13 years, clinging to an identity that has looked tired and out of date for at least the past five.

In the process it has accumulated six branded service providers, developed alternative means of distribution and faced stiffer competition as a result of the launch of Orange and the revamp of One2One. The purchase of service provider People’s Phone for 77m last November made the need to rationalise the group, and update its image through design company Springpoint, all the more necessary.

The restructure will be supported by a 35m budget for advertising and sponsorship, including the English cricket team. Ad agency BMP DDB, which has helped to build the Vodafone brand for the past 18 months, is working on plans for new advertising to be unveiled at the end of September. With quotation marks in the logo, expect endlines similar to: “Where there is dialogue, there is Vodafone.”

“For the first time we are creating a single brand for the entire group,” says Vodafone director of corporate affairs Terry Barwick. “This will enable us to maximise the value of our advertising, marketing and sponsorship programme.”

But the significance of Vodafone’s move is beyond the impact on just one network. It heralds the end of the independent service provider – the middleman originally created to allow space for the smaller networks, One2One and Orange, to grow. Telecoms watchdog Oftel has previously resisted efforts to remove the restriction and as late as last year was still canvassing opinion on whether the barrier to Vodafone and Cellnet’s greater market strength should be lifted.

In April, Oftel announced “a more liberal attitude” to the restriction on the growth of the big two, but no legal change. Yet it was the acquisition of People’s Phone and Cellnet’s decision to take a 40 per cent stake in The Dixons-owned The Link chain in April, rather than any change of mind at Oftel, that has fundamentally changed the market.

“There are no licence implications,” says an Oftel spokeswoman. “There are now four network operators and we consider that it is one of the more competitive telecoms markets. We no longer regulate it as closely as we once did.”

The restructuring of the mobile phone operator’s distribution network will knock 20m off its 1997 profits, cost at least 250 jobs, witness the existing 87 separate payment tariffs cut to between 12 and 20 within 12 months and, contrary to the belief of some industry observers, see names like People’s Phone and Talkland disappear from the high street.

It will take 18 months to complete with the most immediate, and visible, change being a rationalisation of high street brand names and the adoption of the Vodafone name for all. Vodafone’s six service providers Vodac, Talkland, Vodacom, Vodacall, Astec and People’s Phone will be merged into three separate Vodafone-branded business units – Retail, for individuals users; Connect, for individuals and small businesses; and Corporate, for its larger business clients.

The Retail unit will be responsible for the near 300 Vodafone- branded outlets. Significantly none of the outlets will now sell connections to rival networks – again,

Oftel is not concerned about this.

“Vodafone has done what the mobile market has wanted to do for some time,” says Hoare Govett telecoms analyst Alan Lyons. “It has got tighter control of its subscribers. It can now unify its billing systems and arrange tariffs in a much more focused way.

“This is not unexpected but I am surprised that Oftel has allowed it to happen. I can’t imagine Vodafone would have done this without consulting, so Oftel must believe that it does not represent an anti-competitive threat. The mobile market will evolve into one where there are really only four service providers – the operators Vodafone, Cellnet, Orange and One2One,” says Lyons.

The other operators will be sure to react. “Cellnet does everything Vodafone does, only six months later,” says one telecoms analyst. Orange and One2One are also watching the situation closely, having lost some of their distribution points.

All of the mobile operators are now positioning themselves for 1998. There has been a limited price war sparked by the greater coverage achieved by One2One, but Vodafone’s Gent insists there will be no tariff changes this year. “We are the Marks & Spencer of this market; there is no reason to cut tariffs to Asda prices.”

But many City analysts believe that, privately, he is talking down expectations. If One2One records further significant subscriber increases in the third quarter of the year, fuelled by its lower prices, then Vodafone could be forced to react, although it will always sell at a premium compared with One2One. But Vodafone is now arguably better able to react than ever before. Gent is unlikely to be shedding too many tears.