Vodafone’s wake-up call

Despite strained relationships with the City and too great an emphasis on retail, Vodafone’s brand still appeals to consumers. By Robert Lester

Vodafone, the world’s biggest mobile phone company, saw &£28bn of its business value wiped out last week after admitting that increasing competition in key markets will hit revenues and profits.

While its brand remains strong, the company faces challenges way beyond the marketing department’s control and the pressure is on chief executive Arun Sarin.

Vodafone’s shares were boosted at the end of the week after it was revealed it was in talks to sell its struggling Japanese business to broadband internet provider SoftBank. But the long-term problems remain.

Although it is widely acknowledged that the &£28bn write-off came as a result of Vodafone’s acquisition spree under former chief executive Sir Christopher Gent, there is a growing feeling among shareholders that Sarin has failed to deliver since taking the helm in 2003.

Gartner global research director Martin Gutberlet thinks Vodafone’s slow start in the third-generation market is one of its most pressing problems. “3G is a long-term investment, but I would ask when Vodafone is going to start making money from 3G. Sarin is saying that he still believes in it; that’s not enough for me. We want to hear what Vodafone is doing to force 3G uptake,” he says.

A City source claims candidates have been interviewed for Sarin’s job, and adds: “He’s not popular in the financial community. Gent simply did a better job.”

Sarin won early praise for promising to return more cash to shareholders, but his unsuccessful bid for AT&T Wireless in 2004 dented his popularity as it was seen as a strategic U-turn. The company’s relationship with investors has remained strained, but a source at one of Vodafone’s rivals says: “Sarin has not done a lot wrong. He’s not a great communicator and has not built great relationships with the investor community, but the company was always going to face these sorts of pressures.”

Vodafone has 16.3 million customers in the UK, according to Gartner, making it the market leader ahead of O2 (16 million).

Strategy Analytics analyst Sara Harris believes Vodafone’s problems are little more than a glitch and says Sarin is the best man for the job. “He’ll have a bumpy ride for the next 12 months but I’m loathe to say there’s something wrong at the heart of Vodafone,” she adds. “Gent got the glory – Sarin’s job is more of a balancing act.”

Last year, Vodafone launched its “Now” advertising activity. Vodafone UK chief marketing officer Tim Yates says: “The big idea behind Now is driving usage – that’s fundamental to what we’re trying to do. The creative has been well received and we’ve had encouraging usage on the back of it.”

Vodafone also ended its association with David Beckham last year, marking the first of a number of changes to its sponsorship portfolio. Although it has renewed its England cricket team deal for a further four years, the company ended its &£9m-a-year shirt sponsorship contract with Manchester United to become an official partner of the Champions League. It has also signed up as McLaren’s title sponsor from the start of the next Formula One season at the expense of its Ferrari deal.

A source close to Vodafone says the brand is too retail focused and needs to aim for the “emotional high ground” that Orange occupied in its early days and which O2 now holds. The source says: “It has to wean itself off this retail focus and create an emotional warmth around the brand.”

Last week, Vodafone announced it is to stage live music events around the UK. Yates says this is a way of building “emotional equity” with customers.

“The brand is very strong and has a number of facets to it,” he adds. “We know the type of customers we want to encourage to join us and stay on our network. For those people, the brand is relevant and we will be increasing that relevance. We understand who we are targeting and what differentiates our brand for them. We are a mass-market brand, but we know where the bull’s eye is.”

Little should worry Sarin about the brand, it would seem; it is Vodafone’s share price that he must fix to appease the money men and keep his job.

Facts and Figures

⢠In 1982, chairman of the Racal Radio Group, Gerald Whent, convinces his board to bid for the private sector cellular licence offered by the Government. He leads the successful bid and sets up Racal Telecoms. The company has fewer than 50 employees.

⢠Vodafone is chosen as the name of the network to reflect the provision of “voice” and “data” services.

⢠The Vodafone analogue network is launched on January 1, 1985. By the end of the year, Vodafone has 19,000 customers.

⢠Racal and Vodafone demerge fully in 1991. The Vodafone Group, as an independent company, is listed on the London and New York stock exchanges. At the time, it is the largest demerger in UK corporate history.

⢠Christopher Gent succeeds Whent as chief executive in 1997 and former Tesco chairman Lord MacLaurin is appointed chairman the following year.

⢠Vodafone merges with US company AirTouch Communications in 1999 and becomes the second-largest company in the FTSE 100 by the end of the year.

⢠In 2000, Vodafone acquires German operator Mannesmann, almost doubling the size of the Vodafone Group. Later that year it sells Orange, bought as part of the Mannesmann deal, to France Telecom.

⢠Arun Sarin succeeds Gent as chief executive in 2003.

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