In pursuit of wider horizons

Chief executive Arun Sarin may have left Vodafone in rude health, but how well will his successor be able to position the mobile phone brand as a communications powerhouse? asks Rufus Jay

Vodafone chief executive Arun Sarin has retired after five years at the helm of arguably the world’s biggest mobile phone brand. His announcement last week came as the operator delivered a solid set of full-year results, prompting analysts to suggest he is getting out while the going is good.

Certainly, his deputy Vittorio Colao inherits a better business than at several times during Sarin’s tenure: he leaves after a period of prodigious growth for Vodafone, but one not without its share of problems.

Vodafone’s total revenues for the year to the end of March were up 14.1% to £35.4bn, while its total subscriber base rose 73.5% year on year to 260 million.

It is, says Vodafone global brand director David Wheldon, proof of an operator performing strongly. The brand started life in the UK in 1984 as Racal Telecom, a subsidiary of Racal Electronics, which became independent in 1991 and changed its name to Vodafone. Now Vodafone has developed into a global empire with joint ventures and operations across the globe.

Revenue growth in Vodafone’s Europe, Middle East, Asia Pacific and Africa region hit 45.1% this year due to acquisitions in India and Turkey and the sale of loss-making operations in Sweden and Japan.

“From a brand point of view we are pleased, but we are still shooting higher,” adds Wheldon. Key to success is a “well-developed” brand framework, aimed at leveraging the Vodafone credentials as it is rolled out across new markets through an aggressive acquisition strategy, which is expected to continue under Colao. Indeed, some analysts predict Colao will assertively position Vodafone as a media powerhouse rather than merely a telecoms player.

Vodafone’s move into India was sparked by intense competition, falling voice revenues and saturation in European markets. Sarin eyed lucrative emerging markets and last year Vodafone acquired control of India’s Hutchison Essar for $10.9bn (£5.5bn).

And in 2005, Vodafone acquired Telsim in Turkey for $4.55bn (£2.3bn). Yet just a year later Vodafone’s share price fell as it was forced to write off £30bn from its acquisition of Germany’s Mannesman, which led to a serious attempt by up to 15% of investors to oust Sarin.

Such a build and buy strategy is typical of Vodafone, which, according to Interbrand executive director Graham Hales, does everything with scale. Global campaigns and, crucially big sports sponsorships, have allowed it to market worldwide, then enter developing markets and “feel like a Coca-Cola”, he says.

Its first global marketing campaign in 2001 – “How are you?” – starred David Beckham and was backed by sponsorships including Manchester United. Five years later a second, “Make the most of now” was similarly backed with sponsorships including the UEFA Champions League and the McClaren Mercedes Formula One team.

Yet Wheldon admits that globalisation has come at a price. In the UK, he says, the brand was seen as a “little bit staid”. Part of the problem was that it “fell in love” with being the biggest mobile phone company. “We were chest-beating and forgot our roots; we are about being a challenger and a pioneer,” Wheldon says, adding that the brand has since “rediscovered” its heritage.

Vodafone believes that focus on engagement helped it leapfrog Orange into third place in the UK mobile market. Vodafone had 16.4 million subscribers to Orange’s 15.7 million at the end of March, according to Informa Telecoms and Media. O2 leads the market with 20.2 million subscribers, followed by T-Mobile with 17.1 million subscribers, while 3 UK brings up the rear with 4.2 million subscribers.

Hales says Vodafone has become warmer and tried to create an affinity with its customers. He says it has struggled with this, but that “it’s a great brand in transition”.

Vodafone still faces the problem of how to survive as a mobile operator in fiercely competitive mature markets. In December 2007, it acquired Tele2’s broadband operations in Italy and Spain for £537m. Vodafone has also pushed mobile internet services, last year signing deals with sites including YouTube and MySpace to develop mobile versions. Meanwhile, it remains in the race to pick up broadband business Tiscali, which, in the UK, also houses the Tiscali TV IPTV service.

Jeremy Green, practice leader of mobile at consultancy Ovum, says mobile data services are growing. “But will it be enough to counter declining voice and messaging revenues? The jury is still out on that one.”

After five tumultuous years at the top, Sarin seems to have steadied the ship, but as the mobile phone brand continues to reposition itself as a communications company – complete with a new set of competitors – it won’t be plain sailing for Colao.





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