Business Watch – network results and the economic impact on mobile


Vodafone adjusting

More cheap-rate deals could be on the way from Vodafone after its new chief executive Vittorio Colao hinted at how he plans to tackle the economic slowdown in Europe.

As he stepped into the job vacated by Arun Sarin, Colao said he would focus his attention on families – who are struggling to adjust to tougher times.

"We are in a solid and resilient sector but clearly families will react differently in different parts of the world," said Colao, after Vodafone’s annual meeting.

"You need to adjust to the times, but I don’t think honestly that economic challenges will necessarily slow us down. They will push new needs. Times change and we will do things slightly differently.

"If families feel constrained we are going to give more SIM only deals, lower prices, maybe less fancy handsets and maybe the handset renewal times will be pushed a little bit further."

And with Colao, it seems, speed will be of the essence. "I like speed," he said, when asked to differentiate his management style from that of Sarin.

"I know that nothing excites our people, our staff and makes our customers proud of being with Vodafone like seeing things happen quickly."

But turning around a juggernaut like Vodafone is an almighty task, one which was highlighted last month by a 14 per cent plunge in its share price after the company warned that full-year revenues would be at the bottom of its previous forecast range.

It was not the backdrop Arun Sarin would have wanted for his valedictory annual meeting, but private shareholders still gave him several rounds of applause during the meeting in London.

There seemed to be an acceptance that although Vodafone shares have not been star performers, Sarin has battled through and made a good fist of a very difficult job.

His timing looks pretty cute though, departing just as dark clouds gather over Vodafone’s core European markets.

The deluge has already started in Spain, where Vodafone reported its organic revenues fell 2.5 per cent in the three months to the end of June, compared with growth of 5.1 per cent in the previous quarter.

After the meeting Colao refused to criticise the strategy of his Spanish managers who have helped boost Vodafone’s market share in past years.

"If having a wrong strategy means outgrowing the competition 11 quarters, one after the other, then I would like to be wrong in many places," he joked.

But City analysts now say Vodafone’s over-exposure to migrant construction workers and the youth market in Spain has left it vulnerable in its third biggest European market.

Its sales there were hit as swathes of immigrant workers left amid a housing slowdown.

O2 growing, just

In contrast, O2’s parent company, the Spanish telecoms giant Telefónica, has outperformed Vodafone in both Spain and the UK in the same quarter, according to its latest figures.

In Spain, Telefónica’s mobile arm managed to eke out growth of 0.2 per cent despite the tougher economic climate.

And in the UK, O2 reported 11 per cent UK revenue growth in the three months to June 30 as it added 275,000 new customers. %u2028%u2028

In contrast, Vodafone reported revenue growth of just 2.1 per cent in the UK as it shed 27,000 customers.

Matthew Key, chief executive of Telefónica Europe, said: "We’ve been taking market share from Vodafone in the UK. That is clear from the numbers."

It was an impressive performance from Key’s UK team, especially when you consider that O2 UK’s quarterly figures did not include sales of the iPhone 3G, which went on sale in July 11 and has become the company’s fastest-selling phone ever.

The current quarter is set to be a bumper one for O2 UK, if it can get the things in the shops quickly enough that is.

Key admitted the company had experienced a shortage of the new device, leaving many customers disappointed.

But Key hopes within a month O2 will have enough stock to allow any customer to walk into any store and buy an iPhone off the shelf. We’ll see about that.

The good news for Key in the meantime is that half of customers are buying the phone on a tariff of £45 or £75 a month, with iPhone customers still spending 30 per cent more on average per month than standard customers.

Clearly the company has got to milk its exclusive deal with Apple for as long as it lasts.

Orange defiant

Orange, meanwhile, added just 1,000 new UK customers in the three months to June 30 as Tom Alexander’s restructuring of the business continued.

On the plus side Orange managed to boost its UK revenues by some 9.7 per cent in the first half of 2008 as it attracted higher spending contract customers.

Some have questioned Alexander’s decision to launch a big retail expansion plan during an economic slowdown but the former racing driver said he is determined to keep the pedal to the metal.

"While we’re mindful of the economic climate in the UK, this is a damn good time to expand – why we’re pushing harder on the high street with new retail stores, while simultaneously growing our mobile network.

"We’re seeing mobile is resilient to economic change. Mobile is embedded in people’s lives and they’re spending more than they did last year on Orange."

Carphone "gloomy"

Charles Dunstone is less bullish. Reporting Carphone Warehouse’s quarterly figures, the chief executive said he remains nervous about prospects for sales of mobiles this Christmas.

He insisted that subscriptions were holding up well, boosted by the recent launch of the iPhone 3G. But he added: "I am very gloomy about the economy."

You can understand why, when you see Carphone had just cut its forecast for new broadband customers this year, blaming the slowdown in consumer spending. %u2028%u2028

With all this gloom about, the next six months will be a crucial test for the mobile industry. Just how will it cope with its first real economic slowdown?