Vodafone group chief executive Vittorio Colao said yesterday that the company would not be focusing on cutting more jobs despite announcing a further £1 billion cost cutting programme in addition to the £1 billion programme the company will complete by the end of this financial year.
In a presentation at the JP Morgan Cazenove offices in central London, Colao said that Vodafone’s initial cost cutting programme had been accelerated to be completed by the end of the 2009/2010 financial year, ahead of the original scheduled time of March 2011. The cost cutting involved the cutting of 500 jobs from the company’s UK operations.
An addition £1 billion in cost savings by the end of 2011/2012 financial year has been announced. Colao said cost savings would come from further IT outsourcing, acceleration of network sharing partnerships, rationalising property and facility costs further and simplifying management information systems. He said the resources saved would be split between enhancing margins and further commercial investments.
When asked if the second round of cost cutting would involve a further 500 job cuts, Colao said: “The new cost cutting programme won’t be merely about head count reduction. We will be rationalising more of our IT solutions, most of which are outsourced now anyway. There are a lot of things that will have an impact. As in the past, we will move forward on this in a sensitive way, project by project. I wouldn’t expect us to make any big announcements on a large amount of job cuts in the company.”
However Colao’s presentation slide to illustrate in which areas cost savings would be made also said the company intended to improve call centre effectiveness and increase ‘e-care’ online handset support solutions, hinting that head count reductions could be made in these centres.
Colao was also asked about how he felt about Vodafone becoming the UK’s third network player following the completion of the T-Mobile/Orange merger, and Vodafone’s response to Orange’s iPhone pricing.
“If the merger goes ahead, we will be a close number three with a leading position in business with as many shops as the others. I would prefer to be number two and will try to be number two but we are definitely not a weak number three,” said Colao.
On iPhone pricing, Colao commented: “Do you expect me to tell you two months in advance what we are going to do on this? We have good distribution and a good network and it will be a fair game. All I can say is that if Orange customers are unhappy they can always visit a red store.”
Colao had previously said that UK margins were “not where they should be”, with UK operating profit down to £75 million from £182 million in the same period last year.
He said: “We continue to reposition our brand towards value perceptions. We are now about to have a complete product range with the iPhone and our 360 offering. We are making good progress in the UK but we need to focus, on cost reduction and innovation. We need to continue to push in the UK market. We have done all the right things by increasing distribution, repositioning our brand and completing our product range but we are not where we should be for margins.”
He also said that renewed distribution agreements with Carphone Warehouse and Phones 4U were “moving at full speed”, while the Vodafone One and One Net converged offerings would increase its share of the business market. Additionally, Vodafone’s newly established Machine to Machine division was “not huge today…but will go towards positioning Vodafone at the core of the mobile data world.”
Vodafone Europe chief executive Michel Combes added that he anticipated Vodafone’s smartphone sales next year to make up around 40 per cent of all its handset sales, compared with 20 per cent this year. The company is to make further investments in the LiMo operating system following the launch of the Vodafone Samsung 360 handset this month.
“We feel it is appropriate to have our own platform to differentiate ourselves, as with the distribution of platforms from Google and Apple, the network differentiation is less obvious. We expect other European players to make moves like this in the coming months,” said Combes.
Meanwhile, Colao confirmed that Vodafone had considered acquiring German broadband provider Hansenet, which rival Telefonica purchased last week for €900 million.
“We looked at this asset but frankly we are happy where we are. We have good market share and a Vodafone branded DSL product everywhere,” said Colao.
“We don’t feel like we have to have fixed line capability everywhere. We need to determine customer demand by market and the competitive situation. We don’t have to have the same strategy everywhere but we do have to serve customers everywhere…either through our own platforms or through partnerships.”