Voda chief: ‘To pass another ship, you must pull level first’


Vodafone UK chief sets out the markers by which his reign should be judged, and the goals it has set itself to climb the operator rankings in its home market

In conversation with Mobile News earlier this month, Vodafone UK chief executive Guy Laurence shrugged off Vodafone’s position in the UK market in terms of latest financial reporting, but said it intends to be number one in the UK in revenue terms again.

Laurence mad the point quarterly figures are not necessarily reflective of current network performance, and suggested his only objective is for Vodafone to be the “best” at what it does in the UK market.

Vodafone UK went backwards in 2009, shedding customers, revenues and profits. The merger of Orange and T-Mobile in the UK as Everything Everywhere has put Vodafone into third in its home market, behind leading operator brand O2 also.

And despite group chief Vittorio Colao’s claim Vodafone is “not a weak number three”, the UK is a large market.

Even as it posted positive revenue growth – of 0.7 per cent – in the second quarter, Vodafone stood around 15 per cent, 30 per cent and 25 per cent behind O2 in the UK for revenue, profitability and customer numbers at last count.

The gap stretches to around 46 per cent and 81 per cent for revenue and customer numbers to Everything Everywhere – although that company’s lead on Vodafone is just 25 per cent in profit terms, as O2 remains the most profitable UK operator.

But Laurence said the fixes Vodafone UK is putting in place and the strides it is making in customer service (click here) will be reflected in its results inevitably. With time, he said Vodafone UK’s superiority will tell in its total earnings, profitability and, perhaps, customer numbers.

But he said: “The only thing that matters is revenue and margin and shareholder returns. You get all of those by making customers happy. If I fall down in customer number growth compared with my competitors, I don’t give a damn. I’m interested in service revenue and margin.”

But how does one measure Vodafone UK’s performance right now, if it is not by its latest financial reporting, which shows it trailing for both revenue and also for profit margin (22.2 per cent compared with O2’s 25.3 per cent at the end of the quarter to March 31).

Laurence pointed to Vodafone’s new revenue growth – and that its uplift in growth is 3.4 per cent (from -2.7 per cent in the period last year to 0.7 per cent), and more than O2’s in the same period (1.9 per cent; from 3.2 per cent to 5.1 per cent). Its improvement is more significant, Laurence suggested.

But customer numbers are important in the context of revenue and profit, and O2’s rearguard is impressive: rolling contract churn of 14.1 per cent, compared with Vodafone’s 17.1 per cent at last count. It is losing more customers than O2, and so paying more to post equivalent net customer acquisition growth.

Laurence responded: “O2’s churn is industry-leading, almost across the world. Of course, it has a different way to look at the figure, because it includes M2M, and clearly not many SIMs in coke machines churn.

“And if you look at real churn, as opposed to dressed-up churn for the Stock Exchange, then it is static, at a low level, and hats off to it.

“But our churn is coming down dramatically, towards its level. And, you know, if you want to overtake another ship, you have to draw level first.”

And if customer numbers are not an essential test of a network operator, then how is Vodafone doing in that profitable £30-£40 sweetspot on contract, dominated by a certain device?

“Pretty well. I mean we have to dial up and dial down to meet quarterly targets, but £30-£40 is pretty good.”

With reference to latest sales figures (for the last week in July, at the time of interview), he said: “So last week, we had 27 per cent; 29 per cent for O2 and 41 per cent for the JV.”

But that is third, out of three; even taking Orange separately (it led with 36 per cent share of the ‘iPhone segment’ in the week).

“But I don’t need to be first in everything. We are not trying to be bigger than the JV. We are trying to be the best mobile operator, not the biggest.”

But how else can one measure it? Surely, Vodafone must intend to be number two in its home market.

Surely all of its groundwork in Newbury and its commercial restructure in the market (click here) is for that goal.

If not by customer numbers, then by profitability. Is that not the ultimate measure?

Laurance said: “Profit is a function of size and efficiency. I don’t remember Vodafone ever saying it wants to be the largest and most profitable operator in the UK. You have to be realistic about what is achievable. You have to be the best from a customer point of view.

“You might become number one or two in the market place as a consequence. But if that was the only objective then we should have written an open cheque for T-Mobile. I don’t get up every morning and think about that. I think only about how to be the best.”

But the primary concern for Vodafone, and its shareholders, is to be number one or two in its home market, right?

“By what? By revenue, margin, customer satisfaction? By what?”

By revenue.

“By revenue. Yeah, where size allows us to do that, or by effective competition, then yes. But the job every day is to make customers happy with the brand.”

No, sure. But is it not a stated policy of Vodafone’s to take that second spot in the UK? And the reason to please customers is to keep acquisition costs to a minimum and ultimately to get them to spend more with you. This is Vodafone’s home market. It is its most important front.

“It would be lovely, but I’m not obsessed by it. I’m only obsessed by being the best. It is only a function of time. If you are the best, then you outgrow your competitors.

“The speed at which you do so is down to your superiority and your competitors’ lead.

“If you are better and your growth rates are higher, then it gets reflected in the figures. But we won’t throw a billion at the UK just to say we’re bigger than O2.”

Which might appear to rule out a bid for Three, then.