Cutting Room: Operator market heats up


Vodafone’s performance in the third quarter suggests a business reinvigorated under chief executive Guy Laurence, but proper assessment of operator performance in the period is a complicated task

Some months ago, Vodafone UK chief executive Guy Laurence spent time fielding questions from Mobile News about its perceived lack of market leadership in the UK, its home.

The point, then, was the merger of Orange and T-Mobile as Everything Everywhere had, in an industry heartbeat, left Vodafone only with a view of the backs of its fellow racers. O2’s image had been fading in front of it for more than two years, and Everything Everywhere looked, suddenly, out of sight.

All through, Vodafone has retained strong business divisions, of course, notably in wholesale, M2M installations and government sector contracts. But it had failed in the market consistently in terms of new sales, ideas and spirit.

Actually, Vodafone was in good company with Orange and T-Mobile as laggards also. But then, those two could at least claim scale together, if not profitability or brand supremacy, over competitor businesses. What did Vodafone have?

Satisfaction measures
Laurence’s argument, then, was market leadership could, and perhaps should, be measured instantaneously, in terms of customer satisfaction, rather than just by scale or hair-brained schemes.

And, better than any ‘independent study’ and even than any awards decoration, the best measure of customer satisfaction at a moment in time is relative financial performance, Laurence seemed to say.

But you can shed weight, train better and gain speed, and still be outpaced by seasoned athletes. It depends very much on your starting position and your starting condition, relative to your competitors.

So, what do Vodafone’s latest UK financial results, to September 30, say of its relative performance?

Well, for sure, it is a fitter operator now. Its improvement is more significant than its competitors’, as Laurence observes. To a degree, improved customer satisfaction, his preferred measure of superiority, can be gleaned within its base from its numbers. He is rightly pleased, following almost two years’ reinvigorating the UK business.

Volume increases
But Vodafone in fact lost ground to O2 in terms of service revenue in the period. The gap was £194 million at June 30; it was 196 million at September 30.

It is marginal, but a relative loss in real terms in the quarter nonetheless, even if Vodafone’s percentage growth of service revenue, relative to its starting position, improved by more in the quarter than O2’s.

On the other hand, and a consequence of a trimmer Vodafone UK, the gap to O2 in profit (EBITDA) closed from £106 million to £97 million in the quarter, a more crucial message for shareholders.

Impressive, also, considering Vodafone’s aggressive acquisition activity in the contract market, where it is continuing to put on more customers than rivals (281,000 in the quarter and 1.026 million in the year-to-date, compared with 196,000 and 814,000 for O2).

Prepay is another matter. O2 showed innovation again last quarter as brand leader in the market by bringing its Simplicity plans to prepay.

It bucked the migratory trend of SIM-only that has underpinned much of contract sales in the past few years, at the expense of prepay business, and managed the rare feat of positive prepay growth in the period. (Its contract sales were hit marginally, as a consequence).

But Laurence has at last addressed the subject also, and reckons on a number of schemes and giveaways to bolster its prepay business in time for the Christmas rush.

The long game
In sum, Laurence’s claim Vodafone is back in the game is fair. It was very competitive in the market in the third quarter.

The problem with measuring customer satisfaction this way, of course, is the question of how much is down to Vodafone’s offers in the market, and how much is down to happiness with its service and brand.

Longer term momentum in the acquisition of business, combined with a drawn-out reduction in churn, might be the proper measure of Vodafone under Laurence.

And, there is finally to consider the role of leadership too, which O2 has sewn up in the UK and which Vodafone does not appear much interested in while it puts its essentials right.

The launch of HD Voice by Everything Everywhere was symbolic as a move by a new UK leader, like a mark in the ground. But it was interesting to hear Laurence and O2 UK chief Ronan Dunne discuss the state of the market last week.

Laurence, in competitive mood, was dismissive of the joint venture. Dunne, more reflective about the broader market, mentioned it hardly at all, using Vodafone to characterise local competition.

And our piece on Everything Everywhere last issue sparked a reaction from within the company, mostly personnel who agree it is “top heavy” and struggling with internal division.

It continues to deny this. But the sense is Everything Everywhere is coming up against an early joint-venture malaise, and has enabled a reinvigorated Vodafone and a well-oiled O2 an easy run while it itches for commercial focus.

Leadership skills
But whatever Vodafone’s gains, O2 still leads. Because while Vodafone has been limbering up, O2 has entered new competitions alongside, some in brand new fields. Dunne was magnanimous in his assessment of Vodafone’s performance, as a leader might be.

And he was pretty scornful at the same time in his dismissal of such parochial rivalries when he has bigger fish to fry. It was a clever position to take.

Each operator faces distinct challenges. Vodafone has a job to ensure its last results beckon a lasting revival, one that frees it to be innovative again.

O2 has a job to ensure its marketing trick on the UK market over the past five years does not unravel with the data crunch.

And Everything Everywhere has to find commercial focus amid its mad job of integration.

More… Vodafone claims ‘two horse race’ with O2

More… Final fix as Vodafone goes head-to-head with O2

More… O2 looks beyond Vodafone for new competition


  1. Great point by Ronan Dunne – you've got to like his style. He's right, though, it is about the service proposition and the breadth of offer. O2 are doing some great work in value-added communications services – home security and the like – which is ultimately what will allow them to maintain their margins while others fall through competition on less differentiated services.

    Differentiated services requires a pretty sophisticated billing and charging platform. I note elsewhere that O2 uses a Convergys platform for post-pay, and that Convergys has been making some noise in the market about being the first platform to focus on real-time customer profitability analysis and real-time marketing. It sounds like O2 has the tool for the job, but will they deploy it in anger?