Business Watch: Vodafone posts big gains in UK market

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Vodafone UK had a storming Christmas, making it the star of the group’s major European operations, according to the network giant’s latest results.

While Germany, Italy and Spain – in particular – continued to flounder, service revenues in Britain rose some seven per cent.

Helped by strong contract additions, the business added 195,000 new customers, taking the total to more than 19 million.

Voice revenues slipped £3 million to £645 million but that was more than offset by messaging revenue which rose by £30 million to £267 million.

Data revenue rose even more than that: by £45 million to £195 million. Fixed line revenues, which were flat at £8 million, are still relatively tiny, but that won’t be of much concern to Group chief executive Vittorio Colao, who was fulsome in his praise of the UK business.

Enders Analysis was also positive, noting that the division had a wider collection of handsets and a strong range of different smartphone products.

Analysts warned that the UK market will be hit when termination rate cuts are reintroduced during the June quarter. But Enders noted that Vodafone’s greater relative weight of contract customers [only half of the customer base is on prepay] should mean that it fares better than average after the change.

Indeed, Vodafone’s European business as a whole appears to have held up well in tough circumstances.

Helped by the addition of fast-growing Turkish and the Eastern European operations to the Vodafone Europe reporting entity, it managed to squeeze out positive revenue growth of 0.2 per cent. That is anaemic growth, obviously, but it’s almost certainly better than many of Vodafone’s rivals – which had yet to report their own figures when this column was written.

As Enders noted, economic conditions are not materially improving: “With year-on-year GDP growth static and consumer confidence only nudging up”.

But the outlook for all players across Europe is not getting any easier, with mobile termination rate cuts scheduled to kick in again this year, and consumer confidence still weak.

So while Colao seems pleased, the challenges aren’t going away.

Impressing the new boss
And now the Vodafone CEO has a new boss to impress. As predicted here, the company is giving its chairman Sir John Bond a dignified exit after tremendous pressure for change last year from disgruntled investors.

Sir John will retire at the annual meeting in July and be succeeded by Gerard Kleisterlee, currently president, chief executive and chairman of Koninklijke Philips Electronics. Kleisterlee will be retiring from the Dutch electronics giant on March 31 and will be appointed, initially as a non-executive director of Vodafone on April 1. The German-born businessman comes with impressive credentials: he was named European Businessman of the year in 2007 by Fortune magazine.

There may be some questions about his versatility however as he has spent his entire career at one company, which is highly unusual these days. In his defence, he has also sat on the boards of some massive global companies: Dell, Daimler and Roay Dutch Shell.

More importantly perhaps, since taking over at the helm of Philips in 2001 he has engineered what Vodafone’s press release described as “the largest acquisition and divestment programme in its long history”.

That will be music to the ears of those major Vodafone shareholders that have been calling for the UK company to exit its minority stakes in the US, France and elsewhere. Since Colao’s strategic review last year, those businesses have already been earmarked for potential sale.

Now Kleisterlee’s biggest job will be to extract the best possible value for them for Vodafone shareholders – a tough job.

Nokia’s new strategy
One man with an even tougher job right now is Stephen Elop, the new chief executive of Nokia.The Finnish handset giant has just warned of a tougher 2011 after Apple and others continued to eat away at its market dominance.

Nokia’s share of the all-important smartphone market tumbled to 31 per cent in the fourth quarter of 2010 from 38 per cent in the previous quarter. That is one heck of a fall and it underlines the sheer scale of the task facing Elop, who took over as chief executive last September.

At the time of writing, Elop was poised to unveil his new strategy for the world’s biggest handset manufacturer – and market expectations were high following a Wall Street Journal report that Elop is about to announce a joint venture with Microsoft and is preparing to sack a bunch of key executives as part of a serious overhal.

On Monday of this week, shares in Nokia leapt to a four-month high on hopes that the new-look Nokia would be able to mount a convincing fightback.

It sounds like the Elop revolution may be a rather bloody affair, but perhaps the sad reality is that it needs to be.

Nokia has failed to deliver a hit smartphone since the N95 in 2006, a year before the arrival of Apple’s industry-changing iPhone. And now the likes of Motorola and HTC are fighting back by getting into bed with Google and its massively popular Android operating system. Samsung is also seeing success with the Galaxy S, while old Nokia is nowhere to be seen.

The delayed arrival of its top-of-the-range E7 model, which it said this week was finally on its way, is an early positive. But much more is needed.

Another positive last week was that Elop appeared to flag that he was thinking the unthinkable on the software front. “We must build, catalyse or join a competitive ecosystem,” he told analysts on a conference call.

They took that as a signal that Nokia could finally give way and introduce new smartphone models using Android or, as seems likely, Microsoft’s Windows Phone 7 OS.

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