Vodafone: Observations on Results

Below are a couple of items from Vodafone's (VOD) results that caught my eye:

Firstly, it's worth getting a reality-check on 3G.

In W Europe, Vodafone now has 24m 3G subscribers out of a total of 111m. I'd guess around 3.5m-4m of the 3G devices are dongles & other modems. (Voda says it has 5.8m total modems and Blackberry-type email devices).

In its EMAPA region (E Europe, MidEast, Asia & Pacific) it has just 3m of its 119m subscribers using 3G.

It's sometimes tempting to think that 3G's march through the user base is a "done deal" and we're all moving on inevitably to LTE in short order. Walking through central London, you'd imagine that everyone has a Nokia (NOK) N95 or SonyEricsson (SNE) K800/850i. But these figures highlights just how slowly the real world moves - there's still plenty of GSM out there, and it's not changing very quickly (and, indeed, it's still growing hard in places like India).

In fact, it must be rather confounding for the mobile industry's "establishment" that Vodafone's impressively strong growth has been based on the growth of 3 things:
 

• Low end voice-centric subscribers in emerging markets
• Continued growth in SMS traffic & value
• Data pipes

Do a search for the word "content" in the results, and you get two mentions. In Germany, it says it has seen "a 10.1% reduction in other direct costs, mainly from fewer handset sales to third party distributors and lower content costs". In the UK it says "The 7.1% increase in other direct costs was due to cost of sales associated with the growing managed solutions business and investment in content based data services".

It seems that mobile content has moved from being seen as a revenue source, to being a cost.

Not directly quoted in the results, it's also interesting to see that Voda's German head has been quoted as (I'm paraphrasing) saying that subscription-paid Mobile TV is dead. He's pointing the finger at phones capable of receiving free-to-air terrestrial digital TV, although to my mind that's just a convenient get-out clause as the whole Mobile TV proposition is inherently flaky.

Lastly, a plug for my company, Disruptive Analysis. I'm going to let myself be a bit smug and say "I told you so". It was2 years ago that I wrote about my analysis of Voda's data revenues indicated it being dominated by Blackberry and 3G modems. At the time, that was against a backdrop of sustained noisy wishful thinking about Live! and other content/inhouse data services. Many other analysts were exhorting mobile operators to avoid flatrate data plans like the plague, pointing to a horrible "bitpipe" future.

And yet now:

Over the year, data revenue has increased by 40.6% on an organic basis to £2.2 billion, principally driven by continued strong growth in business email and PC connectivity devices, which in total nearly doubled to 5.8 million. We have seen strong take up this year of USB modems

I've been consistently saying that is has been an inevitability.

Many seem uncertain about deploying IMS, worrying that it could open the floodgates to 3rd-party IP applications. What they don't realise is that it's going to happen anyway, and that opening the floodgates is the only way to avoid drowning in the flood.

I've been privately advising some of my consulting clients about contrarian and anti-consensus views like these, just as I have been counseling them to dismiss many of the rose-tinted surveys and forecasts about mobile content/applications that don't bear close scrutiny. There are plenty of ways to sell, enhance and monetise "pipes". And there are some next-gen service opportunities that are probable winners.