SWOT Analysis of Vodafone – World’s second largest mobile network operator

Britain-based Vodafone is the second largest mobile service provider on the planet after China Mobile. The company has about 435 million subscribers in 26 countries around the world. Recently, Vodafone reported group revenue of £10.2 billion ($17.3 billion) after the quarter that ended in June 2014. While this was up 6.2% on an absolute basis year-on-year given the strong pound currency, it was down 4.4% on organic basis. Organic revenue measures comparable performance, therefore excludes any M&A activity and fluctuation in foreign exchange rates. The company did not disclose profit figures in its most recent financial report but it had a net profit of £4.6 billion ($7.8 billion) at the end of financial year 2013-14. This excluded the money it made from selling the Verizon Wireless stake in US. Vodafone provides cellular network voice and data services in the following countries – Germany, Italy, United Kingdom, Spain, Netherlands, Ireland, Portugal, Romania, Greece, Czech Republic, Hungary, Albania, Malta, India, Turkey, Australia, Egypt, New Zealand, Qatar, Ghana, South Africa, Tanzania, Congo, Mozambique, Lesotho and Kenya. Some of their operations in these countries are through joint ventures. Vodafone also runs fixed home, enterprise and cable networks in a few regions and these operations form about 15% of the group’s revenue. Despite having big presence across various regions, Vodafone has faced multiple challenges in the past few years. Let us do a brief Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis for this telecom giant –

Strengths –

• World’s second largest mobile service provider by subscribers – Vodafone’s customer base of 435 million in various parts of world is its biggest asset. It is either the market leader or is among the top 3 service providers in every country. Such strong position often implies financial leverage, larger capacity to absorb risks and greater capability to steer the market direction.
• Geographically diversified business – Looking closely at the countries listed above, it is easy to conclude that Vodafone has a presence in all kinds of mobile markets. Developed markets like Germany and UK bring bulk of revenue. Then there are markets like India that have immense growth potential both in voice and data. So declining business in one region can be compensated by growth in another.
• Developed and advanced network – While not necessarily the trailblazer of LTE network launch in its areas of operation, Vodafone deployed LTE and high-speed wireless networks in most of its markets within a few years of spectrum allocation or ecosystem stabilization. In 2010, Vodafone had LTE running in Germany for the first time. Within the next 2 years, they followed it up by launching LTE in Portugal, Romania, Spain, UK, Australia, South Africa and many other nations. Networks in India, Egypt and Turkey are also in the process of upgradation. Similarly, in the first half of the last decade, the operator was aggressive in providing 3G services. The overall perception of Vodafone’s wireless network is positive in most countries.
• Strong brand recognition – Aggressive strategy, creative advertising, decent customer service and employee-friendly policies have helped Vodafone in cementing its place among the better brands of the world. This makes it easy for them to win new customers and retain the existing base.

Weaknesses –

• Sluggish economic conditions in Europe – The continent brings in about two-thirds of the revenue for Vodafone. Consequently, the operator suffered when the European economy was weak over the past few years. Some of the worst hit nations were Greece, Spain, Portugal, Ireland and Italy. Incidentally, Vodafone has huge presence in all these countries. Lower disposable income and high unemployment prompted customers to cut down on their mobile phone bills. The region is now showing signs of revival but the road to recovery is long.
• Cut throat competition everywhere – In its homeland, Vodafone is pitched against EE (Orange and Deutsche Telekom), Telefonica’s O2 and Hutchison’s 3 (Three) network. In Spain, it is up against Telefonica owned Movistar and Orange. Telecom New Zealand and 2degrees are rivals in New Zealand. Apart from Vodacom, South Africa also has MTN, Cell C and Telkom. The scenario for Vodafone is similar in other developed and emerging markets. High competition has hit the bottom line/ARPU and on this end, no respite is expected in the short term.
• Absence from the profitable US market – Vodafone does not provide wireless telecom services in the United States although it does have a small enterprise business in the country. It sold the 45% stake in Verizon for $130 billion last year. Despite the argument that Sprint and T-Mobile are weaker, higher tariffs have made sure that all major telcos in America are overall strong financially. Unfortunately, lack of presence in USA is a drawback about which Vodafone cannot do much.

Opportunities –

• Project Spring – After returning money to shareholders and paying taxes, Vodafone still made a net profit of about $40 billion from selling its Verizon share. The telco plans to spend the bulk of that windfall or about £19 billion ($32.3 billion) on upgrading its European networks to 4G and LTE and enhance its networks in developing markets to 3G or faster speeds. The LTE coverage has been achieved in more than half of Europe. This investment is a tremendous long term opportunity for Vodafone to position itself as the leader of high speed and reliable wireless services.
• Emerging markets like India – Regions where people still either don’t have mobile phones or use 2G feature phones offer a lot of potential for business development. Vodafone has about 170 million voice subscribers in India and less than 10% of those use 3G data. The company’s India service revenue grew 10% in the latest quarter. Turkey still hasn’t reached 100% mobile phone penetration and more than one-third of its population has not used 3G. Likewise, Africa has a lot of untapped market.
• Fixed telecom and cable services – Vodafone has been aggressively looking to expand towards non-mobile services in order to diversify its portfolio and generate new sources of income. It acquired Cable & Wireless in 2012 and thus became unified enterprise communications provider in UK. Last year, it bought Germany’s largest cable operator, Kabel Deutschland for $10.4 billion and followed that up with a takeover of the Spanish cable provider Ono for about the same price. Vodafone already provides fixed phone services in a few regions. Clearly, it intends to evolve into a fully integrated telecom service provider in the long term.

Threats –

• Market saturation in Europe – Europe’s share of subscribers is 30%, but it brings in more than two-thirds of the revenue for Vodafone. This demonstrates the extent of its dependence on the continent. Since the mobile phone penetration in most of its European markets is about 100%, the scope of growth, apart from services like LTE, is limited. Not surprisingly, its service revenue from the region declined by 7.9% in the recent quarter. The trend has been downwards for a few years now. If a company’s profits are decreasing in its most important region, it is a big threat.
• Uncertain regulatory climate – Telecom policy and regulation has been a challenge for the industry in many parts of the world. In Europe, the big issues are falling mobile termination rates and reduced roaming charges. Remember, what is good for the customer is not necessarily great for the service provider. A friendly M&A policy would be a big boost for established players like Vodafone. EU has been looking at consolidation norms and may allow 3 operators in its member countries. Regulatory framework looks better in India too, but is still far from being industry-friendly.
• Over-the-top (OTT) services – An increasing menace for the wireless telecom service providers has been the rise and rise of OTT. Its simple, if I can talk and see my family halfway across the world by using WiFi, then why would I use my phone minutes? Skype, WhatsApp, iMessage and many similar mobile applications have reduced the need to be dependent on the cellular network. Going forward, this scenario is only going to get worse. Vodafone has introduced bundled plans and partnered with OTT services to do some damage control.
• India tax case – Litigation is common in telecom industry, but the notorious Vodafone tax case has kept the operator worried. The dispute arose from Vodafone’s buyout of Hutchison’s India operations in 2007, a transaction not subject to tax in India. But the nation’s government thinks otherwise. Despite India’s top court ruling in Vodafone’s favor, the government changed the laws and the matter is still out for international arbitration. Vodafone’s liability could be as much as $3.3 billion if it loses.

Irrespective of weaknesses and threats, Vodafone’s business is in no imminent danger. It is a well-managed company that will survive the headwinds. The Verizon stake sale has immensely helped in strengthening the operator’s finances and that money is being invested efficiently in other ventures. There have been rumors of AT&T’s potential interest in Vodafone. Unless such an unlikely deal happens, the Vodafone brand is here to stay and it will remain one of the superior telecommunication companies of the world.