Vodafone embraces an unknown future

19:47, Jul 17 2011
NOT SO SIMPLE: Vodafone chief executive Russell Stanners says his company's competition has expanded to include Facebook, Skype and Google.
NOT SO SIMPLE: Vodafone chief executive Russell Stanners says his company's competition has expanded to include Facebook, Skype and Google.

Big, bold and extremely profitable, Vodafone seemed to have a simple formula for success in the $2 billion mobile market when it was a two-horse race with Telecom.

Now that business has become more complicated and it faces competition from not only two same-technology networks, but also the likes of Google and Facebook, chief executive Russell Stanners says he doesn't have all the answers. Instead, he is talking up the ability of the company to adapt to the unknown.

Stanners says the growth of third mobile network operator 2degrees has been world-class.

"Having said that, it is a market that was well conditioned for five years to want to have a new entrant."

2degrees secured about a 4 per cent share of the market by the end of last year, but of more concern will be the reputation it has established for customer service. Stanners says Vodafone will be studying the results of an independent survey by researcher Canstar that put the new rival ahead of Vodafone and Telecom on all counts. "We saw that and thought, `That doesn't look good'. Clearly, we need to understand why that is."

But in the past 18 months, Vodafone has got rid of its $1 charge for pre-pay phone support and brought all its call centres back to New Zealand, he says.

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"Our own surveys tell us we are doing a better job month on month. There is a big `halo' effect if you are the challenger in the market. We have experienced that in the past."

Stanners downplays the prospect of a sea change in pricing, saying Vodafone comes out ahead of 2degrees' $19 prepaid bundle with some of its own bundles. "We have competed with them every step of the way. We probably haven't got it packaged up as well, we are probably not presenting it as well to our customers.

"We launched Txtnz, cross-network text, so we are competitive there, and our SIMple plans at 49 cents, so we are competitive there."

Vodafone has also undercut 2degrees on international roaming after a rapid series of downwardly spiralling price cuts.

Its award-winning tools to combat text bullying, which Stanners says have been "unbelievably popular", and its line-up of subsidised handsets are other points of differentiation.

With mobile call prices trending down, Vodafone has sought to grow by persuading customers to use their mobiles in place of landlines, but that has proved tougher than it hoped.

"We thought we had the world's biggest winner when we launched a wireless home phone option that was half the price of a home phone line. We thought it would knock down the door. It didn't quite happen that way."

The service has been selling "quite well", but the potential has been stymied by "lots of little things".

The danger now is that by the time Vodafone can prompt a change in behaviour, internet telephony will have cannibalised the fixed-line voice call market and Vodafone would inherit only scorched earth.

The new threat was a theme of a presentation Stanners gave on the "Clash of the Titans".

"It is not about Telecom and Vodafone and 2degrees; it is about Google and Facebook and Skype. Network operators aren't the real driving force any more in this industry. Our traditional revenue streams of voice are under significant competitive pressure every day.

"That is why prices have dropped 17 per cent year on year for us and will continue to drop. That means the future is very uncertain for our business about where you create value.

"What we do know, though, is that networks are needed. We have them. We have to reinvent ourselves constantly. A few years ago, we weren't in the fixed market. We are now. Who knows where we will be in five years' time?"

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