On May 19, 2009, Vittorio Colao, Vodafone's CEO, presented the group's results for the year ended March

31, 2009. Despite Colao's emphasis on Vodafone's increases in revenue, adjusted operating profit and free cash flow (see Table 19.1), the results left analysts unimpressed. The reported gains were wholly the result of foreign exchange movements (the euro had appreciated significantly against the British pound during the year); underlying revenues had contracted by 0040/0. Once "impairment charges" (mainly asset write-downs in Spain) had been taken into account, net profit was down by more than a half. Vodafone's shares closed down almost 4% on the day. For Vodafone's long-suffering shareholders, the results raised

a Excludes non-operating income of associates. The promised savings are centered on Vodafone's core European businesses. mobile operator.shed. expenditures on fixed assets from operating cash flow. Under Virtorio Colao. presentation Colaoacknowledged the weakness of user demand-vprimarily a.1) (23. too. this measure.6) 2005 26678 7878 8353 7285 6518 9240 (4122) 6592 147197 113800 33549 5. Colao's appointment in July 2008 marked a new phase in the strategy embarked upon by his predecessor Arun Sarin. But there will be a revenue-boosting element to the strategy.ontin.4) (7. like his predeeesser.result of the reeession+end (. a former McKinsey partner. what the world's biggest mobile operator needs'>2-bur there was also a concern that cost cutting migbr not be enough. when asked how much his strategy had in common with Mr Sarin's legacy.eleration in Vodafone's cosr-curting program.to retain Vociafone's 45% stake ill Verizon Wireless. He wants to reduce costs by £lbn by 2010-11 and does not rule out going further if the global recession is deep.7 2007 31104 (1564) 9531 (2383) (5297) 10328 3865 6127 109617 67067 42324 (1." TABLE 19. you know. but says there-are few large markets that interest him.tries of the world. He-announced an ·an.." said Mr Colao. Vodafone offeI. shareholder returns or debt reduction. An even sharper focus on making the most ofVodafQne'sexisting. "Every new captain takes the boat from where the boat was. unveiled yesterday at his first public presentation since becoming chief executive in July. The Financial Times reported: ~ Vittorio Colao compared himself to a ship's captain as the Vodafone chief executive set a new course for the world's largest mobile phone operator by revenue.developing countries. Under Sarin's leadership. the 1l. which begaajn 200:5 lind last year involved the $10. In November 2008.8) 2006 29350 (14084) 9399 (14853) (21821) 10190 (6654) 6418 126738 85425 41426 (11. and you have three sailors who are sick. Mos! comnrenrarcrsapplauded Vodsfone's commirmenr ro cost cutting--" After years of acquisition-fuelled ~(owth. Mr Colao's strategy. he wanrs. because of concerns that too many mobile operators are slugging it out.2. co resrore Vedafone's fortunes given growing maturiry and commoditization of Vodafone's principal markets. involved bigger than expected changes to the direction taken by Arun Sarin. inline with a pledge to be more disciplined on capital management. a common approach to business. in 2006. impairment lossesand other income and expense. expLojt "its global presence through closer cress-border integration: of its functions and operations and whether'Vodafem: should rega. "It's a bit like sailing. Vodafone supports consolidation in its existing markets.K._cda global presence that was unmatched in the indusrry (see-Tables 19. which are mature operations given that most people own a mobile phone. Vedafone is targeting £5bn-£6hn of annual free cash flow and its future perfounan-ce guidance is likelY-to focus on.rifll?i pressure on margins as a result of intensifying competition. be no exit trom Vodafone's core ·. It is calculated by subtracting After tax (loss)/profit as a percentage of shareholders' equity.1 and 19. the second-largest U. Across the board.S.! ill his May 19. his predecessor.9 Consolidated income statement data Revenue Operating (Ioss)/profit Adjusted operating profit a (Loss)Jprofit efore taxation b Net (Ioss)/profitfor the financialyear Consolidated cash flow data Net cash flows from operating activities Net cash flows from investingactivities Freecash flowb Consolidated balance sheet data Totalassets Shareholders' equity Totalliabilities Profit ratios Operating profit/total assets (%) Return on equity" (%) The most tangible element of his strategy is to focus on improving Vodafone's bottom line performance. notably Europe. afocus on tbe tnote mundane matter of e"fficien.d lrself as a porrfolio of largely mdependent national operators sharing a common brand-and.0 8. The most distinctive feature of Vodafone's competitive positioning within wireless communication services was its international spread--with 302 million mobile customers and a presence in 5.1 Vodafone Group plc: financial highlights 2005-9 (£ millions. e . and suddenly the wind changes and the sea changes. He declined TO specifythe nature of-any disposals.788 CASE19 VODAFONE --------------------------------------------------------------- CASE 19 VODAFONE 789 further questions about how the world's leading wireless telecommunications operator would generate attractive profits from its extensive global empire.cyis ius. A critical Issue for Colao was how far Vodafone could 'berrer. 2009. But the scale of the changes points to the challenges confronting the Italianborn Mr Colao: a potent mix of economic. Vodafone's strategic priority had shifted from growth to consolidation.8 3. The capital discipline that Mr Colao talked about yesterday also involves a greater focus on free OIsh!'low-loosely defined as operating cash fl-ow minus capital spending.4 5. this emphasis shifted even more strongly from top-line growth and bold strategic initiatives to the more mundane tasks of cutring costs and improving efficiency.1. Mr Co).6 2008 35478 10047 10075 9001 6756 10474 (8544) 5540 127270 78043 50799 8.. Spain and.bu~esses in emerging markets is also central to Mr Colao s thinking.3). Mr Colao also sigualed that. he will take a relatively ConSelV"'l.tiye approach to futuredeals. competitive and regulatory pressures. except where indicated) (Year ended 31 March) 2009 41017 5857 11757 4189 3080 12213 (6834) 4987 152699 86162 67922 3. b Free cash flow measures cash available for reinvestment.Ii:aly. Colao outlined his strategy for Vodafone. Mr Colao also wants to intensify Vodafone's efforts to sell telecoms services to companies. This will be led by a push to persuade more consumers to buy mobiles that are capable of connecting to the internet.9bn (£7. altho\l_gh.1bn) purchase of it conjrolllug stake in Indian mobile operator Hutchison EsSM may well be dose toacC"ompli.coun.Europ~>Ul businesses inGerroany.?Ois reserving the right to do further deals in.he stressed any significant acquisition would likely be funded tl'u:ofigh disposals. VodaEene believes its expansion into developing countries. but signaled mere would. Mr Colao said Vodafone might" buy rival operators.

0. ~ - l-' ~.622 2005 ODDs 29165 Prepaid customers (%) 54. Under CEO Gerald Whent.S.0. 18447 1127 5438 2265 2006 ODDs 30.790 CASE 19 VODAFONE CASE 19 VODAFONE 791 TABLE 19.mobile-Vodafone Dialog 17780. ••• :..5 n.1 4618 5639 20..47 177 3981 4119 1573 2142 6132 20. Albania Greece Ireland Malta Netherlands Portugal Sweden Czech Republic Romania Hungary Turkey Poland Egypt 35471 22914 Country (%) Country Turkey (%) 10. - ..0..0. Vodafone steadily expanded its international reach primarily through minority equity stakes in other wireless telecom companies and .40.4 76.7 98..a.149 3970. 164549 Proportionate customers 391323 25230.0. n. -~. 10.9 9588 2562 15481 3555 10.8 230. 10.2 73. • : •.1 45.K.38 5111 2658 45. In 1988. 460.3 87.0/0 of Vodafone's equity was sold to the public.0. n.0.0.. n. Racal and Cellnet (a subsidiary of British Telecom) won licenses to supply cellular wireless communication in Britain.0. 135 5613 Operator Roshan MTS Country Latvia Lithuania Luxembourg Macedonia Malaysia Norway Panama Russia Serbia Singapore Slovenia Sri Lanka Iceland Sweden Switzerland Thailand Turkmenistan Ukraine United Arab Emirates Uzbekistan Iceland Kenya Operator Bite Bite Tango VIP operator Celcom TDC Digicel MTS VIP mobile South Africa India Australia New Zealand Fiji 460. . It was established to exploit the opportunities made available by the new cellular technology for wireless communication. ~ ~ L ."1 : -.3 89. I • ~ ~. 16910.0.0.7 10. Partner eqreements: Country Afghanistan Armenia Austria Bahrain Belgium Bulgaria Caribbean Chile Croatia Cyprus Denmark Estonia Faroe Islands Finland Guernsey Honduras Hong Kong Iceland Japan Jersey 870. 17714 127713 22785 74. 1~ I -. Vodafone was originally Racal Telecom Limited.3 Vodafone's customer base by country.4 95.0. 20. 339 250. n. Partnerships in Latin America are through America Movil.. the Vodafone Group was fully demerged from Racal.0.2 38948b 15324 290. : •• ~ " .9 60.40.1 198584 68..':' : - •• a Total number of customers of the country subsidiary or associate. 54. 10.5 5345 20. formed in 1984 as a subsidiary of Racal Electronics Plc-a British-based defense and electronics company. 10.6 96.0.8 12923 16325 749 4438 UK Albania Greece Ireland Malta Netherlands Portugal Czech Republic Hungary Poland Romania 10.: ~ 1 ~_ ..0... 18716 1395 5899 2175 40.2 20.1 40..129 14464 16939 920.' ~~ .0. 2005-8 (customers at year end) 2008 ODDs Germany Italy Spain U..9 35471 22914 Egypt Kenya South Africa Australia Fiji New Zealand 10.0.24 95 5245 60.a.5 5345 16521 880.4 16116 2638 13333 3698 16521 39865 3573 2309 186 10..0.0. -. 250.4 Ml Si.65 3970. b C These amounts are not included in related group totals as Verizon Wireless is an associated undertaking. 10. Annual Report 2009.':: -1 : -. Source: Vodafone Group pic.38 1774 6125 1395 7524 1633 3126 74.0. 18716 1395 5889 2175 30. 51.0. ".4 20. 3.2 339 6811 Al Zain Proximus Mobiltel Digicel Entel VIPnet Cytamobile-Vodafone TDC Elisa Vodafone Elisa Ai rtel-Vodafone Digicel SmarTone-Vodafone Vodafone SoftBank Airtel-Vodafone 20.0.a. 10.. In 1991.. In 1983.68 221157 29568 22784 Group Associates United States Other 327181 38948 25194 159954 26230.9 46. 89...5 Subsidiaries Germany Italy Spain 10.. March 2009 Ownership customers= (ODDs) Ownership customers.a.0. 10.0. 92.. -" \~.9 99.9 16910. 22791 15810.0.4 2134 14103 3197 3278 220.0.4 92... •• - .9 2562 3555 9588 44.2 Vodafone's global reach. 24. 4961 2178 188 3817 4618 2413 7717 2134 12748 2355 1820.0. China France India 20.. 99.6 8620.0.a.9 2007 ODDs 33920.9 5. 10.1 4618 5639 Associates and investments U.0.9 68. 49.0.5 76. (ODDs) 15481 TABLE 19.0. 76.0.9 79.2 75.9 TDC Swisscom DTAC MTS MTS Du MTS -. 50.0.65 290.

n. TABLE 19. The acquisitions of Airtouch in the U.S. Vodafone owns 35% Joint venture established.5 million .a. 60000 n. n. 2002 2002 Radiolinja Vizzavi Pacific Link Communication Ltd Vodacom Panafon Talkland Finland and Estonia France/U.4 (Continued) Year 2001 2001 Company Eircell TDC Mobil Country Subscribers Ireland Denmark Notes 1.a.S. n.. Mannesmann in Germany and Japan Telecom were three huge takeovers that established Vodafone as the world's largest wireless telecom company in terms of number of customers.7 million Partner Network Agreements signed Partner Network Agreements signed $38 billion offer fails. 11 million Acquired for €5 million. Retailer Ireseller with 181 stores acquired for £77 million Service provider with 21 stores acquired for £77 million Misrfone consortium (Vodafone owns 30%) wins license to build Egypt's second mobile network Acquired and renamed Vodafone New Zealand $62 billion merger to create Vodafone Airtouch. Table 19.7% stake sold to Softbank £6. Vodafone embarked upon a rapid succession of acquisitions. Poland. n. Included 1 rn. rebranded Vodafone Ireland First "Partner Networks" agreement.a.S.a. 138000 3.a. 2007 Bharti Airtel India n.a. subscribers in Germany. n. Africa Greece U. Japan.S. New Zealand U.a.?.a. Lithuania Cyprus U.S. and India Joint venture formed from U. 2005 2006 2006 2006 Oskar Vodafone Sweden Vodafone Japan Belgacom Mobile SA. Denmark Hong Kong S.792 CASE 19 VODAFONE CASE 19 VODAFONE 79: by establishing joint ventures to bid for licenses and develop new wireless businesses. n. Japan's third-largest mobile operator and 66.9 bn Sold Group's 5. Cingular bids higher Equity stake raised to 99%. Vodafone owns 45% Vodafone acquired outstanding two-thirds equity of the service provider for £30.a. 42000 n.a. The appointment of Chris Gent as CEO in 1997 marked a new era in Vodafone's development. n. Vodafone owns 80% 4% of equity acquired by Vodafone 10% of equity acquired by Vodafone 30% of equity acquired by Vodafone Joint venture established.4 lists milestones in Vodafone's expansion. 1996 1996 1998 Peoples Phone Astec Communications Misrfone U. n. U. its parent Partner Network Agreements signed Vodafone buys out Vivendi's 50% share of the Vizzavi mobile internet portal for €142.a.K.K.a.6%( Acquired 69. 2000 Mannesmann Germany 9. Romania n.9 million 2000 Verizon Wireless U. n. n.K. n. Italy (Omnitei). Swisscom Mobile AG Hutchison Essar Czech Republic Sweden Japan Belgium & Switzerland India n.2 million 2007 22. TABLE 19.a. Egypt n.a.K.a. Vodafone offers co-branded services to Danish market Strategic alliance agreed 25% of equity acquired Equity interest increased to 91.6 bn (Continued) n.a. Cyta AT&TWireless Connex Austria.7% of f-Phone. also buys Czech mobile operator Acquired Sold for €970 million (£660 million) 97.60% direct shareholding in Bharti Airtel for $1. With the goal of becoming the world's leading mobile communications companies and fueled by an escalating share price. Bite.a 1998 1999 Bell South New Zealand Airtouch Communications.4 Vodafone's Year 1989 1990 1991 1991 1993 1993 1996 Company Telecel SFR AB Nordic Tel international acquisitions Country Malta France and divestments.6m.2 million n.a. 1989-2009 Notes Joint venture with TeleMalta. 400000 Sweden. n.a.a.1 billion Acquired 52% of India's 4th biggest wireless operator for $10.9 billion 25% interests in the two companies sold for total of £3.a. Inc. n.7% of Japan Telecom. 2003 2004 2004 2005 Mobilcom. wireless assets of vodafone and Bell Atlantic Acquired for £112 billion Subscribers 2001 2001 2001 2001 China Mobile (Hong Kong) Swisscom Mobile Airtel Movil SA Japan Telecom and J-Phone Hong Kong Switzerland Spain Japan n.

In competing for market share Vodafone eschewed price competition in favor of differentiating itself through a premium offering through value-adding content. Control stake Verizon Wireless/Alltel Hutchison (Australia) Telecommunications a. faitor was the bursting of the "TMT" (technology. spreading the fixed costs of iafrasrruccure. explained: ' We ~ave always been mobile focused. Additional acquired Acquired Twenty-first Century Challenges newcentury saw: the beginning of more difficulr: rimes for Vodafone . = not available or not applicable.riar~eting. Between 2000 and 2_001. in some cases this was almost immediate. me .K. like many of its cornpetkors.selecting acquisition targets and in developing itsacquisitions. Vodafone sougbr to be fir-Sf or second IDmru:ke:tsh"ate in every country it operated-this was critical £0.S. network quality and customer care. Vodafone Germany is a challenger to Deutsch Telecom in Germany. Acquired Telecommunications 2008 BroadNet £486 million Czech n. During the four-year period 2001 to 2fJQ4.a.a. rt soon became apparent that.obile f~cused . challenge the status quo every day. The outcome was a massive hit to Vodafone's bottom line. The of U. media.a.a. 80% in the U. The local entity bas to work within a matrix structure and keep alive the "challenger mindset" on fixed line telephony and other incumbents. ln first quarter of 2001. l:fcense costs.a.K.ly ant! Germany) it rook many years.. and r. alignment. The second.tS hit heavily by two developments... During the next 30 months it would decline by 72010.l. To focus on this cultural.a..794 CASE 19 VODAFONE CASE 19 VODAFONE 7! TABLE Year 2007 19. It ~ad a turnover of £8 billion. in others (where the existinglocal brand \VaS strong as in It.. We give autonomy to the local entity and reiterate that the local entity did not join a global company like IBM or HP. shares to Vodafone 2008 2009 2009 Crazy John's of Crazy John's 83% n. n... Notes Acquisition of 100% of Tele2 Services Italia SpA and Tele2 Telecommunications SLU for €775 million 2007 The Qatar Foundation Qatar n.K. Vedafone had greariy overestimated rhe commercial potential of 3G wireless communication and had grossly overpaid for irs licenses. In 1995. Apart Ircmpromoring Vodafone as a global brand and encouraging challengeand entrepreneurship among its operating t:9mpanies~ 'Vedafone also encouraged a common eornperitive stran~gy across the group. recli:uo)Qgy. [Tjhe cultural alignment of people within Vodafone isa key issue in sustaining. Vodafone U. over-priced acquisitions and amortization of 3<. this challenger and entrepreneurial mindset. With this c~llenger mindser w~ nurture and instill an: enrrepreneurial spirit among Vodafone companies and in thisxespecr y-je d_o:not behave as . Vodafone's international expansion had been opportunistic and aggressive but not lacking in strategic rationale.a.. In . Vodafone with SFR is a challenger to France Telecom in France.K. In some cases Vodafone saw virrue in transferring irs operating and marketing practices and irs pricing structure-e-hut only where rhere was adequate cornpatiblliry.9'. Group strategy director Alan Harper. $30 billion for the new' licenses (includi:ng$.share price liir Mall-time peak.. boom.. The impact of these vacious "impairments" is evident cram the difference between operating profit and adjusted operating profit in Table 19. It preferred to migrate its subsidiaries to the Vodafone brand.K. For example. for $5.i traditional telephone company . First was governments' auctioning of licenses for third generation wireless communication.a. This we have achieved by collecting or acquiring national operating companies and giving them a mission of a challenger company . teleeorumunicaticns) stockmarket.. is a challenger to British Telecom in the U.9 billion Joint venture formed (Australia) between Hutchison Telecommunications and Vodafone 15% of equity for £1. Vodafoae's .5 billion 'for a single JG license in the U.a A consortium Vodafone Foundation the auction Qatar comprising and The Qatar was named as in in to become the the successful applicant second mobile operator 2008 Arcor Arcor n.1. Verizon Wireless acquires Alltel Corp. Australia n.4 (Continued) Company Tele2 Country Italy and Spain Subscribers n. Today we are still mobile focused With a turnover of £100 billion=-only 10% in the U.-based systems integ rator n. n. 100% sale of BroadNet Czech Republic Australia U. The company W.6 billion Australia 2009 2009 Vodacom Central Telecom South Africa U. n. when I joined Vodafone it was m. Source: Vodafone annual reports. International strategy Under Chris Gent.X). Vodafone paid over.s.a. 2008 Ghana Telecommunications Ghana n.K. Vodafone's ner losses totaled £45 billien+-primarily the result of write-offs of goodwill on. reduce response time and ensure effective delivery to customers.a. and evolve by being local entrepreneurs.I This notion of local autonomy meant that Vodafone did not deploy any standard template in integrating its international acquisitions. Increased its stake in Arcor for €460 million and now owns 70% of Ghana for Czech 100% of Arcor Our vision has been to leverage scale and scope benefits.

The aim is to bind the national operators together and give Mr. The bosses of its large regional operations now report directly to him. explained: · . The roll-out of 3G. During 2004 it became increasingly clear that the greatest challenge facing Vodafone was deriving additional value from its sprawling global empire. Sarin agrees. His "One Vodafone" project has sorted out the behind-the-scenes spaghetti at Vodafone's national affiliates. head of strategy. We are trying to integrate national operating units . the Integration and Operations Committee would be responsible for operational and budgetary planning. Marketing would also take care of global handset procurement. and so on. and rrying to leverage scale and scope while rrying to retain the local autonomy and responsiveness of our challenger national unirs. Mr. Redrawing organisation charts. Italy. Both committees were chaired by Arun Sarin.S.. With acquisitions all over the world. and then introduce it in many markets simultaneously.l and European and non-European affiliates (including the U. The Executive Committee would focus on strategy. with the launch this month of "third-generation" (3G) mobile services in 12 European countries and a relaunch in Japan. The Economist describes some key features of the initiative: Sir Chris [Gent] collected the pieces: Mr. each of which would report directly to the CEO." While Gent was a quintessential Englishman. and even the biggest handset-makers have no choice but to comply with them if they want Vodafone's business. Simplifying Vodafone's structure.K. so that they are now all using the same technology. China. "is a love of cricket. ~ noted one insider. Aligning structure with strategy in this way will. While Gent was a deal maker. Only now is the curtain finally being raised.. he hopes. South Africa. Vodafone became pressured by investors-especially institutions-for improved bottom-line performance and shareholder returns. A single technology platform allows it to test handsets or services in one market and then deploy them everywhere. enable the firm to "execute flawlessly. will provide litmus tests of both his own leadership and Vodafone's ability to function as a unified entity. Sarin has been doing just that. Business Development was a new function "responsible for driving Vodafone's product and services portfolio into affiliates and Partner Networks." This is not rocket science. Sarin more direct control of his firm. But this dullbut-necessary work is what Mr. one of our challenges is to integrate seamlessly not only technology (which. though mosdy behind the scenes. And it has allowed Vodafone to use its Japanese operation as a test-bed for 3G. Sarin is good at.796 CASE 19 VODAFONE CASE 19 VODAFONE 79 When Arun Sarin replaced Chris Gent as CEO in 2003. and what Vodafone needs to bring its sprawling divisions together. he was born in India but his career had primarily centered on the u. rather than simply to his local boss. Arun Sarin launched an ambitious program to unify its disparate global network and derive value from its unrivalled global reach. • Strengthened global functions.. Marketing would include a new multinational corporate unit serving global corporate customers. Asia-Pacific.. It ensures seamless international roaming. the "bigger is better" mantra that accompanied the telecoms M&A binge was increasingly questioned by those who argued that international spread gave few benefits.. financial structure and organizational development.. It has set strict standards for its 3G handsets.. Towards the end of 2004. Mr. The drivers of this quest for a new international strategy were threefold. France and several other countries). Finally. by the way." The One Vodafone strategy involved reorganizing the corporate structure to facilitate closer linkages between the corporate center and the operating companies and enhanced integration. he believes. while playing them off against each other. Second. rationalising back-room systems and cutting costs are hardly the sorts of activities that generate headlines. First. This cuts costs by making it possible to develop a new service once. For the past 15 months.. other EMEA subsidiaries. even for video calling.. is the foundation for making 3G a success. By far the greatest benefit of Vodafone's scale is its resulting clout with handset-makers. Sarin has also restructured Vodafone's management. most of the economies of size in telecoms related to market share within a single country. These included: the U. Using the same technology in both Japan and Europe means that Vodafone can offer Japanese handset-makers access to European markets and Western firms access to the Japanese market. Alan Harper. so Vodafone seems a less dynarnic firm than it was under Sir Chris. Sarin was a citizen of the world." • The establishment of two management committees to oversee the execution of the strategy set by the main board. The challenge of this restructuring program is to balance the need for coordination and synergies with local initiatives . Technology would be responsible for standardized network design and IT shared services. The head of marketing at each national operator now reports to the group head of marketing. Vodafone's management changed in both substance and style.f . for it enables Vodafone to reap the benefits of its global scale. and product and service development. Mr. the potential offered by 3G offered opportunities for a global rollout of new services-mobile internet access in particular. The new structure introduced at the beginning of 2005 included: • Six geographically defined businesses that would report directly to the CEO.S. Sarin was an operations man with a strong technological background. ~All that Gent and Sarin have in common. Germany. Sarin's nnSS10nwas to fit them together to achieve economies of scale and so to justify Vodafone's bigger-isbetter strategy. is more or less similar across the world) but also people .

fixed line. network design. According to Harper: What One Vodafone tries to achieve is to simplify the integration issues in terms of brand strength and integrating local culture and processes. Venizou Wireless. However. The U. the only significant emerging market acquisitions were of Ghana Telecom and an increase in Vodafone's ownership of Vodafone South Africa. A global brand also provided economies in advertising and brand developmenr due to spillovers ill ad.rhrough expanding Vodafune Global Enterprise. used cellular wireless technologies that differed from the GSM European standard used by Vodafone across most of its markets.handset bundled with a service contract). Under his leadership.. Strong competitive and regulatory pressures in the mature markets of North America. Vodafone's partnering arrangements with overseas mobile operators related only to roaming services. . simplifies the provls'jo.ao:o~. wireless (ZG) this . Romania. Verizon Wireless used CDMA wireless technology. This was followed by divestments in Sweden.. Japan and the U. investment from the rest of Vodafone. Hungary. Vodafone's handset requirements g.range of ma-naged services such as central ordering. customer services and retail operations. Vodafoneoperated with a high degree of national auronomy. • Increasing Vodafone's presence in the corporare. In addition to Irs own equipment and software needs.. TI1. SFR supplied mobile.use. Other: econemies were available frern centralizing certain. too. Moreover. Vittorio Colao made several changes to the international aspects of Vodafone's strategy initiated by Sarin. and Asia. . Knowledge is shared . these' 'scale advantages from purchasing depended upon all of Vodafone'ssubsidiaries using the same .irticularly in mobile internee applications."s • Colao sought [0 build Vodafonc's influence in technology development in the ilid\ls_tty_':'_j:.maLbOIde1:S and the porenrial to. Vodafone sold its majority holding in Vodafone Japan in March 2006. on the other hand. with either size or inrernaticnal spread.S. each national operating subsidiary is beaded hy a CEO with pwnr-aml. Africa.. In particular: • Colao slowed Vodafone's expansion into emerging markets.we·lt massive dout when Striking deals . and Switzerland. The QlOST.broadband. As with Verizon Wireless. marketing. . However.their. Its incompatibility with GSM meant that meant that Vodafone was unable to exploit any significant economies between its U. lagged both Europe and the Far East in the adoption of new wireless technologies-mainly because of its multiple incompatible wireless standards. IT (including billing. which manages relationships with Vodafone's 2. ERP!HR.tanrial fixed costs which needed [0 be spread over a rarg~ base of-users » However. This Is evidenrfrcrn Vodafonc's organizarional chart. branding and product development. financial reporting and legal services were all centralized. and internet communication services.. France.oati. Vodafone's partner network moved to closer arrangements for supplying Vodafone services and content to partners' own customers. under Sarin.p'<Irib1ewirelessreclrnology. presence and the rest of its international operations. relecommunicarions expense management Adjusting the International Strategy The limits of the One Vodafone program were immediately apparent in three very important markets. back office. _7 During his first 10 months as Vodafone CEO. represented a problem in terms of integrating into Vodafone's global network.onal presenceand the porenrial for cross-border linkages.services {or MNCs who need a single operational and commercial relationship with Vodafone worldwide. mobileand.S. filnc:tiohs.i~ were less evident. South Africa.vitti handset makers. Western Europe. there. obvious cosr benefirfromglobal scale. These technological distinctions were reinforced by other distinctive features of these markets.media and ptomotional events mar attracted global: audiences. was little doubt that scale economies were very important at-the national level: !:nIrasrructm:e. and India.s t multinational corporate custowers:"VGL . at the global level these ECOnO[n.·10slnespol\Sibility ro headquarters. while Vodafone had avoided involvement in fixed line. adopting new wireless technologies at least two years earlier than Europe. Belgium.n of fixed. procurement. Initially. Network design is coordinated. However.798 CASE 19 VODAFONE CASE 19 VODAFONE 799 The One Vodafone program involved business integration across a wide range of activities including billing (in 2005 Vodafone operated with eight different billing systems). In 2006..70 large. Vodafone also expanded its non-equity modes of internationalization. Vodafone possessed a minority share of SFR (440/0) and had not moved SFR to the Vodafone brand. where its associate company. sales and billing all involved slib. scale economies. It: provides a. service-center platforms.S. customer self-serve web portals. Table 19 S offers no: clear evidence that pz:ofitability' is-associated. a key issue for Vodafone was the sources and extent of global-level. roaming. Scale Economies in Telecom Services In evaluating rhe-benefits of inti:rnati.e major exception was the tJ:S.reclirioiogy-in second-generation. We keep and encourage local initiatives such as customer services. Thus. and Japan encouraged Vodafone to shift its focus to the growing markets of Eastern Europe. for the most part. Technology is standardized. We centralize all our marketing efforts. Iceland became the first franchise partner to adopt the Vodafone brand.S.as largely mae: Vodafone had adopted the European ' GSM standard. Vodafone's introduction of its global range of handsets in Japan led to an exodus of Japanese subscribers: the phones were seen as technologically backward.was in centralized purchasing.. Technology development. Vodafone's minority equity position in Verizon wireless and the absence of the Vodafone brand further isolated Vodafone's U. and sales .marker.veriising. Best practices are benchmarked by Advance Services. Vodafone was one of rbe world's biggest purchasers of handsets (iu marry countries consumers bought. coupled with a single ccntraer and guaranteed tools and device management service levelagteemellts. Japan (together with Korea) was regarded as the world's most advanced wireless market. and by acquisitions in Egypt. used CDMA-an incoil:j. and data center processes). the Netherlands. During the next 12 months. further changes in Vodafone's international strategy ensued. Web support.

c" '" > >..ill ZU cti~ 124028 103684 97354 90260 84815 78290 69138 65015 45118 37166 36626 35635 34814 34256 31814 31012 26608 22371 21981 21373 o 190 "'ill OU -«Ol ~. A key aspect of the "One Vodafone" project was that it sought opportunities for such standardization.~ ~e::> Q) f-CfJ 0 C!l" E:E 0« -o 0. '" 0 Q) o C <: . ::> ~ '" 0.::< m'e 's .~~ I I _j .~ o ::l ~ C!l1Il U) 0.3 ::l Revenue ($ million) 1 AT&T 2 Nippon Telegraph and Telephone 3 Verizon Communications 4 DeutscheTelekom 5 Telef6nica 6 FranceTelecom 7 Vodafone 8 China Mobile Communications 9 Telecom Italia 10 Vivendi 11 BT 12 Sprint Nextel 13 KDDI 14 Comcast 15 China Telecommunications 16 America M6vil 17 Softbank 18 Telstra 19 China United Telecommunications 20 Royal KPN Source: Fortune Global 500 (2009). a. C!lU IU>e: §@ ~~ CJ ctl "C '~5 EO oW II:U m.4 13. the work encompassed new operating models.4 5. ~~ j!lo<! Ul >e:w ~u ~~ I I >.4) (7..8 12. A customized approach was needed..~ mII: ~ m 0 "E ee s: c _0: c-.2 1.~ . The new organization facilitates rapid movement of resources and talent.. " 0 (5 CfJ E c '" l" >. '" o CCI Ol c.s::... Vodafone is stillieaming to find the right balance of local versus globalhowever.4 7.0) 17. l" c c Q) (5 E N N U) 0 .2 ~ .<:: I-< u E<!J > ~~ o!Ic 'U~ 0. -Oc ~ ~. In Wave 2.x: o ::> 0 Q) ~ ~ ~ ~ ~ . 0 "" U) :r: '" a. "" " '" ~ s: Q) !!l Q) m III e 0.9 9.2 (0. C!ljD-'" "'c:: .5 7. Net profits ($ million) 12867 5362 6428 2171 11112 5956 5188 11442 3241 3810 -140 -2796 2217 2547 -51 5337 430 3304 2840 1950 Net margin (%) 10. U) s: t:: ::> III (5 ttl 0. or a merger of two companies..!!!O ow UU 0 a..5 World's largest telecommunication service companies.x: ~z (5 III e ::> . l" '" '" " '" ~ I-< .:: Ul ::> E s: 0 o II: 0 -e C U)Ul C ttl 2 "S U) ~ U 0 0 1..4 2.~ .6 14.f c "" CJ:J .0 III c-.(U &io " .Q ::l '" 0> " E - O>~ Q) 0._.. Cl ~@ ~ WU 0> ~II: .0 o ~ lIla.!j co.u.4 (0. ttl 0.-m~ w:!2 U::< _0 Dr. and leading product and service offerings.5 17.0 EO Q)ill C!lU . E ..." says Klaus Helbling.2 4. the transformation has already resulted in significant cost savings as well as innovative market strategies. I Q) "= C '" c '" c '" iii U) ~ Q) Qj .S . 0 Ul U) " 0 s: 0 Q) 0 '6 U) 'E U) Jgo "'ill :>" to C I ::<u "'0 ~w C!lU '" . Wave 1 established common planning and design standards. but really an integration program that spanned the 16 countries which had diverse people and diverse markets.s::. .2ca -.<:: '" u m~c: Olo.c c." c: 0 C Q) > c.!::: c:: 00 ...Q . a. and sharing of best practices and expertise.. a principal in Booz Allen's Vienna office..W "U ijio.. ~-. 2008 "E U) U) II: I a...0: I. '" 0 III U) '1" ". C!l ~ c 0 . > «- ~ " -' to " t:: c Q) U) III 0 B ee 0. " 0 . ::> 00 >Ul ~5 :':@0!1 G\ 0 0 N .1 7..·CD ZO'C ~@ «U ». assessing how global and local business would be conducted. more competitive and differentiated pricing.J II: ::> ..0 ".:c~ ::>0. Booz Allen describes its role in this process: This program was not just an integration of two functions or two countries. 0 >.. and created the architecture for a common service platform.ow ." Wave 0 of the engagement focused on the business case for integration..0 ijio '" !? C:->' .~O "W EU c ~ ::.ill -e c 1: ~ !Q)L: §~l e oU< U ~@ uu ". o ~ C Q) .~@ CfJU I I eSo Q)W zu Qj' ~~ o. ::> . a. '" e c:: ..i= c ::> c-. Economies were also available from standardizing administrative and operational practices.. CfJU) E m 0> .c ::. 0 . C!l::. "We couldn't assume we would integrate one operation the way we'd done another because the markets were very different.. o<!U) U)e "" ~ '" 0 0 '0 o Ul U) *~_j Ui > C u.s::.9) 6.u I ~@ I -'=u a....1 C!l0 ~" §. o 0 Q) U) ::> >.. elevated management of the supply chain to a global level. and development of a new organization structure and implementation plan .800 CASE 19 VODAFONE CASE 19 VODAFONE SOl e Q) TABLE 19.5 -roO.6 7.. .2 10..

. it is clearly better to be a market leader in one country than a follower in two countries.K No. The key roaming benefits of h. at the peak of the telecom bubble. the economics of the mobile industry remain primarily national in nature.. This was certainly the.earn !iceilsing income from providing iri. Beyond. U. DoCoMo acquired stakes in the No.drrmtenccouill:ri~ was the. die Asjnll Wtill Strl/it [ouma! drew three lessons for . Japan's thirdlargest operator.. the signifif'lnt fixed-c~st components of the business (networks. than .But this acquisition' spree resulted in equity stakes -'inonly two market Passport . internanenal roaming could be offered through access agreements with localservice providers.g servlces=-identical services in: each country. beyond domestic have resulted race to fulfill their global aspirations seems to in a set of investments focused on the number of flags on a boardroom map rather. For example.operator with domestic leadership positions." observed one analyst in 2006. Summer!" "!'{oReam.11 . That is.l" Compared to its nationally focused competitors. all these investments were minority stakes and so would appear to give DoCoMo limited ability to exert control over critical strategic and operational issues at these operators .·wingsubsidiru:ies in . After losses in market share.. I I. Both the airline and the telecoms businesses are highly regulated. Taiwan's N~. SingTel has focused more recently on mobile operators in South Asia. The risks of these two aggressive expansion strategies were further compounded by not having control over most-of their international investments. 3 U.. in short order DoCoMo accumulated direct or indirect stakes in ~ .20Q9 Vodafcne's has been created by such "regional" this in leaders and these were in relatively minor consolidators.bbse[yiug i'he ·failed irrrernatienal srraregies . According to The Economist. Indonesia..rnoblle operators=most for cash. Vodafone sold its Japanese subsidiary to Softbank in 2006.corperateglobal . Withdrawing from an early set of unfocused European investments. There ani obvious trends suggesting that broader geographic scope adds value in mobile. It also allowed the f1.802 CASE 19 VODAFONE CASE 19 VODAFONE 803 It was also questioaable whether exploh:'ing. All the others were lesser players.. Worse still. product development. and to Vodafone's global range of handsets proved disastrous. industry. Street Journal (April 4..1 or the strong No. . in 2001. A number of operators offered "quadruple play" bundles comprising fixed and mobile telephony. technology driven and capitalintensive industries with high fixed and veryIow marginal costs 1(per iI. ca~e ill serving . 5 player Hutchison U. brand and particular services to local operators whhmrt any need to investin tlresecounrries.brand cir standardized global systems necessitated ownership of overseas telecom companies. That means the third lesson from the two' companies' problems is to move to management control if you are serious about capturing acquisition synergies . and distant followers KPN Orange in Belgium and E-Plus in Gennany. Vodafone was slow in responding to the trend towards bundling: "Vodafone management has no strategy for convergence. When convinced both NIT DoCoMo and boundaries Swissair themselves they needed to expand to survive.glo'balsrratew (see Exhibit 19-1). Vodafone took control of j-Phone. abilit.global.xibiliry to offer promotional deals. the sale of Vodafone Japan signaled a definitive end to Vodafone's famous "big is beauriful" strategy. Thailand. rhe Jii!pim~e mobile operator.. pointing the way towards a more focused regional strategy.t'he'eltonomies from a. A key trend was towards the integration of fixed and mobile networks offering bundled services to customers. leader compared with its Vodafone's experience in Japan underlined some of the risks inherent in a global approach to wireless telephony. Migrating J-Phone to the Vodafone brand.In the case of individua!usf!i.program effered.on these basi~ economics driving superior profitability in their industries.2 mobile operator in Singapore. For' example. Similarly.. In contrast. Source: -when Global Strategies go Wrong.e.K. in summer . Singapore Telecom appears to be pursuing a more focused strategy. 1 or No.aCCOUIiIJ:. . Value market . and brand advertising. pursuit: of these benefits cempremised Vodafone's ability I:? . in Europe. Reproduced [T)he first lesson is to start with the drives Despite regulatory changes.of Swissair and DoCoMq..S. traffic microeconomics: Understand what superior economic perfonnance in your business and don't take your domestic success for granted. Increased subscriber roaming and higher mobile penetration rates are shifting an increasing portion of cross-border from fixed to mobile networks. e nine . In the mobile. .S.y i'ooffe~ "searilksSH rOamln. the Philippines and Australia. global presence there were also user beaefirs resulting frornineemarional presence. Vodafone was also looking disadvantaged by its mobile-only business focus. VodafonEi accomplished Europe. player AT&TWireless. in a number of major city markets within a continental regional market such as Europe or North America.erH<lnts. to Vodafone's European 3G technology (UMITS). now owning the No. Vodafone concentrated upon exploiting its scale advantage within an increasingly unified rnarker. 4 player KG Telecom. 2 mobile operator in' most major national markets ." The Asian Wan with permission.' these cesteconcmies associated with.irlineseat or per mobile call minute) . Vodafone's partner nerwork allowed Vodafcne to.illg Charge in Oller 35 -Countrles This Adapting to Local Market Needs A key issue for Vbdatoile was not simply tbeexlsrenceand extent of-these potential benHi_t$ from global scale but whether the. the more geographic markets--KPN Mobile domestically in the Netherlands and Hutchison in Hong Kong.and promotion) provide unit cost advantages to the national followers Both trends favor a mobile .adapt to-the local market reqliit. It now has stakes in the No. broadband internet access and television services. 2002).

Financial Times.2006. The potential for WiFi to compete with cellular networks was being increased by the creation of city-wide WiFi networks and the advent of WiMax. Microsoft). Vodafone has a strong position in core mobile services. p. 15 See www.iOI)i. 2009. key gateway: into the 3G mobile services jhrough . Chilia Mobile and Sofrbank partnered 'in the venture whose aim was ro producea single platform for developers to create mobile widgets and applicarioas OD multiple operating systems and access the partners' combined 1. the Iridiumsatellite communication system). p. Research in Motion. "Foundation and Empire. Annual Report. Quoted in "Vodafone: Out of Many. Cellular phones were adding. accessed May 28. Vodafone has already made significant progress on mobile data.. if Ap_ple. The implicarious for 'wireless telephony providers were complex. for example). In the eriterprise segment.ppeat. Together with its Android operating platform. 2009. 2008_ 10 "Vodafone: Not-so-big is Beautiful. May 19. which offered support for third-party developers.jil. the problem for Vodafone and the other cellular service providers was that the new technologies were controlled either by hardware companies (Nokia. systems. I'D&-. 2009. accessed April 16. the Group has a presence in all of its European markets and 4.2004. 2009." Financial Times." New York Times. handheld game . The. 2009.2006.e was sliut out of-the widening array of mobile services provided for iPhone users. "Vodafone: Out of Many. or software companies (such as Coogle.I" 2 3 4 5 6 7 "Captain Colao Takes the Helm and Changes Course in Stormy Seas. remarkable success of Apple's LPhOl]e pointed to the exrenr to which eur cQIid:pCODS of cellphones were changing. the increasing number of wireless communication-devices and the increased demand for mobile internet access greatly increased the total demand for wireless communication. Vodafone Group Pic. Vodafone. Apple was 1I0_[ the orily . However. Quoted in "Vodafone: Out of Many. Verizon. The success (if Apple's iPhon'~ was especially alarming for Vodafone. new functions and technological convergence was blurring functional c4.boozallen. 2005): 9.I? The." Economist.804 CASE 19 VODAFONE CASE 19 VODAFONE 805 A key theme of Colao's November 2008 strategy review was a push into "total communications services": [T]he three target areas are mobile data. Federal Communications Commision auctioned licenses to the "C-block" spectrum.nytimes. In fixed broadband. One" (ESSEC Business School Case Study." Lex column. A surprise bidder was Google.was the world's fil. Adding further complexity to the assessment of benefits and cost of internationalization were the technological changes affecting the industry. "Vodafone. Britain's fixed-line incumbent.com/media/filel06_2005AR_PEA .stinct. January 26." Economist. 14 "Vodafone in Consolidation Call. 2008. which lacks a mobile network. Vodafone has also acquired some of its own fixed line capacity. .ed to be accelerating. Although several potential substitutes for cellular :wireless connnnniearion had lacked commercial success (for example. 26% higher on an organic basis than that of a year ago. the most widely used operating system for mobile phones. wireless technology. In Britain. November 25. Vodafone launched its own software applications srore=-the 16Ll]t Innovation Lab-cin May 2009." Financial Times. Nextel and Wind.html? _ r = l&oref=slogin. paging.com/2008/ 04/04/technology/04auction. between cellular phones.Ninteude Cameboys)' ami portable music players. March 9. were created to exploh the new rechnology of cellular wireless communication. 11 "Vodafone: Calling for a Rethink. 2005): 9. with annual revenue of £3 billion. 20. which conferred the right to operate the 700 MHz frequency band. enterprise and broadband. The power battle between hardware supplier-sand service provides had important implications for Vodafcne'sgobal strategy. Intel. More direct competition was likely through the opening of new segments of radio frequency for wireless communication.6 million customers globelly.Tn this event. mainly amongst larger corporations. The aim is to build upon this position and expand into the broader communications market.rgesr bandser supplier and it owned S)'mbiaB.Apple'. the pace of recl:tuologiC$l'cihange iJ. July 24. an increasing range of alternatives was becoming available. November 12. Europe. In Match 2008. One" (ESSEC Business School Case Study. 9 See www. 2005). serving small and medium sized businesses with converged fixed and mobile products and services and to continue to increase the Group's penetration of multinational accounts.~t visible technological changes were in hardware. The mo. along with a number of other new wireless telephony startups such as Orange.players (such as. the potential for creating value from supplying wireless services across national boundaries would become progressively smaller. Vodafone is acting as a wireless partner to BT. !Phone had also posirioaed Apple as a." The Economist.clear intention to become a central player in the development of mobile rechnology. Developments in Technology While new technology offered opportumnes for developing new content and services. Vodafoo. Annual Report.l+ Total communications involved Vodafone in leasing fixed line capacity from other telecom providers. Wireless. See www.1 billion customer b3S!<. Google was signaling a . In response. accessed October 22.lS However. Middle East and Africa. in 2008 it acquired Tele2's fixed-line and broadband services in Italy and Spain. A quarter of a century later that technology was changing rapidly. April 4. Nokia . 2009. 12 Vodafone Group pic. Qualcomm. Because of Apple's exclusive deal with 02 (owned by Teie{6nica). Apple. 13 "An Auction That Google Was Content to Lose.hardware company seeking to build a Strong strategic posiuou from which it could influenee the evolution of the. there was a risk that wireless senric~s would be increasingly commodirized. One" (ESSEC Business School Case Study. and Coogle were increasingly their control of wlrdess rechnology and contenr.s applications store.j'hkia. 9. but the opportunity remains significant as the proportion of the customer base that regularly uses data services is only around 10% in Europe. 2008.org.pdf. creating services and content for the iPhone. At one level.

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