Transformation: Vodafone needs a Telco 2.0 revolution
- For a full description of the inputs and methodology behind the Transformation Index, see here
- For the headline transformation scores broken down by domain, followed by an analysis of Vodafone's current growth story, see here.
Figure 1 below, taken from the updated benchmarking report, categorises the CSPs surveyed along two dimensions: what they can't control (external market attractiveness, e.g. market maturity, regulation) and what they can control (execution within this context e.g. quality of service offerings, internal organisation and external partnerships).
One of the key findings from this chart is that Vodafone, AT&T and Verizon are operating in less attractive markets than their peers and, with the exception of Ooredoo, are executing on transformation less well also.
Focusing on Vodafone, one of the areas of execution STL Partners believes it can improve upon are its Service Offerings: specifically, as discussed here, it falls short of all of its peers except Ooredoo in this regard. The logical question, therefore, is why?
Vodafone can improve its transformation execution by focusing on specific areas of its Service Offerings
Before answering this question, some terminology is needed. Figure 2 below gives STL Partners' taxonomy for analysing each CSP's Service Offerings:
Using this framework, STL Partners has benchmarked the transformation performance of each CSP within each of the six areas, ranging from traditional 'core' services to 'near-core' areas such as infrastructure services and embedded communications and truly 'digital' own-brand OTT services.
Figure 3 below provides the highest, lowest and average score for each domain, and positions Vodafone amongst these. (Note: Ooredoo is excluded from the average because, as indicated by its very low score, it is an outlier in terms of Service Offerings. Its less mature (but therefore more attractive markets) have prompted it to keep its focus primarily on Core services.)
Before looking at Vodafone specifically, three general comments can be made:
- In the three opportunity areas where CSPs have
been operating for some time, the average scores are quite high and some CSPs
are doing very well (e.g. Verizon in Core Services thanks to its aggressive LTE
roll-out and strong FiOS FTTH offering)
- Embedded communications, however, sees slightly
lower scores (2.2 average compared with 2.4-2.5) since, despite things like M2M
needing strong traditional networking skills, they also require new partnerships
with enterprises and technology players
- In the two newest areas, Third-party business enablers and OTT services, the scores are much lower. These require a new business model encompassing new skills, processes, operational models and new relationships and so are proving challenging for all CSPs.
Focusing now on Vodafone, it is clear that there are certain areas where Vodafone needs to improve relative to its peers (Vertical industry solutions, infrastructure services) whilst there are others where it leads the way (Embedded communications). There are four key points to be made:
- Vodafone performs well at Core services, slightly beating the average score, and its score
here will improve over the coming 3-5 years as it uses the Verizon Wireless
deal's cash consideration to increase both organic and inorganic network
investment. It might have received the lowest score for Own-brand OTT services, but none of the operators surveyed are
doing enough here.
- For Embedded
communications, Vodafone scored joint-highest. M2M is a big priority
for Vodafone and recent big client wins and rapid growth point to good market
traction. Interestingly, Vodafone has opted against joining one of the
multi-operator alliances and has instead focused on bi-lateral agreements and
its own, internally-developed service delivery platform. Vodafone has also
partnered effectively to begin offering solutions beyond traditional
connectivity. Its broader activities in Vertical
industry solutions score less well, however, since these remain M2M-centric
and despite good efforts here connectivity remains king. One factor is that
Vodafone lacks the SI capabilities of some of its peers.
- In Infrastructure
services, Vodafone also scores below average. Looking at IaaS Cloud, for
example, Vodafone gained a real play here following its 2012 acquisition of
Cable & Wireless Worldwide, but it remains both UK-centric and a relatively
small player in an extremely competitive market.
- Vodafone's most well-known activity in Third-party business enablers is M-Pesa, the mobile payments and money transfer service. M-Pesa, with over 19m active users, is widely considered to be the most successful mobile money initiative in the world. In its major markets, Kenya and Tanzania, it has also been important in reducing churn (thus driving substantial indirect revenues). However, Vodafone has faced more challenges as it moved into new markets (e.g. India) and it earns less revenue from here directly than one might expect.
Although each of the six CSPs surveyed have made a start in moving to a new business model, all need to accelerate the change process; NTT DoCoMo to be added next
Despite several operators, such as Vodafone in M2M, showing strength in selective areas, it remains true that none of the CSPs surveyed are doing enough both in terms of their Service Offerings and transformation efforts in general.
It will therefore be interesting to see how NTT DoCoMo, often seen as the 'leading light' in terms of telco business model transformation, stacks up relative to its peers. How well is it really doing? In what areas, and where can it improve?