news Vodafone’s global parent in the UK has revealed that its Australian division lost a further 216,000 customers in the first quarter of this year, as indications continue to mount that the ongoing customer outage from the beleaguered telco is accelerating, rather than declining.
Vodafone’s global operation, headquartered in the UK, owns 50 percent of Vodafone Australia, with Hong Kong giant Hutchison Whampoa owning the other half. In financial results published overnight in the UK, Vodafone said that its share of the Vodafone Australia division lost some 108,000 customers in the first three months of 2013. The 50 percent share equation means that Vodafone Australia is likely to have lost a total of 216,000 customers in the period — bringing its total customer headcount as at the end of March to about 6.2 million.
In the Asia Pacific and Middle Eastern regions, Vodafone’s Australian division is the only geography to be heading south, with the rest growing. “Australia continued to experience steep revenue declines on the back of ongoing service perception issues,” the company’s UK parent said in its financial statements.
The move adds to growing concerns that Vodafone’s Australian business may not be sustainable in the long term, as customers continue abandon the company due to the inferior quality of its network compared with rivals Telstra and Optus and the ongoing technical and customer service issues first exposed in 2010 in a disaster period for the company which has come to be known popularly as ‘Vodafail’.
In February Vodafone Australia revealed it had lost 443,000 customers and about $817 million in the 2012 calendar year. The release overnight meant that the company had lost about half that amount of customers in just three months; signalling a significant acceleration of the company’s issues.
Vodafail issues aside, part of Vodafone’s problems in the Australian market stem from the fact that its mobile network is no longer competitive on a technical basis with the rival networks operated by Telstra and Optus.
Both Telstra and Optus have had 4G mobile broadband services available on their networks in key geographies such as capital cities for close to a year (Telstra longer), and both now count large 4G customer bases. Telstra recently announced it had 2.1 million 4G customers on its network, while Optus recently revealed it had some 785,000 4G customers. Both are ploughing billions into their 4G mobile broadband infrastructure, as customers rapidly adopt handsets such as the Apple iPhone 5 and the Samsung Galaxy S4, which support the new networks.
In comparison, Vodafone has not yet launched its 4G network and consequently has no 4G customers on its infrastructure. It plans to do so in June, but much of its efforts over the past several years have gone into bringing its 3G network up to acceptable levels. When the company launches its 4G network next month it will do so several years after Telstra launched its own 4G services and a year after Optus.
The company is also taking other measures to win back its customers’ confidence following its ‘Vodafail’ series of outages several years ago — such as changing its charging structure to a per kilobyte basis and developing its Tasmanian call centre to ensure more Australian customers are able to speak to Australian call centre agents. It has also invested significantly in its backbone network to ensure it’s IP-enabled to improve customer experiences such as online streaming video.
However, so far there is no indication that any of these measures are having any impact on the company’s customer outage numbers.
How long can Vodafone hold out, as it continues to burn hundreds of millions of dollars in smoke every quarter and lose hundreds of thousands of customers every six months? In my mind, not long. I believe the company has several years at most before something drastic has to happen such as an acquisition at a bargain basement price, perhaps by a private equity firm or similar. In early April, after an extensive briefing with Vodafone Australia chief executive Bill Morrow, I wrote:
Honestly, the company is doing everything right at the moment under Morrow’s leadership. It’s investing in its networks strongly to get the basics up to speed and target high-profile areas with really fast 4G infrastructure; but it’s not over-investing in 4G right now, because it knows there is just no way for it to compete fully with Telstra and Optus in this space. It’s cutting costs, dramatically boosting customer service and investing in its backbone infrastructure to sure up the reliability of its network as a whole.
At the same time, Morrow is being extremely humble about the situation. The executive is very open about admitting what Vodafone has done wrong over the years to get itself into this situation, and he’s also not targeting every customer out there in areas where he knows his company can’t compete. Vodafone is letting some customers go right now, for now, while it shores up its situation, but Morrow is conscious that he’d like to win back many of those customers later.
All of these steps are precisely the right ones, and I applaud Morrow for taking the company in precisely the right direction. I feel like there are glimmers of interest out there amongst mobile customers in Vodafone again, and I feel the company’s momentum will grow slowly over the next year, as Morrow turns the ship around.
However, personally, right now I don’t feel like it will be enough to save Vodafone in the medium term (four to seven years).
Right now, courtesy of its huge and early investment in 3G and 4G infrastructure, Telstra is sucking all of the energy out of the mobile market like a giant black hole. Optus is growing in the market slowly, but Telstra is growing rapidly, and my bet is that most of those customers are coming directly from Vodafone. In this context, where even Optus is having trouble, Vodafone’s going to have even more trouble keeping existing customers and gaining new ones, and even the deep pockets of its international parents aren’t going to last forever when the company is losing hundreds of millions of dollars a year. Morrow’s on a clock to turn Vodafone around and show results, and he knows it. The executive may perhaps only have a couple of years before it becomes apparent whether his turnaround plan is actually going to be viable or not.
After seeing Vodafone Australia’s most recent set of financial results, which starkly demonstrate that everything the company is doing has not arrested the customer decline — in fact, that customer decline is rapidly accelerating — I believe the situation is even worse than I had believed it to be previously. In my opinion, Vodafone Australia has a couple of years left at max. At that time, we may be looking at a drastically altered Australian mobile landscape, with only two main players — Telstra and Optus. The mobile wars are over — and it looks like Vodafone has lost.
What should regulators such as the ACCC and the Federal Government make of this? I’ll try and post some thoughts about this in the next few days. It’s a thorny issue, and it’s no longer on the horizon — it’s here right now. There’s really no doubt about it now. Vodafone Australia is dying.