analysis Vodafone Australia is spending hundreds of millions of dollars re-building its troubled 3G mobile network, boosting its customer service levels and trying to win customers back with attractive marketing offers. But the sad truth is that all of its efforts appear to be having little impact on its dismal future.
If you read through the half-yearly financial results presentation which Hutchison Telecommunications (the 50 percent owner of Vodafone Australia) released this week, it’s hard not to feel as though a note of cautious optimism pervades the document. Vodafone Australia chief executive Bill Morrow, who joined the company in March this year, gives the impression that the company is currently an absolute hive of activity as it attempts to rebuild its operations following the disastrous series of rolling network and customer service failures which hit Vodafone in late 2010 and early 2011 (commonly known as ‘Vodafail’).
Morrow starts off his presentation by acknowledging that Vodafone has failed its customer base (currently at around 6.8 million connections). “We have lost the trust and respect of many customers,” he says. “I will say here and now we owe our customers an apology for the past and a commitment for the future that we will rebuild our operations to prevent this from ever happening again.” But from there the executive moves into the many things going on within Vodafone to redress those past wrongs.
Vodafone’s capital expenditure on its network grew by a whopping 22 percent over the past 12 months (to close to $400 million), as the company ploughed money into multiple areas simultaneously. It is building a whole new network based on the 850Mhz frequency popularised in Australia by Telstra. It is adding 500 new mobile tower sites in metropolitan and outer metropolitan areas, taking the total number of new sites to 800.
It is increasing the speed and capacity of the backhaul transmission network which services those towers, and it’s also deploying new network hardware which will support higher speeds under the HSPA+ standard, eventually upgradable to the 4G speeds currently being deployed by Optus and Telstra.
“All this will be available to our customers by the end of this year!” says an exuberant Morrow. “Our customers can expect to experience improvements in the network and customer service throughout the remainder of 2012, and we will make further announcements on our 4G (LTE) plans for next year.”
The company is also investing in its contact centres – the critical contact point with many customers – and is attempting to “innovate and deliver a change in the way it interacts with customers across all segments”.
Now, there are some early signs that Vodafone’s eventual planned recovery is on the way. Customer complaints to industry body the Telecommunications Industry Ombudsman are down, and the numbers of Vodafone customers on monthly plans (post-paid customers) has remained relatively stable over the past six months, at around 4.2 million. These numbers have remained fairly similar since late 2010. If you’re on a plan with Vodafone, right now, odds are you’re remaining on a plan for now and not dumping the carrier for rivals Telstra or Optus.
However, in other areas, there are some stark signs that the Vodafail rot which kicked off in late 2010 continues to plague Vodafone, and will continue to do so for some time.
Although its post-paid customers have remained stable, Vodafone shed an astonishing 178,000 customers in the first six months of 2012. What this figure represents is the fact that Vodafone’s customer churn problems in the prepaid segment are not really changing. The company lost a virtually identical number of customers in the second half of 2011, and about 375,000 in the first half of 2011 (although some of those were losses on paper due to changed methods of accounting for customer numbers).
Consequently, because of the ongoing network investment and customer churn, Hutchison made a staggering loss from its 50 percent ownership of Vodafone; reporting a $131 million loss for the first six months of 2012, a figure which more than doubled from the same period 12 months previously (up 68 percent). Vodafone’s own figure would have been roughly double that.
It’s hard to exaggerate when speaking about just how bad Vodafone’s problems are right now. This is a company which is currently losing hundreds of thousands of customers per year. It is a company which is spending hundreds of millions of dollars trying to get them back, and is broadly failing in the prepaid segment, where customers continue to abandon the company in droves. In the post-paid segment for customers on plans, all of Vodafone’s efforts so far are only just keeping its numbers even.
These problems are having a stark effect on the finances of the company’s shareholders Hutchison and the broader global Vodafone Group – so much so that it is now standard practice for Hutchison chairman Canning Fok to be quoted at Vodafone financial results sessions as on the record as maintaining support for the ailing telco.
But these are only the short-term problems Vodafone faces.
The popular video gaming commentator Dan ‘Artosis’ Stemkoski has a favourite saying when it comes to the game StarCraft, which is played at a professional level in countries such as South Korea and the United States. As with Australia’s telecommunications industry, StarCraft is a game based around resource gathering. In StarCraft, there are only so many resources for players to gather and use to build their armies, just as there are only so many telecommunications customers in Australia for our major mobile carriers Telstra, Optus and Vodafone to fight over.
“When you’re ahead,” Artosis loves to say, “get more ahead.” And while Vodafone is struggling to even keep its current customer base from deserting it, the company’s rivals are doing just that.
Earlier this year, Telstra released results that showed it was adding on about 900,000 connections every six months. The company simultaneously revealed that it had more than 300,000 customers using its 4G mobile broadband network, which now extends to some 1,000 base stations around Australia. The network was switched on in September 2011.
Optus is not seeing anywhere near the same levels of growth as Telstra – in fact, it’s only seeing modest growth in its mobile business, adding on some 82,000 customers for the three months to the end of March. And it’s also quite a ways behind Telstra when it comes to the upgrade of its 3G network and rollout of its 4G network – it has only recently deployed testbed 4G infrastructure in Newcastle and the Hunter region, ahead of a planned wider deployment later this year.
But broadly, both telcos are accelerating away from Vodafone at the moment – adding on customers, rolling out next-generation network infrastructure and continuing to profit from their mobile operations, at a time when Vodafone is losing money hand over fist just trying to bring its network up to anywhere near the standard set by its rivals while simultaneously attempting to boost its customer service skills and keep the customers it had.
There are also other indications that Vodafone is falling further and further behind its rivals at the moment.
In an article published by the Financial Review this week, Vodafone chief Morrow revealed the company may skip entirely the next round of spectrum auctions held by the Federal Government, which are expected to be used by the telco to unlock the next generation of faster mobile broadband services.
To say this is a troubling development for Vodafone is an understatement. It’s yet another indication that Vodafone is having trouble just keeping up with its neighbours in the short-term – and may not have the funds or the capacity to prepare for the mid and long-term future ahead in the nation’s telecommunications sector.
When you’re playing StarCraft, if you follow Artosis’ philosophy, when you win a small battle, you don’t try and kill your opponent immediately after winning a small skirmish. Instead, you take the gains from that skirmish and hold onto them, investing your resources to continually accelerate your economic operation upwards. Eventually, your higher rate of acceleration will enable you to overwhelmingly crush your opponent’s forces, because your underlying scale will be so much greater over time than your opponent’s. You sacrifice a risky short-term win for a colossal and certain long-term triumph.
We can see this same dynamic at the moment with respect to Vodafone.
Right now, if it cut its prices significantly, the nation’s biggest telco Telstra could absolutely crush Vodafone, which typically plays at the low-end of the market. It could unleash a marketing campaign custom-designed to target Vodafone customers with special migration offers. It could force its competitors to shred their profit margins merely to keep up.
But Telstra doesn’t have to do that. Instead, as it controversially did last month, it can sit back and rise prices. It can rake in the cash and buy up all the available spectrum when the government auctions it off. It can reinvest its higher profits back into its network to make it overwhelmingly superior to that of its rivals. It can know that in two or three years’ time it will be able to execute that same campaign in a much larger and more powerful fashion. When Telstra has a 4G mobile network covering Australia nationally and Vodafone can’t even afford the spectrum to secure its future, that’s the moment when Telstra can pounce and crush the company with the aforementioned campaign – on a sustained basis.
That’s the beauty of getting more ahead – as you accelerate away from your opponent, the entire battle becomes much easier in the long term.
After the Vodafail episode, Vodafone doubled down on its network and customer service investment. It was a risky bet, but probably worth it – you don’t simply walk away from a multi-billion dollar investment such as a national mobile phone network at the first sign of trouble. But as time goes on and the customer bleed shows no sign of abating at Vodafone, one does have to wonder what timeframe that investment was made on. At what point will its owners put Vodafone up for sale, or substantially restructure it so that it’s no longer a viable competitor to Telstra and Optus? If the customer bleed continues, will it be in a year? Two years? Three? Because I don’t think it will be in five.
The next six months to a year may prove to be the decisive time that will set up Vodafone Australia for the next decade. Because if it doesn’t show some positive signs with respect to its customer numbers in that period, the entire industry will be very publicly questioning whether it has a long-term future at all.
Image credit: Matt Wakeman, Creative Commons
Please have a read of this thread between myself and Vodafone Customer Service:
https://www.facebook.com/vodafoneau/posts/10150942598722617
You might find it interesting.
I asked a simple question about the town of Gawler – when are the 2 x 850Mhtz towers going up that were promised for March, then moved back to June, and now it seems even vodafone themselves have no idea when they might be up.
They haven’t commented (yet) on the rumours I hear that their capacity upgrades (backhaul links at towers) are way behind schedule because their suppliers have let them down. This relates to the 5th paragraph in your story.
In the past vodafone’s social media team have been excellent, but on this occasion they have dissappointed me a bit.
It’s a very similar story for a site called The Knoll, near Crafers, SA.
Voda published plans for a new base there about a year ago. Right up until May 2012 the published plan was in place, with a go-live date of June 2012.
It seems that suddenly, no plan exists. It’s quite misleading to say in May that a major new installation will go live in June then, a few weeks later, pull the whole project. This suggests thatvthere was never a serious plan in the first place.
My communications with Vodafone about the situation have been unsatisfactory. Either I get buck-passed to another person or asked to provide phone reception info ad nauseum. Vodafone KNOWS that rcoverage in this well populated area is poor but continues to do nothing.
Needless to say, coverage and data capacity at both Telstra and Optus in this area is superb.
Vodafone needs to get honest and frank with its customer communications before I would consider using this company.
This is not a new thing for vodafone.
Back in about 2008/9? They released a 5gig 3g mobile bb plan for $49. This was much cheaper than those released by competitors at the time. I signed up knowing that my GPRS tower was being upgraded within two months…. which then became 3, and then 4 and then 8 and then official time frames were retracted to be left with “it will be upgraded some time in the not too distant future”.
I look forward their improvements. If they get 4g up in a year and it’s comparable to Telstra, I’ll swap back, in the mean time it’s still not an option as I use my phone for everything including internet at work and home and I need a stable connection.
Interesting.
While I can’t honestly see Vodafone disappearing from Australian shores – they do still have a relatively solid core customer base – I can see it being sold and/or rebranded for the right price.
We might see VHA get absorbed into the global Vodafone brand – (ie: head office in Germany) – and perhaps re-brand as Verizon – (given VF’s significant stake in Verizon in the US) – but I still think they have enough customers to be a going concern in the foreseeable future.
What they DO need to do is concentrate on getting their mobile network right. It’s their core business, and they are obviously showing the grown pains borne out of the lack of investment over the last six or seven years.
If this means abandoning or delaying their plans to get into the fixed line market via the NBN, then they might just have to do that.
“head office in Germany”
the UK*?
I totally agree Michael,
These figures are mainly cyclical , people who are not happy with there service with VF/3 and haven’t left already are either locked into a contract or looked around and decided the service level is still the best “bang for buck” , for those who have left i’ll give it another months to a year and you’ll start to see a churn away from the big 2 as people gravitate back to a more value plan.. Mobile phones seem to be the one thing australians dont mind changing carriers.
I’m waiting for the old 3 network (3GIS) to be shut down at the end of August, and those 1.1M remaining 3 customers to be moved on to Vodafone’s network virtually over night. I expect another crisis this time bigger than Vodafail.
They have spent all this money building a new 850Mhz network, where the real problem lies in the backhaul and that hasn’t seen any major investment. They are still relying heavily on microwave for their backhaul, hoping that NBN will somehow spring up tomorrow so that they can link up their towers with fiber…meanwhile Telstra and Optus are accelerating far ahead.
I would hate for the third carrier to disappear, a duopoly is absolutely a horrible situation to happen to such a vital market, but when you look at the Vodafone Group’s troubles in Europe, I just can’t see them investing heavily in their non-core Australian joint venture.
Best case scenario for VHA, either Hutchison buys back Vodafone’s shares or someone else springs up to buy it and invest in it (can iiNet/TPG raise the capital to do that?). Worst case scenario, it suffers from lack of investment, customer churn continues, it can’t buy any spectrum from the digital dividends auction, and it disappears in 3-5 years.
Have to disagree with this. What you’re missing here is the marketing side of things.
1. Consumers have a VERY short memory. Sure, Telstra is getting lots of love right now. However, a few years ago when the iPhone launched they had terrible Next G handsets and a reputation for poor customer service. Heck, BP just delivered a $5BN profit and they destroyed the Gulf of Mexico just two years ago.
2. The easiest story to tell in marketing is a turnaround story. Telstra is telling it now and it is working very, very well
3. If you’re given the luxury of time by the support of a massive parent company (biggest telco in the world behind you) you should be able to get your turnaround story nailed. You’re not running out of money and not forced to take shortcuts.
4. New innovative products are still ripe for creation in the telco market. Telstra has innovated in network coverage and speed, but not in the form and shape of the products offered.
5. Vodafone has not started telling the turnaround story – it is yet to even properly embark on that piece yet as it is still shoring things up.
6. Mostly pre-paid customers left Vodafone in the last 6 months and these are the least valuable of the connections on a telco’s books – only 33k post paid customers left. Pre-paid customers can switch easily and you need a great offer which Vodafone can re-build and it is possible to switch back.
Turnaround stories are also the most fun. They can be hard (Nokia), they can fail (Kodak) and they can be amazing (Apple / IBM). Vodafone will have their shot at one.
Vodafone have become their own worst enemy. I had two different services with both 3 & Vodafone. I cancelled the Vodafone service and wanted to migrate the 3 service to Vodafone. The whole process seemed to go smoothly via the web & talking to a CSO. I should say at this point that Vodafone has *the* worst policies for retention – they wouldn’t give me the same deal as a new customer. One has to wonder is it better to get new customers or retain existing….
About a month later & after numerous calls & having paid two more months on the 3 plan due to billing dates they finally told me the migration had been cancelled. No one knew why or how it had happened.
They then advised me I should start the process again.
I declined and transferred my service to Optus – worked first time & have had no issues in nearly a year.
This is why Vodafone is in decline – ridiculous internal processes and prizing ‘new’ customers more highly than retaining existing ones.
” prizing ‘new’ customers more highly than retaining existing ones” Optus and Telstra are no better at this nonsense. Both offer deals to come over to them, existing customers are taken for granted. My favourite sport is churning, saves me heaps. But it really is sad that loyal customers are treated so badly.
“Vodafone have become their own worst enemy. I had two different services with both 3 & Vodafone. I cancelled the Vodafone service and wanted to migrate the 3 service to Vodafone. The whole process seemed to go smoothly via the web & talking to a CSO. I should say at this point that Vodafone has *the* worst policies for retention – they wouldn’t give me the same deal as a new customer. One has to wonder is it better to get new customers or retain existing….”
I can tell you for a fact, outright now – that this has changed. The Networks posture towards retention is now the core priority of everything. CEO Morrow wouldnt allow the churn to continue, for the most part – hes succeeded so far.
“CEO Morrow wouldnt allow the churn to continue, for the most part – hes succeeded so far.”
This whole article is about the fact that the churn is continuing.
I didnt say it had stopped. In fact internal planning had estimated another quarter of retraction before we’d begin to see growth. This is the same line i mentioned over 3 months ago in a previous article.
“another quarter of retraction before we’d begin to see growth”
I am estimating another year :)
“In fact internal planning had estimated another quarter of retraction before we’d begin to see growth.”
This is wishful thinking at best.
At the time of the merger and creation of VHA, 83% of 3’s customers were post-paid (on contract). What’s the figure for the whole of VHA now? Less than 50%.
And this is with the 3GIS network still in operation, and the roaming to Telstra arrangement still in place which many 3 users (especially those on dumbphones who don’t need data) still heavily rely on.
Once the deal with Telstra finishes next April, expect many remaining 3 customers to leave en mass.
VHA is kidding itself if it thinks it can turn the ship around in one quarter.
Jimmah….Optus has the same view of looking for new customers and giving them incentives, rather than keeping current customers. I just left them, wanting to change my handset, but there was no incentive for me as a current customer, only for new customers! Strange attitude indeed, considering that it is cheaper to retain exisiting customers than obtain new ones and any “marketing monkey” should know that! My gain, their loss.
Been with them since 1995, service from the contact centre has slowly gone downhill, no longer do they appreciate the fact I have been a loyal customer by offering me free phones or any real level of service.
Having said that the network issues were around for approximately six months and it’s really no different to what Telstra is going through now due to all the vodafone customers migrating over.
I see vodafone being around in the future but they need to switch back the call centre, I don’t like going through to India and sort out your billing system, I have called up 5 times now and been informed each time my bill will be corrected yet the one I received the other day was wrong.
Quoting Artosis gets you +100 internet points
Hehe cheers :)
I was wondering if you’d put something up after the announcement they are likely to skip the spectrum auction Renai.
Up till now, I thought, as Cameron Craig does, that they just haven’t got to their turnaround yet. But, with the advent of them not purchasing what is arguably the last large scale spectrum batch that Australia is likely to see in some time, I really can’t see how they can truly hope to compete with either of the big 2.
People say- “Oh, well, it’s just a matter of time before their service picks up again and people come back to the budget offering”….nnnnno, no it’s not that simple. Vodafone succeeded in the market because they were both innovative in price (Cap Plans) AND innovative in products (they always had the latest and greatest). But while they can continue to innovate on price (at a loss) if they don’t have a network that can handle the latest and greatest apps for the latest and greatest gadgets…..why would people pay, even if it was cheap?
The announcement about the spectrum auction begins to confirm for me, what I thought- Vodafone International is not serious about staying as a major competitor in Australia. They are likely to downsize, offload and become a minor 3rd player, offering budget plans and low speed mobile broadband for the low income end of the market, IMO. This is a great shame and not good overall for the consumer to end up with a primary commercial duopoly.
It’s a shame their service is still cr@p. I often have phone calls that never ring, just go straight to voice mail, even though there are signal bars…I’m sure it’s a plot of theirs to increase revenue (collect mail, call back missed call etc)
No mention of the REAL reason they MAY skip the auction. It’s about how rich in Radio Spectrum they already are. Will adding 700Mhz add to their portfolio in a meaningful way?
@cantsleep
Well, considering they don’t have anywhere near as much 1800Mhz (afaik) as Telstra and Optus AND 700Mhz is the main contender for new 4G, thanks to its’ range and penetration power…..yes, yes it will affect them.
They have more 1800MHz than Optus and Telstra if only including major capital city areas for Telstra. If they cut the cord with the rural or roam through Optus/Telstra (or wait for more 1800MHz to be sold) they will have a decent network. 5MHz paired of 900MHz will give coverage they need.
There is already plans to look into the 1.5GHz band and if the Emergency services don’t need all the 900MHz (850 exspantion) band reserved will also be auctioned off. They will also sell some high band >3GHz at some point.
Its not the end of spectrum.
@SW_Victoria
So you’re saying VHA should abandon the regional areas? Often where the lowest socio-economic status is?
I’m not saying there won’t ever be more spectrum auctions, I’m saying by letting the 700Mhz go through, they’re wasting a good opportunity, even in the cities, to get some back against Optus and Telstra.
Tortured Starcraft analogies aside, the real battle here is that Voda are effectively branding themselves as a budget option, but failing to offer actual good prices. They’d win back plenty of metro customers this year if they
a) offered something like what Amaysim and Red Bull (whom they wholesale to!) are offering
b) offered the next iPhone at cray-cray prices. $5 a month with a $40 Unlimited Plan.
I’d jump.
amaysim is an Optus reseller, Adam.
“the real battle here is that Voda are effectively branding themselves as a budget option”
Can’t agree with that. I think they’re going the opposite way. Witness the loss of the Infinite plans, increasing prices and the downgrading of plan benefits.
The real problem is Australia is a big place. Most Australians want a service that works and is reliable. Reliability costs money. Charging cheap prices doesn’t put cash in the bank for future expansion. Had Vodafone not been such cheapskates in the first place, they would have had a lot of infrastructure in place now to handle the growth.
Optus woke up to this a few years ago and is now deploying fibre around the country like there is no tomorrow. If they get there act together with their 4G and if Vodafone lags too far behind, I think you are spot on on their future.
My understanding is that the spectrum auction will limit the amount of spectrum per carrier, but if voda don’t participate then a duopoly is likely.
VHA is only guaranteed 5MHz paired of 700MHz band if only Telstra and Optus enter the auction.
I’m on of the few remaining post paid 3 customers left (even though it may strictly be vodafone). I’ll stay on the “3” (or vodafone of correct) until my contract expires next year, as the coverage covers 98% of my CBD needs.
However Vodafone have made many mistakes and they will not be getting my return custom. When Nigel Dews ran vodafone it was all talk no action. Vodafone have only themselves to blame.
They have treated me poorly, treated my family accounts poorly and have not delivered on adequate network upgrades. Optus I’ll see you next year, once this contracts done.
I dont get why Vodafone didn’t just skip straight to a 4G upgrade. If you are going to spend $ upgrading to make up for lost time wouldn’t you try to lead the pack ie. get a 4G network up and running before Telstra and Optus?
Bob,
for Marketing yeah sure, but how about all your existing customers who dont have a 4G handset?
if your trying to stop them leaving , you ould have to offer a nice sweet handset upgrade to all of your customers
Haha a starcraft analogy? Really?
StarCraft is a very mainstream phenomenon as an e-sport these days :)
We recently had a Vodaphone sales rep visit us trying to get business. He was very upfront about the problems they had/have which I admired. I told him I was very aware of history of issues. Coverage is still a major issue and I told him we were unlikely to go to Vodaphone.
He took this very well and thought it was fair enough, not heard from them since. Kind of refreshing for a sales person.
Renai, IMO, has written a very pertinent piece that paints a stark, but realistic picture of VHA that is clearly hard to swallow for some.
VHA is where it is right now because of many stuff-ups in the past 5+ years – how about we recount a few them so there is context and balance in this thread.
Poor management – Both Young & Dews have almost buried this company and were pretty much asleep at the wheel for the most part of their tenure(s). Positive: there both gone. Negative: It took far too long before ppl woke up that there were at the root of the carriers problem.
Lack of innovation – although this necessity is hinged well to ‘appropriate investment’, VHA have done little to innovate in the past 3Yrs. They have been happy to simply coast along not re-investing back into the network and were trying to milk and prop up existing customers while their (once good) 3G network is suffers from capacity patched with sticky tape and twine. Positive: They now see this or at least Morrow. Negative: Could be too late?
it’s Subscribers – well, they are the big losers in all this. Some customers remain loyal to VHA and VHA should be making them honorary customers for life for sticking through all the problems they have had to endure whilst still paying their dues that were not inline with the network performance. Positive: VHA still have loyal customers, but still losing more today than keeping. Negative: VHA customers IMO are continued to be played for as fools – despite Morrow best intensions and publicly spoken ideology on this topic.
Overall, VHA ( old 3 network and Voda’s) has brought these almost crippling problems (and a whole lot more I have not mentioned) on themselves. Yet agains, goes to show if you have poor leadership and a bullet proof product or services, it will most likely end up in tears.
I hope not for everyones sake, but right now looking at the obvious, it’s hard to deny the future of VHA in it’s current form looks pretty grim. Good luck to Morrow because he is going to need it ….and plenty of money to rebuild a much better network than what they have today and hopefully this will also include 4G?
You must construct additional pylons
Comment of the year :)
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