The easiest way to view the departure of Vodafone Australia’s turnaround specialist Bill Morrow to take the reins of NBN Co is as the final nail in the extremely troubled mobile telco’s fortunes. But the truth is that Morrow is leaving the company just as it’s getting to its knees again. Finally, after three years in the wilderness, Vodafone is showing signs that it may be competitive in Australia’s mobile landscape again — and heading towards a sustainable footing.
Almost exactly three years ago, the Australian division of mobile telco Vodafone faced a crisis of what could only be described as epic proportions.
For months before this point, the company’s millions of customers, which had signed up with the company for its hip young image and competitive prices, deserting larger and more traditional telcos such as Telstra and Optus to do so, had been experiencing a rolling series out outages and signal drop-outs which had reduced their handsets at times to little more than expensive iPods, devoid of Internet connectivity and unable to reliably place calls.
Exacerbating the problem was the unsympathetic or even just unavailable reaction of the telco’s customer service resources. Flooded with complaints, the company’s call centres did what they were trained to do — provide technical support where possible but otherwise emphasise Vodafone’s ongoing upgrade of its mobile network. With the company’s top management not having taken significant notice of the problem, Vodafone was reluctant at that stage to let customers out of their contracts or to provide reimbursement for its faults — meaning many customers were left hanging in the lurch.
Until one Sydney resident took matters into its own hands, the company was able to scrape by without its customers hitting the mainstream media.
But the creation of the iconic Vodafail website uncapped the blast core and provided a focal point for thousands of complaints. Within a few short weeks of the site’s creation, it exploded virally across social media, launching its founder, Adam Brimo, into a personal interview with Vodafone’s Australian chief Nigel Dews and its landmark report on Vodafone’s problems onto the front pages of newspapers and websites Australia-wide.
There is no doubt that Vodafone will never be able to forget the Vodafail episode. It will live on in the company’s corporate memory forever; as the term Vodafail will continue to exist like a dormant virus on the nation’s social networks.
However, with a trio of announcements over the past week, Vodafone has signalled that, even if it has not quite exorcised the stigma of the episode, at the very least the billions of dollars it has ploughed into network and customer service improvements over the past three years is helping it to turn the corner.
The first plank of what might be dubbed its new ‘Voda Win’ round of self-congratulatory media releases is a new slice of evidence showing that the company’s 4G network, although limited to major metropolitan areas and substantially smaller than that of its rivals, really is significantly faster.
Last week the Sydney Morning Herald published the results of extensive tests conducted on the 3G and 4G networks of Australia’s three major mobile telcos by OpenSignal (we recommend you click here for the full article). The test results, available online, showed that when it comes to 4G speeds, the average download speeds achieved by Vodafone’s network were substantially faster than its rival pair of telcos, with the company’s 4G speeds in Sydney, for example, averaging 36.6Mbps, compared to Telstra’s 21.3Mbps and Optus’ 12.3Mbps.
Now, there are a bunch of caveats which need to be appended to the results. For starters, Vodafone’s 4G network is substantially smaller than that of Telstra or Optus. Once you get out of key central areas of the major capital cities, you’re not going to find a huge swathe of Vodafone 4G coverage. In comparison, Telstra is constantly pushing the percentage of Australia which is covered by its 4G network higher, and Optus is not far behind.
It’s probably going to take several more years of sustained effort before you could reliably expect to find Vodafone’s 4G network around Australia.
In addition, when it came to 3G speeds, the three telcos were more comparable, showing that Vodafone’s speed advantages in 4G have not translated into it being able to exceed Telstra and Optus’s 3G capabilities.
Then too, over the long term there are reasons to wonder whether Vodafone will be able to maintain its 4G advantage. The company did not participate in the recent bidding effort to pick up spectrum freed up by the national shift off analogue and onto digital television. Optus, which is already deploying a 2300MHz 4G network alongside its 1800MHz edition, this morning also revealed it was trialling 4G in the 2600MHz band. Both Optus and Telstra will shortly have access to the 700MHz 4G spectrum band.
However, it’s also not the first time Vodafone has been able to make the 4G speed claim. For example, in July last year, Vodafone noted that Internet metrics firm Ookla had conducted speed tests by thousands of Samsung and HTC smartphone users in the first week of July.
“Vodafone customers averaged a download speed of 48Mbps across parts of Sydney, ahead of Telstra and Optus, both of which had an average download speed of 26Mbps,” the telco wrote. “Similarly, in Melbourne, Vodafone was well ahead of the competition, with an average data speed of 41Mbps, compared to Telstra with an average of 30Mbps and Optus with 23Mbps.”
What this indicates is that Vodafone has been able to consistently stay ahead of the game in terms of the speed of its 4G network.
The company’s speed advantages in 4G are clearly translating into customer adoption of its new infrastructure. Its second win announced this week came this morning as the company revealed that it had some more than one million customers on its 4G network. With this figure — achieved some time ago by both Telstra and Optus — the company is clearly trying to put its troubled past behind it.
“In just eight months we have crossed the million device threshold, which equates to around 30,000 new devices on our 4G network every week,” said Vodafone Chief Marketing Officer Kim Clarke in the company’s statement this moring. “As much as some detractors joke about Vodafone’s well-known network issues in 2010, the fact is in 2014, Vodafone’s networks, both 3G and 4G, are offering consistent fast, reliable data speeds right around the country.”
Vodafone also took a little time out for some smack talk against the competition this morning, stating:
“Vodafone says it has consistently offered customers better value for money than its competitors and the popularity of its 4G plans was due in part to its generous data inclusions. For new customers at the $60 price point, Vodafone includes 1.5GB of data, 50 percent more than Telstra or Optus (both with 1GB).”
In and of themselves, these announcements are not, however, strong indication of Vodafone’s financial viability as an ongoing concern. The company’s still losing customers hand over fist, right? Wrong, at least according to the Financial Review. The newspaper reported yesterday that Vodafone had recorded its first mobile subscriber growth in two years:
“AFR Weekend can reveal that where Vodafone Australia lost almost 600,000 mobile subscribers in the three months ending September 30, it lost less than a quarter of that amount over the following three months. It is also understood that the telco experienced its first month of positive growth in two years during December – mostly due to a temporary promotion that doubled the amount of download data available to new customers, as well as a move to cut the cost of global roaming.”
All of this is good news for Vodafone. It shows that the turnaround strategy initiated by Morrow — strongly investing in the company’s network and customer service, while simultaneously cutting costs — is having a major impact on its fortunes and its ability to attract customers.
One uncertainty factor comes with Morrow’s departure. Known as a turnaround specialist, Morrow was explicitly brought in by Vodafone Australia’s owners Hutchison Whampoa and the global Vodafone Group in March 2012 to replace the company’s previous chief executive Nigel Dews, who had failed to handle the Vodafail situation adequately. Morrow’s mandate was to do whatever it took to maintain those company’s investment in Vodafone Australia and to ensure the business did not fail.
While the executive appears to have had success delivering on his strategy, that strategy was always going to take several years to come to fruition — turnarounds are not easy, especially given the customer exit momentum that was taking place at Vodafone. Morrow’s departure to lead NBN Co — as attractive as that opportunity was for the executive — comes after only two years at Vodafone and sees the company left somewhat in the lurch.
Into his shoes from 1 March will step Inaki Berroeta, the current chief executive of Vodafone Romania; a leader who is completely unknown in Australia.
Parachuting leaders of other Vodafone divisions into different geographies has always been a habit of Vodafone, and no wonder; the company’s global scale allows it to create a cadre of seasoned leaders that have experience in multiple jurisdictions. Then, if it needs an executive to keep one jurisdiction on track, it has a substantial talent pool to pull from. Berroeta is no exception to this rule, having held senior role sat Vodafone Spain, Vodafone Malta and, for the past three years, Vodafone Romania.
Certain things can be inferred from Berroeta’s executive history. Firstly, the Spanish-born executive has experience leading sizable mobile telco operations in foreign countries. The Australian environment is very different to that of Europe. But with time across several jurisdictions in the European Union, one can’t help but suspect that Berroeta will be able to find his feet locally without too much trouble.
Then too, there are quite a few similarities between Romania and Australia. The population of each is around the same — Romania has about 20 million residents — and the size of the two divisions is also comparable. Vodafone Australia has some 4,000 staff, while Vodafone Romania has about 3,500. The revenue picture is substantially different, with Vodafone Australia ahead of its Romanian cousin, but the technology is also not dissimilar; like Vodafone Australia, Vodafone Romania recently launched 4G services.
What all of this points to is the fact that not only is Vodafone taking its Australian situation seriously, but that Berroeta likely has the experience necessary to keep Morrow’s transformation strategy intact and Vodafone’s renewal momentum heading in the right direction.
The importance of this cannot be understated. For several years, with Vodafone losing millions of customers, it had started to look as through Australia was headed back to the days when we only had two national mobile carriers — Telstra and Optus. This cost ‘duopoly’ situation has served Australia extremely poorly in other markets (think about Woolworths and Coles, for example) and should not be allowed to exist in mobile as well. If Vodafone had truly begun to head towards bankruptcy, it is very possible that the Federal Government would have seriously thought about interceding in the largely unregulated mobile sector.
Then too, the trajectory which Vodafone was on was almost wholly benefiting Telstra. As I wrote in July 2012:
“Right now, when it comes to mobile, Telstra holds all the cards in Australia, and it is playing those cards for all it is worth; rapidly soaking up hundreds of thousands of customers, destroying Vodafone’s revenue stream wholesale, and holding Optus back with one hand while it’s raking in cash with the other. It has the best handsets, the best network, the most marketing clout, the best reputation for network quality and a colossal lead in 4G infrastructure.
But long-term, what Telstra is doing right now represents a troubling sign for Australia’s mobile industry. Just as it did in fixed broadband, Telstra is now winding back competition in the mobile telecommunications space. One really has to wonder how long multinationals like SingTel and Vodafone will continue to be committed to piling hundreds of millions of dollars into mobile phone infrastructure in Australia, when it is clear they are only going to see very moderate levels of growth in return — and are even going to have to struggle to keep what customers they have. And who will keep Telstra honest with strong competitive offerings, when the company gets too far ahead for its own good?
In five years’ time, just how much market share will Telstra have in Australia’s mobile phone industry? If it keeps on adding 900,000 new mobile connections every six months and converting its customers to 4G while its rivals do diddly squat, I would have to say the answer will be: Most of it.”
Everything that Vodafone has announced over the past week represents good news for the company — news that it sorely needed after the unexpected resignation of its leader Bill Morrow. But don’t be fooled — there’s a long road ahead. It has taken billions of dollars of investment by Vodafone’s backers for it to get to this point, where it is starting to look credible again. And it will take years more of sustained effort before it is fully back on its feet and competitive with Telstra and Optus.
Right now, Vodafone Australia is being artificially propped up; its backers are doing anything they can to ensure the existing funds they’ve invested in the company aren’t lost. Vodafone’s back on its knees and looking feisty right now. Over the next two to three years we’ll get to see whether it will eventually be capable of walking on its own. Let’s hope so — because the future of this company is not just important for Vodafone’s investors. Australia needs a third major mobile telco to be strong to keep Telstra, especially, honest. Let’s hope the trend of good news for the big V continues.