When the mobile telephony giant Vodafone held a strategy briefing recently, it boldly invited Lars Vestergaard, European research director for the analyst group IDC, to give his perspective. “Say what you want,” they told him, “we won’t censor you.” So he did.
Almost immediately, he warned businesses that ‘fixed-mobile convergence’ should be put to one side for about two years, contradicting the operators’ strategic marketing thrust; he advised Vodafone and others to articulate their confused, complicated message in favour of corporate mobility much more clearly; he told operators to stop exaggerating the capabilities of services such as 3G and HSPA (high speed packet access, the successor to 3G); and he presented research suggesting that while businesses see operators as experts in corporate mobility, they also see them as a “bottleneck” and “the biggest cost” when it comes to developing mobile strategies.
Vestergaard, however, was not being negative about his hosts. “Vodafone used to be arrogant. They thought they could do it all,” he said. But now, it is learning “to be friends to everyone”. The company, he suggested, is clearly moving in the right direction.
The humbling of Vodafone is partly down to what the Financial Times recently called its “annus horribilis”. After so many glorious years of rapid growth and profits, in the space of 18 months a series of huge write-downs resulted in the biggest half-year loss ever recorded in European history (£14.9 billion); a shareholder revolt destroyed value and nearly cost the CEO Arun Sarin his job; and six of seven executive directors departed the company over those turbulent months.
Competitors and doom mongers enjoyed the chaos and warned of an impending loss of market share, initiative and margins. Some have even suggested that Vodafone needs to merge – perhaps with BT or AT&T.
But in spite of all these difficulties, Vodafone executives are in a buoyant mood. Sarin has held onto his job, results have started to improve, global indicators suggest the company is holding onto its share in key markets and its strategic M&A moves seem to have largely paid off.
But there is another, more specific reason why Vodafone has set out to make more friends and sign more partnerships. With the IT and telecoms industries increasingly sharing a common technology base, fixed and mobile markets converging, voice and data merging, and media and Internet companies now bumping into the telecoms sector, Vodafone has learned the same lessons as its many partners and rivals: no-one, however strong their brand, can cover the entire ground, from mobile/fixed voice and data to Internet TV, video and interactive services such as mobile email, instant messaging, search and push-to-talk.
“These new technologies are coming more and more into our frame. We need to be relevant in these areas,” says Bobby Rao, Vodafone’s corporate strategy director.
Vodafone’s wariness, and its need to partner, is particularly apparent in the enterprise sector, a market that, in the UK at least, Vodafone has watched and prodded without serious engagement. For several years, analysts have observed rivals such as BT develop large IT-based businesses, while Vodafone has largely remained a consumer mobile company. IT directors and CIOs informally polled by Information Age have noted Vodafone’s promotion of its 3G laptop cards and its enterprise voice bundles, but been puzzled by its lack of involvement elsewhere.
All that, however, is about to change. Half way through 2006 the company undertook a review of its enterprise positioning and emerged with a serious plan to get onto the radar of CIOs – the people it believes are now predominantly responsible for building voice and data strategy – with a series of products and services.
Vodafone is taking a cautious approach, rolling out services gradually, and identifying partners where necessary. “We have to gain credibility, and in this space the quickest way to lose that is to do things too quickly or flimsily. IT directors are not forgiving,” says David Hughes, head of enterprise mobility solutions for Vodafone UK.
The new enterprise unit has already been operating in stealth mode, having been formed in mid-2006. It already has over 100 people working in services, with revenues, already in “low millions”, growing at several hundred per cent.
Vodafone’s strategy for the corporate market is, unlike BT’s, centred on its existing competencies in mobile solutions – although that may evolve later (its stated mission is to “innovate and deliver on our customer’s total communications needs”).
The three elements
Hughes divides Vodafone’s offerings into three: applications, access and services. In each of these, Vodafone will form partnerships, or make acquisitions where necessary.
In applications, Vodafone is already working with a number of IT partners to enable workers to access business critical applications, such as SAP, Oracle, Siebel and Sage, while on the move via almost any mobile device. Although this is possible today using web-based services and specialist solutions, Vodafone plans to make it easier, more secure and provide more mobility (using 3G and HSPA) than can be achieved today. Of course, it will also continue to provide email services, both through BlackBerrys and through its partnership with Microsoft.
A second stream focuses on access. It wants to help businesses develop “bearer agnostic” access to applications, using virtual private networks. These networks may use 3G, WiFi or fixed-line connections. Vodafone has partnered with Fiberlink to offer this technology, and doesn’t rule out partnerships with suppliers of high-speed fixed lines, such as BT, Energis, Colt and others.
The third element will probably deliver the largest margin, the greatest profile in the IT market and the most controversy. It is building up consulting services, system integration services and managed services, all aimed at helping businesses plan and roll out sophisticated, secure mobile applications.
A service and related products providing fixed and mobile convergence will also be launched in 2007. This wil probably be done in conjunction with some unnamed partners.
The move into services will be made more aggressively than hitherto, with its November 2006 acquisitions of Aspective, a mobile solutions company, and ISIS, a managed services company, likely to be first of many.
This is likely to bring Vodafone into some conflict with companies that have previously been partners, but Hughes says it is time for Vodafone to move from the background to the foreground. Vodafone was providing a lot of the expertise through partners, he says.
One area where Vodafone expects to make a major improvement is in the area of service-level agreements (SLAs), which until now have been largely absent from mobile agreements.
Hughes acknowledges that Vodafone, and others, will have to start offering these in the corporate market. “We do SLAs in some areas, but we don’t yet do them in network performance or application availability. But we will; the market will demand it,” he says.
IDC argues that most organisations don’t actually have a mobile strategy – they have a policy for buying handsets. But that is about to change, and Vodafone and other operators are in a leadership position.
“Vodafone needs to come up with a more aggressive strategy to help IT managers understand where all this is going,” says Vestergaard. “Where does mobility belong? It hasn’t, to date, been in the back-end of IT, but that is where it is going. That is Vodafone’s challenge.”
In fact, explains Vestergaard, it’s going even further than that: “Mobility is going to the CXO level. It’s about: How do I make my company more profitable?”
Fusion or confusion?
Part of Vodafone’s new strategy for corporate customers is to offer advice, products and services to help them converge their fixed and mobile voice and data infrastructure and applications. Similar services are offered by Vodafone’s partner, BT, called Fusion.
Lars Vestergaard, IDC’s research director for European telecommunications, has some advice of his own. “Wait another two years before going ahead,” he says. Proposed fixed/mobile convergence solutions, he believes, “don’t add simplicity, they add complexity”.
He advised businesses to wait for two years, because the risk involved in implementation is simply too great. “People want to buy something that is safe. Convergence is not safe. Fusion is not ready yet. I call it confusion”.
“There is a tendency [for suppliers] to tell everyone about all these new services, but customers tend to get caught up in the complexity. There is a chasm to cross. At the moment, it’s going to be simpler to run things separately.”
Verstergaard compared fixed/mobile convergence technology today to voice over IP technology in 1999. “Those who tried the solutions on offer then said ‘this is dogfood’, when it should have been like drinking champagne,” he says.
David Hughes, head of enterprise mobility for Vodafone, a recently formed unit, says Vodafone will launch an enterprise fixed/mobile solution in 2007, or possibly 2008. But he is unconcerned by IDC’s warning, saying it is more important to get the process of convergence right: “Is convergence two years away? Maybe. If it doesn’t happen sooner, it doesn’t really bother me.”