Just days before he takes over as Voda CEO, Nick Read talks through turnaround measures in Italy and Spain, but the situation in those markets shows that all telcos have a big issue to address: the lack of sticky services
European mobile operators are still chasing customers, because they are struggling to make money from anything other than connectivity, with efforts to push VAS revenue streams largely coming to nothing, and despite their best efforts to hype the promise of 5G, there is no evidence to suggest anything will change with the arrival of the next generation of mobile technology.
This ‘bums on seats’ approach – to borrow an expression that was oft-used to describe the Internet giants a decade or so ago, with their vast ‘customer’ bases and free services – is a dangerous game. It leaves telcos exposed to any kind of market disruption, with the threat of a price war ever looming.
Take Vodafone as an example. Voda is working hard to address its well-documented issues in Italy and Spain, two major European markets that have weighed on its numbers in recent reports. The difficulties it faces there stem almost entirely from the arrival of new competitors pushing prices down.
Vodafone’s CEO-elect Nick Read took to the stage at Goldman Sachs’ Communacopia event late last week to discuss the business he will inherit when he steps into Vittorio Colao’s shoes at the start of October.
Masmovil has established itself as a credible fourth player in Spain in the past few years, having acquired fixed assets and wholesale access from the market’s number two operator Orange and various mobile assets, including MNO Yoigo. In addition to competing more effectively with Orange at the high end of the market, "[we saw we must] use our second brand Lowi to compete with Masmovil," in the value segment, Read said.
Similarly in Italy, which had just seen some stability return to the market when France’s Iliad burst onto the scene in May, Vodafone and TIM are battling it out to win customers using their own low-cost brands: the incumbent is targeting that sector with Kena, while Voda brought Ho to market in June.
Vodafone is happy with the performance of its second brand in Italy, and will be able to re-evaluate its pricing going forward, Read said, noting that he expects Iliad to raise its own prices again soon – it €5.99 opening offer recently went up to €7.99 – because "that’s an unsustainable position." TIM is being very aggressive with its main brand, Read added, speculating that that is because Kena "is not performing where they want it to be."
This MVNO/sub-brand question has been around for many years now. Listening to Read’s comments via Webcast, I couldn’t help but think back to 2006, when Read talked up Vodafone’s decision to host sports-focused MVNO ExtremeMob on its network as a way of targeting a demographic its main brand struggled to reach. At that time (when I was a mere child, honest) mobile network operators were just beginning to see the benefit of operating sub-brands and thinking about acquiring some of the stronger MVNOs on their, and their rivals’, networks.
We were still in a landgrab phase back then though; 3G was still fairly new and overall mobile penetration in Western Europe was less than 100%. Today the land has been well and truly grabbed, many times over, and newcomers are poachers rather than pioneers. But surely if established operators had greater traction with higher-value services on top of connectivity, life would be less difficult. But let’s face it, the majority of us just want a decent amount of data at a sensible price to enable us to consume whatever we want over those networks…which have to be fast and reliable, otherwise we start to think about jumping ship. There is perhaps still some stickiness in devices, albeit in a very different way than in the heady days of early smartphones, but operator services very rarely get a look-in.
I have to admit though, I was surprised to learn from Read that top-flight football is not a money-spinner in Spain. Having spent a fair amount of time in Barcelona (I wonder why that could be?), often amidst Champions League fixtures, I would have guessed that the opposite would be true, but apparently not. Vodafone pulled out of the high-cost football business in Spain this summer, having declined to pay the wholesale prices set by rights holder Telefonica.
"There are only so many people that like football and are willing to pay for football," Read said. Vodafone had costs in excess of €300 million for providing football to just 300,000 customers, he explained, adding that despite various promotions, the number of people in Spain willing to subscribe to football services still stands at about 2 million.
"Obviously TEF has been very aggressive over August and will be over September," in targetting football customers, Read said. But that also means "€240-odd million of cost flows back to them." Meanwhile, Vodafone plans to redeploy its football money into network quality, other services and content.
Despite such difficulties, telcos – and I’m not specifically talking about Vodafone – are waxing lyrical about the impending arrival of 5G and the wealth of new services it will bring, the subtext being that all will then be rosy for the operator community.
Really? Or will the telcos spend sizeable sums acquiring spectrum and rolling out networks, only to see other players steal a march in services? I feel I have come across this somewhere before…
The fact is, noone is telling us what these magical 5G services that will bring new telco revenue streams actually are. The industry is talking in very general terms about AI, customer experience, connected everything and so on, but we’re not hearing anything more concrete than that.
China’s Huawei made a solid 5G announcement this week, when rotating CEO Ken Hu confirmed that the vendor’s first 5G smartphone will be out next year and divulged that it will feature a folding, high-def screen.
There is much discussion of the longer-term benefits of 5G technology, such as automated cars, smart manufacturing, and sensors connecting myriad objects, Hu said. But "we should focus more on the short-term [and] what we can do with 5G immediately," he said, noting that the new Huawei handset with its big, HD screen, coupled with the lower latency and higher speed of 5G, will bring a step-change in consumer experience.
Yes, but who will provide the services? Can the telcos develop credible services that consumers want, or will they be left talking up the throughput of their networks while slick start-ups with no legacy business and no shareholders offer the sexy stuff.
Vodafone this week claimed the world’s first holographic call over 5G, highlighting the applications of the technology for the sporting world, for example. But you have to admit, it’s the technology that’s sexy, not the business model, particularly if you’re not the provider of the remote coaching and training service it could facilitate.
And let’s not overlook the fact that the telcos have standardisation efforts, spectrum acquisition and other irritatingly important issues to contend with before we get to 5G.
Austria this week pledged not to bleed operators dry in its forthcoming 5G spectrum sale, scheduled for February 2019. Regulator the RTR has split the available spectrum regionally, to give local players a chance to use it for fixed broadband services over mobile. Despite efforts from Huawei and others to put 5G smartphones into consumers’ hands, fixed wireless services could well be the first wave of 5G offerings on the market.
The one area in which telcos are seeing some traction is the Internet of Things, and that is of course intrinsically linked to 5G. Vodafone, which launched its ‘V’ branded consumer IoT business just under a year ago, reported €747 million in IoT revenues in the most recent financial year to end-March.
"There’s an opportunity to move out of just pure connectivity and into the service layer," Read said, echoing a message that is being pushed out by all of Europe’s major network operators. However, analysts remain sceptical on their ability to capture a significant chunk of revenue over and above connectivity.
That isn’t stopping them from trying though. For example, Deutsche Telekom this week announced a partnership with UN-backed United Smart Cities, with a view to co-developing future IoT offerings.
So, can telcos capture the service opportunity presented by 5G? Well, if I knew the answer to that I would be on my yacht in Tahiti rather than sitting at my desk on a Friday morning. But I do know one thing: if they allow history to repeat itself as 5G rolls out, a decade from now they will still be chasing customer volumes and fending off competition from lower-cost rivals.
Friday Review: 21 September 2018