Vodafone back to earth?
In the intense search to build the right combination of products and services, companies are constantly torn between, on the one hand, getting rid of what they judge to be non-central or low-earnings lines of business and, on the other, acquiring lines of business that will give them a competitive edge. The reality of a changing marketplace means that the combination that worked yesterday may likely not work today.
So it is with Vodafone. The UK-based cell phone giant grew to prominence by snatching up cell phone companies and building a global network, spending hundreds of billions of dollars. It was a pure play, exciting where dull old land-line phone-based companies (BT, France Télécom, SBC) were seemingly held back by the heavy investment in networks.
At one point a few years ago, Vodafone looked unbeatable. Now the wheel has turned. Vodafone is getting rid of cell phone operations (Sweden, Japan, and possibly the US), And it is now look to buy land-lines, according to a Wall Street Journal story ("Vodafone Considers a Strategic Switch", 4/1/3/06).
The article explains that the company is going n that direction because it has to compete with rivals that offer triple-play or quadruple-play services (wired phones, wireless, TV, and broadband Internet). The article cites one analyst as saying:
"Everyone is playing in the same space, and Vodafone is at a disadvantage...because they are a one-dimensional service….They have to be thinking more along the lines of a media company at this point than a telco but that is a difficult transition to make."
And Vodafone feels it is under the gun. As the WSJ article points out, the traditional European rivals (BT, France Télécom, Telecom Italia) are working hard on offering comprehensive services. And others are jumping in as well:
Vodafone now also faces a raft of new rivals such as Microsoft and Google that are pushing into wireless services, as well as cable operators such as NTL Inc., which recently agreed to merge with wireless-service provider Virgin Mobile Holdings PLC. Even U.K. supermarket chain Tesco Corp. now offers Internet access, home-phone and wireless services.
The company can lease lines for these services, but it looks like the money is in owning the land lines, something the older telcos already do. One exciting new possibility is hybrid phone service, which would allow customers use a single handset as both a fixed0-line phone when at the office or home (lower rates) and a mobile phone when away form those locations. In any case, Vodafone has started reorganizing itself to find an opening in a medium (line lines) that looked hopelessly passé a few years ago.
What was a brilliant strategy of going global and specializing in one hot specialty (cell phone service) a few years ago, now has become a liability, as deep rather than wide seems to be the order of the day. Poor Vodafone became and remains #1 in cell phones, but that leading position is not one that guarantees future growth or investor confidence any more.
