Vodafone 4 Cost Signals

In the last couple of weeks, Vodafone has sent four extremely strong cost control messages into the market. Normally when a company as large as Vodafone starts sending cost control signals into the market, disappointing revenue growth usually follows. I may be reading too much into the signals, but we do not have too long to wait: the interims are released next Tuesday.

Signal #1 – IT Costs

Vodafone released a press release today saying that the integration of the Data Centres was complete ahead of schedule, apart from the UK. The savings are expected to be around 25-30% of current annual spending of £320m. Of course, these “savings” will be impossible to validate going forward.

This is on top of last weeks announcement that IT Application Development functions had been outsourced. Strangely, the savings again are expected to be around 25%-30% of current annual spending of £560m. Again, these “savings” will be impossible to validate going forward.

Signal#2 – Network Equipment Costs

In Spain this week, Vodafone and Orange have agreed to share 3G network equipment in rural Spanish towns of less than 25,000. This will result in 40% less base stations being required: good for the Vodafone Spain P&L, but hardly a good outcome for the Network Equipment Vendors.

Signal#3 – Handset Vendors

Dean Bubley has already produced an excellent article detailing the impact to the handset vendors of Mondays announcement that Vodafone was planning to standardise on three handset operating systems. Personally, I think this will be extremely difficult for Vodafone to achieve in practice, but it brings a lot of pressure on handset vendors to bring handset software costs down, especially SonyEricsson and RIM who currently do not meet the specification.

Signal#4 – Dealer Commissions

The UK announcement on October 12th that Vodafone had struck an exclusive arrangement with Phones 4U in the UK consumer contract market in order to bring down dealer commissions has been extensively discussed in the press primarily because of the impact on Carphouse Warehouse.

However, little has discussed that Vodafone UK is also trimming its wholesale airtime distributors, who typically sell to small independents who focus on the SME sector. Another long time Vodafone favourite supplier, Fone Logistics, got the axe and it also appears that the Carphone wholesale arm, Hugh Symons, is on double not-so-secret probation.

The message to all distributors in the UK (and I’m sure everywhere else) is clear: either deliver profitable long term business or take your salesmanship skills to another network.

Summary

Taken together these cost-cutting signals address nearly every major element of the Vodafone cost base. The exception is the biggest in operating cost terms which is Transmission and Interconnect costs, however there are a few days remaining before the interims to announce something.

I think this is the first element of the Vittorio Colao plan to show he is a man of action and will not allow the Vodafone SuperTanker to drift aimlessly in the choppy 100% penetrated mobile waters.