“Leaving aside the 'what everyone wants to hear' story on Verizon Wireless, Vodafone's results are a continuation of the story of the challenges facing Europe's telcos. In particular, Southern Europe remains a key concern which has led Vodafone to a further write down of £1.8 billion in Italy and Spain, resulting in a £7.7 billion write down over the past year. Ovum has always maintained that the primary goal of Europe's telcos is to stabilize their performance at home. Emerging markets are good but our forecasts for 2017 warn of 'emerging maturity' as emerging market growth slows. Besides, low ARPU across emerging markets means that these markets generate less revenue and profit relative to their subscriber base.
“What then must be done to stabilize European performance? Firstly, it will help for the economy to return to robust growth. Ovum's research on how telcos can adapt to the recession shows that telecoms is a lagging indicator to the economy. People first lose their jobs (or worry about losing them) before they rein in their telecoms spend.
“Secondly, Europe's telcos must be innovative and pragmatic. This is not a call to invent the 'next big thing'. Rather, as we demonstrated in our recently published research: "Understanding How Telcos Innovate", telcos should focus their innovation in their business models and pricing strategies. Vodafone is heeding this call with its Vodafone Red tariff plan. Such a plan would eliminate the panic about voice and SMS revenue erosion from OTT services which Ovum expects will cost telcos $106 billion globally by 2016. Vodafone is also pragmatically transforming itself. It has assimilated Cable and Wireless globally, has a fixed broadband deal with Deutsche Telekom in Germany, signed an LTE network sharing deal with O2 in the UK, will co-build fibre with Orange in Spain and was until the deal with Deutsche Telekom rumoured to be interested in buying Kable Duetschland.
“Finally, Vodafone rightly worries that regulation in Europe is not making it easy for it to run its European business profitably. But it should also worry about speeding up its palliative care for its European operations while it still has the Verizon Wireless cash cow.”