Vodafone sees picture emails as killer app
Vodafone Group Plc sees the exchange of pictures by mobile phones - pioneered by its J-Phone operation in Japan - as the killer application in the coming year that will help drive double-digit revenue growth.
The world's largest mobile carrier has put 3G on the back burner and does not expect a mass roll-out of devices until 2004. Instead chief executive Chris Gent insisted that it is applications that will appeal to its customers - not technology.
Gent's analysis, given as Vodafone revealed full-year figures that showed a 16.2bn pounds ($23.6bn) loss, undoubtedly makes a virtue out of a necessity given the slippage in availability of 3G equipment. But it is rooted in the extraordinary success of J-Phone's "sha-mail" picture messaging services for customers with camera-enabled handsets.
These services, which have been enhanced with a video clip message service called "movie sha mail", have grabbed more new customers than market leader NTT DoCoMo's 3G services, and convinced the Vodafone team that the right applications on 2.5G services can be a bigger draw than the vague attractions of high-speed 3G data services. The services will trial in Germany and Portugal, and be rolled out across Europe in the run-up to Christmas.
Meanwhile, for the year to March 31, it announced a net loss of 16.2bn pounds ($23.6bn), up from a loss of 9.9bn pounds ($13.9bn) on revenue up 52.3% at 22.8bn pounds ($33.4bn). While at the top end of market expectations, the only surprise in Vodafone's figures was the lack of write-downs, expected to be in the range of between 10bn pounds and 20bn pounds ($14.6bn to $29.2bn) related to its 112bn pound ($163.5bn) acquisition in 2000 of Mannesmann AG. Vodafone said that based on the future cashflows of its operations, it sees no reason to write down the book value of its operations.
It based this judgement on cash flow projections to 2011, a way of thinking that none of its peers has indulged in, and will inevitably arouse suspicions that if it operated in a more conventional way and made a massive write-off in relation to Mannesmann, its share price would dive. As it is, Vodafone has been forced to write off 6bn pounds ($8.8bn) in relation to its non-controlled business, where more conventional market valuations rule.
Vodafone sees itself in a transitional period as it leaves behind growth from rising numbers of subscribers as markets become saturated, and it moves into an era where ARPUs will increase with the take-up of data services.
It reported that data revenue increased by 87% last year to 2bn pounds ($2.9bn), 8.7% of the total. However, this was driven by the runaway success of SMS, which accounted for 7%, while internet data contributed only 1.7%.
With its share price in the doldrums, Vodafone is aware that there are growing suspicions, as skepticism about 3G has grown, that far from being a growth stock, it is starting to be judged as a "stodgy utility", with bleak growth prospects and falling ARPUs as the novelty of mobile communications starts to fade. Thus it has got to find new growth drivers, and Japan Telecom has provided it with an application that can be rolled out onto its GPRS networks.
With a strong balance sheet, it is still looking to increase its holdings in those operators where it currently has modest stakes. But it has much to do with its existing operations. Even though Vodafone will not write down the value of Mannesmann, its revenue in Germany rose only 3% to 4.1bn pounds ($6bn) last year. That's the performance of a stodgy utility, and it will take the exchange of an awful lot of picture emails to turn its German operation into a high growth area.
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