Vodafone As Bellwether
By Carlo Longino, Mon Sep 27 20:45:00 GMT 2004

The operator's presentations to analysts and investors have raised some questions about the future of it and other carriers.

Vodafone CEO Arun Sarin hosted an analyst and investor day at the company's UK headquarters, looking to convince them in the wake of its failed bid for AT&T Wireless earlier in the year it has a cohesive long-term vision. Sarin and other executives spelled out the company's roadmap for the forseeable future, and their comments raise some interesting questions both about Vodafone and mobile operators in general.

Sarin said Vodafone wants to increase its 45% share in US number-one carrier Verizon Wireless, but acknowledged its other parent, Verizon Communications, wants to do the same. There's been a lot of speculation over Vodafone's stake in the carrier since its bid to purchase AT&T, the latest move in a relationship that's been fairly frosty. Vodafone all along has wanted Verizon's technology to fit its own at some point, and many of the issues between the two parents started when Verizon said it wouldn't abandon CDMA and switch to UMTS for its 3G network. Sarin said Vodafone is "very interested" in ensuring Verizon Wireless stays healthy, both financially and technologically, perhaps leaving the past in the past and wanting to beef up what it's already got -- or realizing it doesn't have many options as far as GSM in the US.

But a different look at Vodafone's stance asks one question -- are standards becoming irrelevant? Verizon has started pitching its Samsung CDMA-GSM handset to globe-trotting American businesspeople, offering the single-handset global roaming only previously available to US GSM subscribers. The service as it stands has two significant shortcomings: only voice and text-messaging are available when roaming, and Vodafone customers roaming to the US still must use a competing GSM network. But how long before those issues disappear, and users have a device that just works wherever they are?

3G was supposed to see convergence on a global standard -- though that of course hasn't happened. But when a carrier as big as Vodafone has its feet in both camps, and technology evolves, whether through new technologies like software-defined radio or the convergence of Wi-Fi, it won't be surprising to see more handsets that aren't picky about the type of network on which they operate and offer roaming users total access to everything they're accustomed to on their home network.

The second point Sarin made that the financial press has picked up on is that the company continues to have an interest in expanding its geographic footprint, not only in places like Eastern Europe that it's been eyeing for some time, but also in developing nations in Asia and Africa. Coupled with Reuters' report that for the rest of current fiscal year (ending in March), "Vodafone has forecast 'broadly stable' margins and wants to secure high, single-digit subscriber growth, leading to similar growth in mobile revenue," it makes one wonder if the company -- and other carriers -- see expanding subscriber figures as the only way to grow, at least in the short term?

Granted, Vodafone's Christmas 3G push won't have an immediate and huge impact on ARPU, but does it signal the company sees low-margin developing nations as a better engine for growth than 3G and data services in existing markets? Anecdotal evidence might explain this line of thinking -- look at the difficulties NTT DoCoMo had in maintaining its 2G dominance in the shift to 3G, and 3's limited success thus far being built on cheap voice tariffs rather than interest in high-speed data and the content it delivers.

Of course, there's probably a pretty simple explanation for all this: Vodafone's trying to make the best use of what it has (the stake in Verizon), while diverting resources from a market with questionable and unpredictable growth prospects (3G) to those with clearer potential growth.