Operators - a Mid-year Update
By Steve Wallage, Wed Jul 09 08:00:00 GMT 2003

How have the major mobile operators fared so far this year?

The mobile operators have generally had a solid, if uninspiring, first six months of the year. Against the backdrop of general economic malaise, SARS in Asia and maturing markets, much attention has been focussed on the business metrics of the mobile operators. Generally, their results have met with approval from investors, who have been keen to see improvements in the 'basics' of the business such as increased efficiency and profitability.

This focus has ensured slow movement towards the mobile data vision, although the success of Vodafone live! has exceeded expectations. The mobile operators have also been able to avoid any nasty surprises with regulators and new competitors (such as Hutchison) usually proving to be pretty tame. This piece particularly looks at four mobile operators; Vodafone, T-mobile, Orange and NTT DoCoMo.

The Numbers

Vodafone grew its customer base to 119.7m subscribers by March 31. It expects to gain at least 10% more subscribers by March 31, 2004. The stock markets cheered its strong rise in revenues and margin. Its EBITDA (a measure of profitability) margin rose by 2.8% - of this, 1.7% came from cost control, synergies and improved efficiency, and 1.1% from reduced customer acquisition and retention costs. The headline numbers masked a wide variance in performance - for the first three months of 2003, it gained 54,000 users in Italy (even though Vodafone now believes that the penetration rate is 97%) and 110,000 in Spain. Yet, over the same period, Vodafone lost 106,000 customers in the UK and 119,000 in Germany. Churn in the UK increased from 27% to 30%.

Orange had 44.9m subscribers by March 31. Its own numbers were overshadowed by its problems in Germany and Sweden. Even more critically, by the debt restructuring problems of its parent company. The TOP cost savings program, initiated by France Telecom, calls for 40% of the savings to come from Orange - €6bn over three years with reduced marketing, and capital and operating, expenditure. This reduced marketing spend has already been seen in France where Orange has recently lost customers to Bouygues and SFR. It has managed to increase its focus on contract customers - for example, in the first three months of 2003 in France, they gained 119,000 contract customers and lost 104,000 pre-pay customers.

T-Mobile had 55.1m customers at the end of March. Analysts had been very critical of the price it had paid for VoiceStream in the US but T-Mobile had an answer for its critics. In the first quarter of 2003, it gained 29% of new customers in the US. The ARPU was nearly double that of T-Mobile Germany (€44 to €23) with 87% of US customers on contracts.

NTT DoCoMo had 43.8m subscribers in Japan by the end of March. Investor interest focused on the delays in hitting 3G targets and the intense competition it faces in Japan and in its international investments.

The Branding

Vodafone aims to be the 'leading mobile communications provider in the world'. Its global ambitions were illustrated in the year to March 2003, as it spent around €8.1bn increasing stakes in mobile operators in China, France, Germany, Netherlands, Portugal, Spain and Sweden. However, only recently, Vodafone has actually sold some stakes in mobile operators - in India and Mexico. Bankers Dresdner Kleinwort Wasserstein says that, "recent history has shown a more cautious approach by the company to M&A." Perhaps its spending spree is coming to an end?

Vodafone has tried to leverage its brand with international advertising campaigns and the use of global celebrities. It has also launched pan-European roaming packages. In many ways this has been a great success, but is not without its problems. Witness France, where SFR adverts still no have mention of Vodafone, or Asia where the brand still has little resonance and markets are so different that the idea of a pan-Asian brand is extremely difficult to achieve.

The success of the Vodafone brand did prompt others into action. T-Mobile joined with Telefónica Móviles and TIM to set up an alliance to offer, "their customers with a unified and superior offering of products and services." The three operators can boast more users than Vodafone - 162m - and a strong geographical spread. However, the agreement appears doomed to failure given the cultural and competitive challenges it must overcome. Orange has continued with its re-branding efforts - for example, Dutchtone to Orange in the Netherlands. NTT DoCoMo continues to push forward its expansion of i-mode. Spain is scheduled to start its i-mode service on June 26, following on from Germany, Netherlands, Taiwan, Belgium and France. The New Leaders

Vodafone will be gaining a new CEO - Arun Sarin - on 30 July. All expectations are that there will be no noticeable change.

By contrast, Orange gained a new (American) CEO - Solomon Trujillo - in March. This represents a continuation of the changes in senior management since its change in ownership. This is likely to lead to some more significant changes for Orange, and a new strategy is being launched at the end of June.

Where is 3G?

3G hasn't had too many mentions of late from the mobile operators. The failure (so far) of Hutchison hasn't dented their laid-back focus. The sting in the tail, and possibly last action, of Hutchison in the UK has been to start a price war offering 500 minutes bundled into a €35 package. This could forever associate 3G with lower costs in the minds of users.

Vodafone recently made a cautious statement that 3G services are "expected" to be available in 2004, but this is dependent on handsets and networks. NTT DoCoMo is around a year behind its original 3G plans, and is now expecting 1.5m subscribers by March 2004 (currently around 0.5m).

However, the business models of the mobile operators are utterly dependent on the success of 3G, and although the headline '3G delay' will be with us for a while, the commitment of the mobile operators should not be doubted.

Steve Wallage works and writes for the451. Steve has more than 13 years of experience as a technology analyst specializing in telecommunications.