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What’s Wrong With These People? # 1 – Vodafone

  • Exodus continues
  • Cheap plans and handsets, but where's the value?
  • How the next iPhone can put them back in the game
Written by Adam Wajnberg

Vodafone is the ExxonMobil of the telecoms world. The UK juggernaut has nearly 450 million subscribers across the world, with a market capitalization of $100bn, letting it hang with mining companies, banks and oil giants. Since its beginnings in the early 90’s, Big Red has marched across the globe and swallowed parts or all of Orange, Hutchison, At&T and others, creating the world’s only truly global telecommunications brand.

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Vodafone’s origins in Australia were less auspicious. Vodafone entered the Australian market as the third major network operator, building much of its network in the same footprint as Optus and Telstra, but with a focus on metropolitan areas. Its first controversies were centered around their woeful billing system, and around ‘Lara’, an integrated voice recording (IVR) that had a personality all her own. That personality was “unhelpful’ and ‘easily confused’. Lara is still in use, and though ‘she’ has improved, her primary role still seems to be to convince you not to call Vodafone.

With direct backing from Vodafone UK, the Australian arm had room to maneuver. Vodafone undercut Optus and especially Telstra, with innovative plans that sought to simplify the confusing mess of plans, mobile repayment options and mobile insurance. Vodafone was the first to introduce Cap plans, and was the exclusive carrier of LGs Prada Phone, a touchscreen early smartphone that pre-dated the iPhone by a few months.

When the iPhone 3G came to Australia in 2008, Vodafone was quick to offer the best prices on the most generous plans. What they hadn’t prepared for was the extent to which people actually used the iPhone to consume web content. Until then, phone browsers had been a pain in the backside to use, and as a result mobile computing was a marginal activity. With the iPhone’s ability to create a real web experience on the move, Vodafone found itself flat footed and its network started to struggle (to be fair, so did Optus’, and to a lesser extent, Telstra’s).

3, a mobile brand under the Hutchison Whampoa/Orange group, was the first to introduce 3G mobile data in Australia, which they intended to use for video calls. Alas, the tiny range of available handsets were large, ugly and expensive, and before too long 3 was just another GSM provider, and a failing one at that. Vodafone and 3 merged in late 2010, and it is there that Voda’s troubles really began.

Vodafone has never directly attributed their late 2010 network collapse to the failed integration of 3’s network and customer base into their own. Even if the two events were more coincidence than causative, the compounded frustration of 3 customers, thrust into Vodafone’s pricing world and flailing network, and the growing frustration of existing Vodafone customers collided with a spectacular collapse of Voda’s network capability. Dropped calls, lack of 3G data and terrible call quality led to an outcry, and to the establishment of the Vodafail blog, which people used to tally their frustrations.

The grassroots campaign collided with the very real exodus of Vodafone customers, who bypassed the similarly cheap, but also struggling Optus network in favour of Telstra’s vastly superior NextG network. Telstra, keen to capture the momentum, dropped its prices dramatically and started signing on customers by the bucketload, into cozy 24 month contracts.

Vodafone spent most of the 2nd half of 2011 in damage control, having abruptly lost almost half a million customers. Their network regained some stability, thanks in no small part to the reduced user base. Vodafone began rapidly rolling out a $1bn upgrade to its network, replacing their 2100Mhz 3G standard with the faster and further reaching 850Mhz standard (the same that NextG uses). Telstra, meanwhile, is nearly halfway through an upgrade to 4G. Boom.

Vodafone has started offering a 30 day network guarantee. If your service isn’t up to scratch, they’ll get the phone back from you and end the contract, no questions asked. They’ve cut handset costs to the bone. They’ve started offering 12 month contracts.

In Vodafone’s Q1 2012 report, released this week, Australia was marked as the sole market where Vodafone failed to hold or increase their share. In this period, Vodafone lost an astonishing 128,000 subscribers.

vodafone financial results

Oof. Source Vodafone

Where to From Here?

Vodafone has been making many of the right moves, so it’s hard to identify what isn’t working. Their network is improving, and the upgrade has been well documented on their official blog. They’ve been open and honest in identifying their problem, issuing an apology to customers and pledging improvements.

The problem is that telecommunications is a dodgy business. Everyone has been burned by now, with either a huge bill they weren’t expecting, or lousy coverage, or advertised services that plain suck in real life. We need mobiles, so we put up with these issues. But when you combine dodginess with it-doesn’t-work, you lose even the grudging respect that people accord to their network provider.

Telstra continues to price itself arrogantly, with smaller plan value and higher monthly fees. But its network works, and works well. Optus isn’t much better than Vodafone when it comes to tricky cap plans with hidden traps, but its network is holding up well. Moreover, Optus wholesalers like Amaysim and Dodo are coming out with plans that seem so fair and reasonable, that people approach them like fearful apes approach the giant monolith at the start of 2001: A Space Odyssey. Optus has many very happy people on their network, even if it’s limited to people connected to resellers and living in metro areas.

Vodafone needs to cut the garbage. Their plans are still a confusing labyrinth, with high excess fees for excess data on tempting $19 and $29 plans. That bait-and-switch approach leaves a bad taste in the mouth. They’re also offering ‘meh’ deals like plans with infinite texts, in a time when everyone else is offering that, and when Android, iOS and BlackBerry all have alternatives to carrier-provided SMS messaging. Their plans are cheap: but they come with too little real value.

They’ve got the right idea when it comes to 12 month contracts, but the differential in handset pricing is so large that it still feels like punishment to take the shorter contract. Many of their deals come with conditions like ‘Double Data! For the first 12 months’. Who remembers the details of their plan after a year? People will throw a fit when they realize that the data they used this month costs them an extra $250, when it was free the month before.

Last Hope

People are starting to work out that the flexibility that comes with buying a phone outright far outweighs the convenience of buying a plan on contract. Not only does a contract deal come out more expensive in the end, but these ‘cap’ plans offer a mirage of value – once your credit is exhausted, the per-minute call charges, in real money, are borderline criminal (and Vodafone, with 98c per minute, stands alone as the worst offender).

One phone that might get people back on a 24 month contract is the next iPhone. With a major release due, and with some very real and serious competition from Samsung, Apple is likely going to aim to knock our socks off come September. That phone is going to be very attractive, and very expensive, forcing many fans on to the contract option.

Vodafone could swoop in as a white knight here, offering the phone cheap, on a straightforward plan that offers similar value to Amaysim’s Unlimited option, or the Dodo Magic SIM. They could offer it with a reasonable price on a 12 month contract. They could take away all the bad attitude that telcos have when offering the iPhone, and stop distinguishing it from other phones in its class, by offering it at similar price points. Even if Vodafone has to lose a little money, it would give them the chance to identify themselves clearly with the world’s most popular phone, and remind people that Vodafone began as the firm that would keep the other bastards honest.

Is Vodafone Bad?

Nah, not really. They’ve made the right noises, and they don’t use their market position to crowd out others. They have a history of offering a lifeline to those who want the latest tech but can’t quite afford it. They’ve never exactly been arrogant, even if they have at times been shortsighted.

They’ll be back, in one form or another – they may get bought out, or relaunched, or otherwise plough through. They'll start working with Optus to develop a 4G network, and they've already set their sights on using the NBN to provide fixed-line services. They’re not going away – yet. They still have plenty of time to turn it around.


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