Vodafone's Half-Time Show
On 16 November, Dr. Brian Clark, acting president and CEO, Vodafone KK, presided at an Imperial Hotel presser announcing Vodafone Japan’s first-half results for the fiscal year ending 31 March 2005. Despite mobile operating revenue falling 2.5 percent year-on-year (to 736.8 bn yen), Clark put on a brave face and emphasized the new 3G terminal line-up, increased 3G coverage, growth in prepaid, and enhanced roaming. Nonetheless, several of his comments contrast sharply with what WWJ knows to be true about the Japan market.
There’s bad news and a whole lot of optimism in Clark’s presentation of Vodafone’s half-year results; it’s hard to disguise the grim situation facing their 3G network as well as the overall weakness of their mobile business.
In September, Vodafone gained 23,500 new 3G customers; in October, 13,300. This compares to DoCoMo signing up 587,500 and 576,700, and KDDI 346,500 and 296,900, respectively, for the same two months.
In other words, as we come into the crucial year-end shopping season, DoCoMo has signed up about 32 times as many new subs over the past two months as Vodafone did, and Vodafone’s share of new 3G subs is falling.
The 2G network is also in a bad way. In September and October, Vodafone gained 26,200 and 13,200 new subscribers, respectively; the other two had net losses on 2G, as each tries to migrate as many subscribers as possible to 3G; this appears to be working. Even with the two competitors actively trying not to gain 2G subs, Vodafone’s share is falling (all figures cited from www.tca.org).
The company said that ARPU for the first half declined by 9.9 percent (to 6,280 yen) year-on-year, apparently “due to higher value customers migrating to competitors, the impact of price plans introduced in October 2003, which were subsequently revised in July 2004, and a higher ratio of prepaid customers.” Note this admission that prepaid customers are not high-ARPU customers.
Also, data and messaging revenues as a percentage of total service revenue for the six month period came in at 21.3 percent, a slight decrease from 21.7 percent recorded in the first half of last fiscal year.
Finally, Clark announced that “The Company’s total revenue forecast for the full fiscal year is dependent on increased handset sales in the second half of the fiscal year, which are expected to result from the roll out of a wider range of 3G handsets.” We’ll find out in March 2005 whether the new 3G cellies can compete with FOMA and KDDI WIN.
OK, now for the good news — or, at least, the optimistic news.
You’ll have to watch today’s program to get the full details, but, overall, Clark pointed to a strategy which appears to be the only one possible under the circumstances. In the past few months and in the next quarter, this includes:
- An extensive range of seven new 3G handsets planned for the Christmas period, including models from Sharp, Motorola, Sony Ericsson, NEC and Nokia
- New 2G terminals, including a designer series and TV models
- Enhanced corporate productivity services, under the “Vodafone Mobile Office” brand (use a 3G celly as an office desk phone replacement)
- An enhanced Vodafone live! platform (based on WAP 2.0/MMS) including increased file sizes for downloads, Chaku-Uta, digital comics, and 3D games; mail attachments have also been increased
- Flat-rate pricing for packet communications
- 3G network population coverage now at 99.67 percent; further expansions made to outdoor, indoor, and underground service areas (one positive result: subway stations of all train lines in the Tokyo Metropolitan area were covered on 1 July)
- 143 roaming agreements in 107 countries in place as of 30 September 2004
Recalling the admission above that prepaid customers are not high-ARPU customers, we note with intense interest the statement in the PR release for the event:
“The percentage of prepaid customers at the end of September grew to 11 percent from 9 percent in March 2004, and from 8 percent in September of the previous year. The company is committed to providing Japanese mobile customers with the affordability and convenience of prepaid.”
Which brings us to our main observation related to today’s program, namely, Why in heck is a struggling third-place carrier actively trying to migrate customers from the proven mobile Internet success model (based on contract customers) — which generates some of the highest ARPUs in the world — to the made-in-Europe, early 2G-era prepaid model?
The reality of the market in Japan is that when a consumer-facing product or service provider provides top-level customer care, the customers will reward the provider by paying enhanced fees that would be unsupportable anywhere else. In Japanese culture, the most important question is not, “How much does this cost?” but rather, “How good is this?”
In the cellular segment, this has developed into a model that all three carriers initially followed: terminals, products, billing plans, and service offerings are all carefully controlled by the carrier to create a more or less custom user experience — with the result that loyalty is high (overall, Japan has the lowest mobile churn in the world), data and voice usage are high, ARPU is high, and customer satisfaction is also high.
What is wrong with this model such that Vodafone feel the need to drop it in favor of something created elsewhere?
Watch today’s program, and then compare it to DoCoMo’s 901i-series launch event (video to be posted mid-next week); no contrast could be starker. And watch for our favorite quote today, around the 6:49 mark, with respect to prepaid: “We are getting good support from housewives and elderly people.”
Keen wireless watchers will also enjoy the Portable Reportable (to be posted 30 Nov 2004) comprising the Q&A portion of this press event (MP3 audio only).
— WWJ Editors