Vodafone Financial Analysis, Research Paper Example

In order to increase profitability, the company needs to expand into new markets. Therefore, the competitors must be analyzed with as much zeal as the home company. The current company specializes in consumer (not business) pay-as-you-go mobile phones within the UK. As a result, one of its top competitors is Vodafone. This means that the company needs to analyze Vodafone’s annual report. Thus, the report provides a summary of the most important components of this report. This is done through analyzing what aspects of Vodafone are the most profitable, where in the world is Vodafone seeing the best potential future market expansion and current state of business in those countries, major income generators for Vodafone, risks of expanding the company into these newly identified markets, and recommendations.

Vodafone Profitability

The strength of Vodafone lies in its ability to offer different network and service options. Thus, the mobile communications company provides a variety of services, such as mobile voice, messaging, data, and fixed lines. Furthermore, Vodafone offers M-Pesa, which is a money transfer service. With this service, it is possible for those in emerging markets to transfer money utilizing a mobile phone. Furthermore, the company has products, such as “international money transfer, savings and loans, salary disbursements and access to insurance products in different markets” (Anon n.d.). The company’s profitability is tied to its major goal of “remain[ing] committed to enhancing the positive social impact of mobile” (Vodafone 2014). It is noted by the company that its networks and services are utilized in a variety of ways, including illiteracy, supporting health care, and entrepreneurship (Vodafone 2014). This is through giving the power to be connected. It is further noted that “VGE has an industry-leading track record in designing and implementing sophisticated global mobile and fixed-line communications products and services for some of the world’s leading companies” (London Stock Exchange 2013). However, Vodafone is doing quite well. Despite this, investors are still concerned because it is unclear as to how the company will approach bundled packages, which has become increasingly popular over recent years. Bundled packages are beneficial because they combine telecoms and internet services. Significantly, this “market is more established in other European countries than in the UK at present, but Vodafone is expected to take steps towards expanding into the UK’s consumer broadband market soon” (Spickernell 2015).

Vodafone Potential Market Expansion and Current State of Business

Significantly, “Vodafone has now modernised 61,000 mobile sites, added 86,000 new 2G, 3G and 4G sites, and expanded backhaul capacity into 50,000 sites” (Scroxton 2015). It is noted that the company has 84% more data traffic, especially in European traffic. In fact, 26% of European traffic is caused by 4G traffic (Scroxton 2015). It is expected that Vodafone’s future will exist in the Asian emerging markets. This is where the most growth will occur. Furthermore, it is expected that growth will occur tremendously in Asia and Africa. The goal of the growth in these two countries is “to offset price wars in Europe” (Thomson 2014). Significantly, the company’s biggest market is in India. Here, data usage “more than doubled as more people used their phones to access the Web. Indian revenue grew 13 percent to 937 million pounds” (Thomson 2014). Further expansion will occur within the US market. This will provide the company the opportunity to provide an international foot print; increase proven communication products and services; and provide the best infrastructure. The goal of this is to be where customers need Vodafone to be the most. This allows Vodafone to invest for the future. Ultimately, in investing for the future, Vodafone “gives businesses access to the world’s most expansive network by depth and reach; and global leadership in Machine-to-Machine (M2M) capabilities” (Vodafone Global Enterprise 2015). However, the most influential growth may continue to be in India because “India is set to overtake the UK as the company’s largest source of revenue due to the country’s position as the world’s second-largest mobile market by users” (Daws 2014). Further expansions will occur in Africa as “the Group is establishing two new regional hubs in Nairobi and Accra in order to enhance significantly the level of support for more than 600 VGE multinational customers with operations in Africa” (London Stock Exchange 2013). The goal of these hubs is to meet the needs of multinational customers, which will also complement the services already provided in Cairo and Johannesburg. In these areas, Vodafone already provides “24/7 services in 13 languages to hundreds of the Group’s enterprise customers. In addition, Vodafone’s extensive network of partner market operations enables the group to provide services to businesses in more than 50 African countries” (London Stock Exchange 2013). Currently, business expansion objectives have succeeded due to the current strategy. This is “to grow through geographic expansion, acquisition of new customers, retention of existing customers and increasing usage through innovations in technology” (Businss Case Studies n.d.). However, the company has noted other opportunities for growth. For instance, “Vodafone’s leaders recently set a clear directive that the company needs to move beyond wireless and mobile to a more complete TV, landline and broadband proposition  – a path that implies acquisition of suitable candidate service providers such as Kabel” (Flood 2013). This will involve growth in the UK. It was significant to note that “Vodafone India, which has applied for a payment bank licence, saw its mobile payment service closing the reported quarter with 337,000 active customers, generating 78,000 transactions per day, supported by over 85,000 agents” (Anon 2015a). As a result of these changes, Vodafone is expected to grow tremendously.

Major Income Generators for Vodafone

The focus on the company will continue to be having the right content available to customers and getting customers to use more mobile data because it generates the highest profit margins. However, “Vodafone may be contributing to price wars in some of its markets through its Vodafone Red plans — which offer customers unlimited calls and texts when they sign up for data service” (Thomson 2014). Growth potential has increased due to other reasons as well. For instance, the company’s “focus for SoHos and SMEs is to provide customers with integrated fixed and mobile communications solutions where we host and maintain the entire service “in the cloud” to help customers reduce costs and simplify administration” (Vodafone 2011). Thus, income has increased in tremendous ways as a result. Significantly, “Vodafone’s Indian unit outpaced its group counterparts to report 15% organic growth in revenue in the quarter through December, as subscribers used more of its premium data services, even as the basic voice telecom service remained under pressure, like its top rivals” (Bureau 2015).

Risks of Business Expansion

It is expected that the company would do best to continue its growth in India. To this end, a PEST analysis needs to be conducted, which includes information regarding the politics, economy, society, and technology of the area. The goal of the PEST analysis is to help the company prepare for the challenges that lie within the area. Since India’s telecom industry is already so strong, it is crucial to tap into this demand and establish a solid niche within the industry and country as a whole. Thus, it is the largest growing telecom market in the world. This is proven as India “has achieved its target of reaching 250 million telephone subscribers by 2007, two months before target” (Kumar 2008). Politically, there were reforms initiated in the 1980s, cumulating in the allowance of “private manufacturing of customer premise equipment in 1984” (Kumar 2008). These reforms continued through the 1990s. However, one of the most beneficial reforms was in 1994, known as the National Telecom Policy, which encouraged the private sector to grow. The most important initiative followed in 1999, known as the New Telecom Policy (Kumar 2008). Thus, the telecom industry in India is expected to continue to play a crucial role in the world’s economy. In fact, between 2008 and 2012, the India’s telecom industry’s revenue more than doubled. This is caused by “increase[s] in disposable incomes, greater network coverage, greater affordability, falling mobile phone prices, [and] falling call charges” (Kumar 2008). Thus, changes in lifestyles have influenced this growth. In fact, “fast changing lifestyles are forcing telecom companies to enlarge the breadth and depth of their services [and to even include] joint ventures in the entertainment sector to add more services” (Kumar 2008). Other growth capacities lie in rural India. Employment opportunities are within the industry as well, which can enhance social standings. Within the industry, certification is available in telecom engineering, information technology, computer science, management information systems, and computer forensics (Kumar 2008). Technologically, spending will need to increase in research and development in order to best meet the needs of the population. This will allow for the focus of technological improvements and increased productivity. The most common technology utilized in the Indian telecom industry includes global systems for mobile communications, code division multiple access, wireless local loop, and 3G technology (Kumar 2008). However, “the strong growth of the telecom industry, and increased equipment obsolescence have caused a dramatic rise in the amount of electronic waste worldwide” (Kumar 2008). This has led to concerns relating to the environment. As a result, “operators are paying increasing attention to their environmental performance, and are cooperating more closely with telecom equipment manufacturers” (Kumar 2008). The role of international regulations has also affected India’s telecom industry. In fact, “ISO 14004:2004 provides guidelines on the elements of an environmental management system and its implementation. The process includes choosing the proper products and networking solutions to reduce negative impact on the environment” (Kumar 2008). Furthermore, in India, telecommunications falls under the Union, not the States. Therefore, the “legal framework governing telecommunications is within the control of the Union Government and the Parliament” (Kumar 2008). This framework has four main components. These include: “The Indian Telegraph Act 1885, The Wireless Telegraphy Act 1933, The Telegraph Wires (Unlawful Possession) Act 1950, The Cable Television Network (Regulation) Act 1996” (Kumar 2008).

To determine the risks of business expansion, it is crucial to conduct a SWOT analysis. This is broken into individual segments: strengths, weaknesses, opportunities, and threats. However, it is important to be aware that “the consensus forecast amongst 36 polled investment analysts covering Vodafone Group plc advises investors to hold their position in the company. This has been the consensus forecast since the sentiment of investment analysts deteriorated on Mar 01, 2015. The previous consensus forecast advised that Vodafone Group plc would outperform the market” (Anon 2015b). To begin with, Vodafone is “one of the most popular cellular service providers in India [and is] one of the largest telecom operators in the world” (Anon 2014). The company enjoys high brand visibility and strong advertising, which increases its strengths. However, the company has not tapped into rural markets at this time, which can limit its profit. Thus, the company has the opportunity to expand its market tremendously to include the rural market and provide the “latest and low cost technology” (Anon 2014). This means that the company may be threatened due to phone number portability and market saturation (Anon 2014).Despite this, the company has operations in “Germany, Italy, United Kingdom, Spain, Netherlands, Ireland, Portugal, Romania, Greece, Czech Republic, Hungary, Albania, Malta, India, Turkey, Australia, Egypt, New Zealand, Qatar, Ghana, South Africa, Tanzania, Congo, Mozambique, Lesotho and Kenya” (Indrayan 2014). This makes the company highly geographically diversified, especially important with its “developed and advanced network” (Indrayan 2014).Despite the widespread availability of Vodafone, it is impacted by the “sluggish economic conditions in Europe and cut throat competition” (Indrayan 2014).

Recommendations and Conclusion

It is known that the company needs to expand into new markets. Vodafone, one of the company’s top competitors, offers different network and service options. Significantly, Vodafone allows those in developing countries to transfer money through mobile phones. This is beneficial because it promotes the use of the product. Thus, Vodafone gives the power to be connected. Vodafone is known for designing and implementing innovative designs in communication products and services. However, Vodafone has not utilized bundled packages as frequently as other companies. Therefore, this could be an advantage to be gained over Vodafone.

Significantly, Vodafone has expanded tremendously and has included 2G, 3G, and 4G sites into its workup. As a result, its traffic is increasing. However, the Asian emerging market is where the future of Vodafone lies. Other areas are India and Africa. India is already strong in terms of service, but is expected to grow more. Additionally, Vodafone is planning to expand into the US market.

In order to compete effectively against Vodafone, it is suggested that it continues to expand to include bundled packages, increase its presence in India and Africa, and develop stronger broadband capabilities. This will give a competitive advantage over Vodafone. This is important because it will allow the company the opportunity to meet the needs of the population in ways that have not been met before, such as through bundled packages. This could be coupled with other services, including financial services in order to meet the expectations of the growing population and demand. As such, the company would do well to invest in India to promote company growth.

References

Anon, 2014. Vodafone. Available at: http://www.mbaskool.com/brandguide/telecom-service-providers/502-vodafone.html.

Anon, 2015a. Vodafone earnings grow 18%. The Telegraph. Available at: http://www.telegraphindia.com/1150206/jsp/business/story_1707.jsp#.VS3tUvDlwxI.

Anon, 2015b. Vodafone Group PLC, VOD:LSE forecasts. FT. Available at: http://markets.ft.com/research/Markets/Tearsheets/Forecasts?s=VOD:LSE.

Anon, Vodafone Group Plc. News. The New York Times. Available at: http://topics.nytimes.com/top/news/business/companies/vodafone_group_plc/index.html.

Bureau, E., 2015. Vodafone India outpaces other group units, posts 15% growth in December quarter. Economic Times. Available at: http://articles.economictimes.indiatimes.com/2015-02-06/news/58878696_1_organic-service-revenue-vittorio-colao-vodafone-india.

Businss Case Studies, Vodafone´s corporate strategy – The advantages of sponsorship. Business Case Studies. Available at: http://businesscasestudies.co.uk/vodafone/the-advantages-of-sponsorship/vodafones-corporate-strategy.html#axzz3XLNKR800.

Daws, R., 2014. Vodafone continues India expansion with $1bn upgrade. Telecom Tech News. Available at: http://www.telecomstechnews.com/news/2014/oct/07/vodafone-continues-expansion-1bn-india-upgrade/.

Flood, G., 2013. Vodafone Ponders Major German Cable Market Expansion. Information Week. Available at: http://www.informationweek.com/services/vodafone-ponders-major-german-cable-market-expansion/d/d-id/1110332?

Indrayan, G., 2014. SWOT Analysis of Vodafone – World’s second largest mobile network operator. Wireless and Mobile Telecommunications. Available at: https://wirelesstelecom.wordpress.com/2014/07/28/swot-analysis-of-vodafone-worlds-second-largest-mobile-network-operator/.

Kumar, R., 2008. PESTLE Analysis — telecom sector. Available at: http://www.slideshare.net/arpit754/pestle-analysis-telecom-sector

London Stock Exchange, 2013. Expansion of Vodafone Global Enterprise in Africa – London Stock Exchange. London Stock Exchange. Available at: http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/11637097.html.

Scroxton, A., 2015. Vodafone returns to growth in the UK. Computer Weekly. Available at: http://www.computerweekly.com/news/2240239548/Vodafone-returns-to-growth-in-the-UK.

Spickernell, S., 2015. Vodafone exceeds expectations with strong UK growth. City A.M. Available at: http://www.cityam.com/208766/vodafone-outperforms-expectations-strong-uk-growth.

Thomson, A., 2014. Vodafone Service Revenue Beats Estimates on Indian Growth – Bloomberg Business. Available at: http://www.bloomberg.com/news/articles/2014-02-06/vodafone-service-revenue-falls-on-southern-europe-decline.

Vodafone, 2014. Annual Report.

Vodafone, 2011. Implement a strategy for growth Enterprise. Available at: http://www.vodafone.com/content/annualreport/annual_report11/business-review/strategy-in-action/focus-on-key-areas-of-growth-potential/enterprise.html.

Vodafone Global Enterprise, 2015. Current Analysis recognises the significance of Vodafone’s plans to expand into the US mobile market. Available at: https://enterprise.vodafone.com/insight_news/2015-01-22-current-analysis-recognises-the-significance-of-vodafones-plans-to-expand-into-the-US-mobile-market.jsp.