Telcos giving up on becoming global brands

Mark Newman/Informa Telecoms and Media
21 Mar 2013

I remember speaking to a senior director at a Middle Eastern telecom operator five years ago about Formula 1 motor racing and Vodafone. He’d got used to seeing Vodafone’s name plastered all over race tracks as a sponsor of first the Ferrari and then the McLaren teams. But he didn’t know that Vodafone was a telecom operator (Vodafone did not operate in his country) – he thought it was a sports marketing brand.

As it turns out, the current F1 season, which started on Sunday, will be the last to feature Vodafone as McLaren’s main sponsor. Vodafone announced last week that, following a global review of its branding strategy, it will focus instead on investing in new customer engagement platforms.

The inference from the announcement was that the McLaren sponsorship deal had served its purpose. Vodafone now has in excess of 90% brand recognition in the markets in which it operates.

But when Vodafone’s decision to quit F1 is seen in the broader context of the mobile communications industry’s love of motor racing generally over the last decade, it points to a bigger overall trend. It tells a story of the European telecom industry’s rise and fall and of mobile operators’ hopes that they could become global consumer brands like soft drinks or tobacco companies.

All four of Europe’s big four telecom operator groups – Vodafone, Orange, Deutsche Telekom and Telefonica – have dabbled in F1. In 2000, Orange entered into a two-year global sponsorship deal with the Arrows F1 team. Deutsche Telekom sponsored McLaren in 2001 and 2002. Between 2004 and 2006, Telefonica sponsored the Renault F1 team. And BMW announced a partnership with O2 for the new BMW Sauber F1 in 2006.

But in the current 2013 season, Vodafone is the only European operator sponsor that remains. Fierce competition, strong regulation and competition from OTT service providers have combined to depress the market for Europe’s telecom operators and sponsoring a sport as expensively trivial as F1 is not the kind of message that they would want to send to customers, shareholders or regulators.

If you are Carlos Slim, this is not so much of a problem. The Mexican billionaire, the richest man in the world and owner of Latin American telecom group America Movil, is a growing force in F1. Telmex, America Movil’s Mexican subsidiary, has sponsored the Sauber team since 2011 and is now rumored to be in the running to replace Vodafone as McLaren’s main sponsor next season (Sergio Perez, who had driven for Sauber, moved to McLaren at the start of this season).

It seems that events in F1 are mirroring shifts in the global balance of power in telecom. Last year, America Movil attempted to take a controlling stake in Dutch telecom group KPN. It already has minority stakes in KPN and Telekom Austria.

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