Vodafone’s Q2 results provide concrete proof that increased data usage and the increasing popularity of smartphones provide operators with the opportunity to create a robust and sustainable new period of growth amid declining voice revenues.
What will be particularly heartening for mobile operators is that growth in data revenues didn’t come at the expense of significantly increased investment levels. The Group’s Q2 capital expenditure of £1.2 billion ($1.95 billion) was a relatively modest £200 million higher year-on-year, due primarily to LTE rollouts in Germany and network enhancements at Vodacom in South Africa.
These figures indicate that with the right strategy, operators can grow data revenues profitably in both developed and emerging markets.
Vodafone has been aggressive in developing its smartphone portfolio at all price-levels, and also has a clear focus on investing in networks to provide a good customer experience of the Internet. These are two key factors for increasing the level of smartphone penetration and use of data services, and Vodafone is one of the operators showing how simple but effective these tools can be for increasing profitability.
However, the results show that the move to smartphones is not all positive for operators. One ominous trend for is the risk presented to their core voice and messaging services by IP-based services delivered via smartphone applications (such as WhatsApp and Viber). Out-of-bundle revenues are principally at risk from these threats – and in Q2 this was 18% of European service revenues. Vodafone is trying to mitigate the cannibalization of cellular revenues by offering integrated tariffs that combine voice, SMS and data services in a single bundled price for customers.
The operator's move to integrated tariffs is a key defence mechanism against this potential cannibalization. It is taking a lead among operators and is making this transition to integrated tariffs quickly, with 25% of its consumer contract revenue in Europe now coming from integrated plans.