Thursday 23 November 2017

Progress for Vodafone despite losing 300,000 prepaid customers

Vodafone's loss of customers points to a healthy market
Vodafone's loss of customers points to a healthy market

Is losing 300,000 customers in five years a sign of poor performance from an Irish mobile operator?

Not necessarily.

This week, Vodafone Ireland's financial results showed that it now has 1.95m mobile customers, almost 300,000 off its peak of 2.24m mobile customers in 2012. The slide is part of a downward trend that may see the country's biggest mobile operator kiss goodbye to its benchmark 2m mobile customer mark for the foreseeable future.

But is losing 13pc of your customer base in a few years a sign of something endemically troubling?

In this case, arguably not.

Vodafone's profitability, one of the key metrics that sustains jobs and investment, is actually doing quite nicely. Its margins are fairly healthy too.

Furthermore, although the company won't specify exactly which customers it has lost, it's understood that the 300,000 are largely prepaid customers. These are nowhere near as profitable as 'contract' customers, which now make up a large majority of Vodafone's Irish base.

And then there is the inevitability of losing customers because of extra competition. Five years ago, Ireland was a market sewn up by three operators. Today, at least four new operators have cumulatively grabbed 10pc of the market, or some 500,000 customers. Tesco Mobile alone has over 7pc.

Those customers had to come from somewhere. So it seems that a large chunk of them - maybe half - have been siphoned away from Vodafone. But they're probably the lowest-yielding chunk of Vodafone's customers, those who are motivated overwhelmingly by price.

So losing 300,000 prepaid customers, as regrettable as it might be on paper, isn't really a competitive disaster in a market where you had a 45pc share and three new well-funded players have just entered.

Besides, Vodafone has been busy developing other projects.

It now has some 325,000 fixed line customers divided into 260,000 broadband customers and 65,000 fixed voice customers. Granted, these services are delivered over Eir-owned landlines which means they're barely profitable to Vodafone. Nevertheless, the landlines give the operator an opportunity to offer 'bundles', which a hefty chunk of the market now looks for.

Vodafone even has a TV service now for its bundle, although it seems that there is very low take-up of this so far. (Vodafone won't disclose the actual number of TV customers it has in Ireland, a tactic usually deployed by operators for metrics that are a little meagre.)

The company also has ambitious horizons for its own long-term fixed telecoms infrastructure. It's investing over €200m in a joint venture with the ESB to roll out proper fibre lines in up to 50 large regional towns. Several of them, including Tralee, Dundalk and Carlow, are already done. The operator plans 500,000 homes and businesses to be connected in this way over the next couple of years, even if its 2018 deadline now looks unrealistic. That's a solid business bet for the future and one that no competitor bar Eir and Virgin can match.

So regardless of whether or not it proceeds with its National Broadband Plan bid (Siro is having significant doubts), Vodafone will have a more diversified telecoms business in Ireland than that of five years ago or many of its current competitors. In this context, losing 300,000 prepaid mobile customers isn't the end of the world.

To be sure, Vodafone faces further competitive pressure in future. When Three completes the integration of its O2 network, leaving behind its service issues, its network will be a formidable competitor for customers on Three, Virgin, iD and Tesco, all of which use Three's network.

Right now, Vodafone holds an edge over Three in the minds of many corporate users because of the lack of the disruption that Three has experienced in its integration process. But if Three catches up on perceived network performance, it has cheaper package options, especially considering its superior data allowances.

Data allowances are increasingly a key metric that mainstream users look to. As Three gets closer to Vodafone in network performance, Vodafone will be forced to gradually raise its data caps to compete. It has already had to do this and won't be able to avoid it in future.

Ultimately, Vodafone's loss of these prepaid mobile customers underlies a highly competitive, healthy mobile telecoms environment.

Although sometimes taken for granted, Ireland has one of the highest rates of telecoms investment-per-capita in the world. Those who live in cities or large towns are spoiled for choice on network quality and price.

So Vodafone's loss of its prepaid customers isn't really a sign of its weakness. It's a sign of the market's growing strength.

Indo Business

Promoted Links

Business Newsletter

Read the leading stories from the world of Business.

Promoted Links

Also in Business