STL Partners

Telco 2.0 Growth & Innovation

Telefonica leads Vodafone in more attractive markets

Summary: In this new report based on Telco 2.0 Transformation Index analysis we compare Vodafone’s competitive positioning with another European-centric multi-national, Telefonica. The results are surprising and instructive, showing that Vodafone faces substantial challenges if it is to grow in the foreseeable future. (April 2014, Executive Briefing Service, Transformation Stream.)

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Below is an extract from this 20 page Telco 2.0 Report that can be downloaded in full in PDF format by members of the Telco 2.0 Executive Briefing service and the Telco 2.0 Transformation stream here. We'll also be exploring the implications at the OnFuture EMEA 2014 Brainstorm in London, 11-12 June.  For more on any of these services, please email contact@telco2.net / call +44 (0) 207 247 5003.

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Introduction

As part of the recently launched Telco 2.0 Transformation Index, STL Partners has been analysing the transformation efforts of major telecoms operators.  We are close to completing a major analysis report on Vodafone which will complement those already completed for Telefonica, SingTel, Verizon, AT&T and Ooredoo.  Vodafone’s scores will also be added to an update of the Benchmarking Report which will be released in May.

The full analysis of each player covers 5 domains:

  1. Marketplace.   The context in which the Communications Service Provider (CSP) operates.  It consists of the economic and regulatory environment, the growth of the telecom market, the individual company’s competitive positioning and the relative strength of its relationships with customers.
  2. Service Offering.  What the CSP delivers to customers in a particular market segment. It is defined by the CSP’s corporate and services strategy.
  3. Value Network.  The way the CSP organises itself to deliver service offerings and includes both the internal structure and processes and external partnerships.
  4. Technology.  The technical architecture and functionality that a CSP uses to deliver service offerings.
  5. Finance.  The way the CSP generates a return from its investments and service offerings.  It also measures the CSP’s success in generating returns and metrics used to manage and drive performance.

In this report we explore a small part of the Marketplace analysis for Vodafone and compare its competitive positioning with another European-centric multi-national, Telefonica.  

The results, we think, are surprising and instructive.  Vodafone, often held up as the strongest and most global player, actually has relatively weak competitive positions in its leading markets (it does not hold market leader positions) and is exposed to structurally competitive markets (even those that are developing).  Within this context, the company faces substantial challenges if it is to grow in the foreseeable future.

Of course, this is a small extract of a much deeper analysis on Vodafone.  In the full report, we explore Vodafone’s growth and transformation strategy in full and make specific recommendations on 3 different strategic options for management.

Overview: Vodafone operates in more competitive markets and has weaker market positions than Telefonica

STL Partners full report on Vodafone and Telefonica covers four areas of analysis within the Marketplace domain:

1. Economic environment & digital maturity:

  • The overall health of the economies in which Vodafone and Telefonica operate as reflected by GDP size and growth.

  • The digital maturity of Vodafone's and Telefonica’s markets as reflected by consumer and enterprise adoption and usage of telecommunications and internet services.

2. Regulation:

  • The regulatory framework that Vodafone and Telefonica operate within. Includes legislation and attitudes to pricing, net neutrality, CSP technical and commercial collaboration for new Telco 2.0 solutions, etc.

3. Competition and positioning:

  • The nature of competition - how players compete, their goals, the strategies they deploy, the products they develop

  • How Vodafone and Telefonica are competing in the marketplace and their strengths and weaknesses

4. Customers and customer engagement:

  • What customers want and, more importantly, are trying to achieve (physically, intellectually, socially) and how this is reflected in their (digital) behaviour including how they use products, react to companies and brands, share information about themselves etc.

  • Specifically, the regard with which customers hold Vodafone and Telefonica

For the purposes of this report, we have extracted elements of the full analysis and present them along two dimensions: Market Attractiveness (the underlying growth, maturity and structure of Vodafone and Telefonica’s markets) and Competitive Position (Vodafone and Telefonica’s relative strength within these markets).

We explore a number of individual metrics within each dimension and, as we show in Figure 1 below, have collected data for each operator and then evaluated which of the two is in a stronger position.  Setting aside the three metrics where the CSPs are broadly at parity, at a summary level it appears that Telefonica appears to be in a stronger position than Vodafone:

  • Telefonica’s markets look more attractive than Vodafone’s: Telefonica outscores Vodafone by 6 metrics to 2 for Market Attractiveness including for GDP growth, GDP per capita growth, Bank account penetration, Broadband penetration, Herfindahl Score (a measure of a market’s structural attractiveness) and Mobile revenue growth.  Vodafone’s markets, by contrast, are only more attractive than Telefonica’s in terms of overall GDP size and Internet penetration.

  • Telefonica’s competitive position appears to be stronger than Vodafone’s: Telefonica outperforms Vodafone in 4 out of 6 metrics including ARPU as % of GDP per capita (ie share of wallet), market share, market position in top 5 markets, market share gain/loss.  Vodafone only outperforms Telefonica in 2 metrics: Total subscribers and Facebook penetration (with a lower penetration acting as a proxy for weaker OTT competition).

The ‘tale of the tape’ in Figure 1 is a top-line snapshot.  The rest of this report digs into a few of the metrics in more detail and seeks to explain where and how Telefonica is enjoying an advantage over Vodafone.

Figure 1: Telefonica and Vodafone Market Attractiveness and Competitive Positioning –

The Tale of the Tape

Figure 1: Telefonica and Vodafone Market Attractiveness and Competitive Positioning – The Tale of the Tape

Source: Company accounts; Market regulators, World Bank, International Monetary Fund, ITU, Internetworldstats.com, Benchmarking telecoms regulation – The Telecommunications Regulatory Governance Index (TRGI) by Leonard Wavermana, Pantelis Koutroumpis (published by Elsevier 2011) STL Partners analysis

To access the rest of this 20 page Telco 2.0 Report in full including...

  • Overview: Vodafone operates in more competitive markets and has weaker market positions than Telefonica
  • Telefonica is more exposed to fast-growing emerging markets

  • Vodafone has only 30% of revenue in emerging markets…

  • …compared with over 50% for Telefonica

  • Telefonica’s Latin American markets have grown much quicker than Vodafone’s Emerging ones…

  • …and Telefonica’s European markets have contracted at a similar rate to Vodafone’s Developed ones

  • Telefonica’s has a stronger competitive position than Vodafone in the most important markets

  • Overall, Telefonica has a stronger market position and is performing better in more attractive markets than Vodafone

...and the following report figures...

  • Figure 1: Telefonica and Vodafone Market Attractiveness and Competitive Positioning – The Tale of the Tape

  • Figure 2:  Vodafone subscribers and revenue

  • Figure 3: Telefonica subscribers and revenue

  • Figure 4: Vodafone and Telefonica mobile market growth

  • Figure 5: Market shares in top 5 revenue-generating markets

  • Figure 6: Market Positioning Maps

  • Figure 7: Overall, Telefonica enjoys a 56% advantage over Vodafone using STL Partners’ Market Attractiveness-Competitive Situation (MACS) score

  • Figure 8: Portfolio Strategy Maps

  • Figure 9: Telefonica’s performance is broadly neutral and Vodafone’s negative using STL Partners’ EBITDA Margin-Market Share (EMMS) score

...Members of the Telco 2.0 Executive Briefing Subscription Service and the Telco 2.0 Transformation stream can download the full 20 page report in PDF format hereNon-Members, please subscribe here. For other enquiries, please email contact@telco2.net / call +44 (0) 207 247 5003.

Technologies and industry terms referenced include: Vodafone, Telefonica, Telefonica, SingTel, Verizon, AT&T, Ooredoo, Telecoms, Strategy, Transformation, Operator, Telco, Business Model