Vodafone shakes-up, goes for emerging markets

Spring-cleaning was one description of the changes that Vodafone is now implementing as it seeks further success. As those changes stretch to a focus on the emerging markets and also to reinforcing the important role convergence has to play in modern telecommunications, the term spring-cleaning is a considerable under-statement. Update by Michael Schwartz.

In a surprising move Vodafone has chosen to manage itself through three new divisions. One of them, new business and innovation, is in fact no surprise. The rapid changes in telecoms dictate the obligation on operators to look for technological breakthroughs to make themselves attractive to new clientele.

The other two divisions are less clear-cut. They are firstly Europe, and secondly an amalgamation of Central Europe, Middle East, Asia-Pacific and certain affiliates.

Geography is playing the key role here, not technology, not some division between business and private consumer. Then Western Europe and Central Europe are in separate divisions. This is understandable as the two are at very different stages of development. What is perhaps strange is that in the larger of the two geographical divisions there is a mixture of developing markets with Asia-Pacific - itself a mixture of mature and emerging markets. There is a inconsistency within a larger inconsistency, rather than having one division devoted to mature markets and one to emerging.

CEO Arun Sarin is, however, convinced: "By creating three new business units, and with an increased focus on costs, we are reflecting the different approaches that will be required to continue to succeed." He hopes to cut mature market costs (Western Europe), achieve the expansion anticipated by many companies for the emerging markets, and to service both by developing new technologies.

It can not be said that Vodafone is unkeen to make changes to its senior structure. Bill Morrow, head of the company's Japanese operation, will manage the new Europe division. Mr Morrow was without responsibility for a few days as Vodafone recently agreed to sell its Japanese business to Softbank Corporation. He will be assisted by a new CTO, Tim Miles, who relinquishes control of the UK in line with the creation of the Western European division. NO doubt, Tim Miles will soon be I contact with another CTO, Thomas Geitner, who is at present CTO for the entire company. the company's current chief technology officer. One hopes both will succeed in boosting income as Internet-centred services are built up. The third division (Central Europe, Middle East, Asia-Pacific and affiliates) will be taken over by Paul Donovan, who is looking to exploit the new markets.

It should be noted that there have been even more far-reaching changes at senior level in Vodafone. Chris Gent, the former CEO, resigned his honorary life-presidency a few weeks ago, marketing chief Peter Bamford has also left, while Arun Sarin has appointed Frank Rovekamp as his new chief marketing officer.

Any restructuring of this depth will create questions. Can the problems of the last few years be solved purely by shuffling some of the senior executives around? Share prices are slower now than at any time in the last three years. Revenue from 3G has not produced the security that investors in Vodafone seek. So how much of the new structure is motivated by keeping share-holders happy?

For the new technology division there are crucial decisions to make. Some observers look to DSL as a partial saviour - which in turn begs the question of whether Vodafone has enough data at its disposal to exploit DSL without either buying in or renting such information. Convergence is a strategy which does make sense, if only because every one else is intriguing it and there are many advantages from it. A mobile-only approach is not viable - the threat of cheap Internet services which are doing damage to fixed-line infrastructure will ironically be equally as hazardous to mobile-only operations.

And so it all boils down to emerging markets. Anyone looking at say Bangladesh will see that there is an almost inexhaustible demand for mobile. Along with Vodafone's buying into the Czech Republic's Cesky Telecom and India's Barthi Telecom, not to mention the acquisition of Turkey's Telsim, this tendency is evident for all to see. Its more detailed breakdown will be announced when Vodafone's full-year results are posted on May 30.


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