Vodafone’s struggles raise doubts about its future competitiveness

Vodafone is struggling to keep its Indian operations above water. Amid a background of uncertainty surrounding the proposed introduction of 5G in India, Vodafone has seen its revenues fall, its losses snowball and its carrying value plummet to zero. Compounded by an unfavorable Supreme Court decision, those difficulties have prompted CEO Nick Read to threaten to pull Vodafone out of the Asian country altogether.

While India might be the starkest demonstration of Vodafone’s plight, it’s far from an isolated incident. The company is in dire financial straits across the board, and endured significant issues in its core EU market, particularly in Spain. With piles of debt mounting, Vodafone may soon find itself unable to keep pace with increasingly fierce competition and marginalized in a marketplace it so recently dominated.

Issues across the board

Vodafone first entered the Indian market a quarter of a century ago and has pumped over $20 billion into the Indian telecom industry, making it the largest chunk of foreign direct investment in the country. However, the 2014 emergence of Reliance Jio, now India’s largest network provider, has since forced Vodafone into a merger with the third ranked firm Idea Cellular. The combined company which resulted, Vodafone Idea, has been buffeted from pillar to post ever since, posting losses of $761 million between April and September 2019.

The situation was made more critical by a Supreme Court ruling compelling Vodafone Idea to pay licensing fees on non-core elements of their business, making them liable for over $5.5 billion in unpaid taxes, penalties and interest. For context, the company made just shy of $1.6 billion in the second quarter of this year—meaning that these penalties are a heavy blow. And with the future of 5G in the country looking precarious, Vodafone’s CEO now rates the company’s Indian arm as virtually worthless.

That Vodafone is reacting so defensively is only logical. The company’s balance sheets make for difficult reading, with revenues falling 7% in the third quarter of last year and the end-of-year review revealing a staggering annual loss of $7.26 billion – prompting its CEO to slash dividends by 40% for the first time in its history.

Vodafone’s failed attempt to replicate the success of Richard Alden’s Ono

However, the decline of one of the world’s largest telecoms companies is perhaps best exemplified by its fall from grace in Spain. When Vodafone expanded into Spain, it initially seemed like it was doing everything right. Its acquisition of the Spanish cable operator Ono for $10 billion in 2014 was rightfully hailed as a coup at the time. Vodafone’s strategy was to piggy-back on Ono’s accomplishments, but a problem soon became apparent: Vodafone’s initial positive results was built on the successful work of others – particularly Ono’s founding director and CEO for more than a decade, Richard Alden.

Richard Alden kick-started Ono’s development by bringing serious investment from North American investors Like GE Capital and Bank of America. Ono subsequently grew rapidly, expanding its broadband network and pioneering cable technology, eventually offering a network that covered 70% of Spanish territory and counted 1.9 million customers on its books. Capable of speeds up to 20 times faster than its competitors, Ono was ahead of the curve when Vodafone first announced interest.

After Richard Alden left the company in 2009, Ono’s shareholders were preparing for an IPO when Vodafone swooped in with their bold offer. The company was subsequently absorbed into Vodafone—which is where things swiftly took a turn for the worse. Vodafone never managed to continue or replicate Alden’s achievements with Ono in Spain’s fiercely competitive market environment.

Rather than helping Ono grow, Vodafone’s mismanagement soon achieved the opposite. Ono has been forced into announcing staff cutbacks three times in just six years, with the most recent downsizing in January this year bringing the cumulative total of laid-off employees to over 3,300. An ill-judged decision not to bid on La Liga or Champions League matches last year saw Vodafone lose 361,000 mobile customers, 134,000 broadband clients and 108,000 pay-per-view TV customers in the first nine months of 2018.

Meanwhile, it also suffered the humiliation of losing a court case against the managers of Ono that took over from Alden, which it unsuccessfully tried to sue for irresponsible practices. The Ono name and branding was finally retired in April of this year and Vodafone has reportedly since tried to sell off its Spanish assets– not surprising given the eye-watering annual losses of $661 million they racked up in 2019, up threefold from $198 million the previous year.

Vodafone on the brink?

The current struggles in India and Spain only add to the challenges that Vodafone is facing in other European market. For example, German lawmakers have proposed reserving 100MHz of 5G spectrum exclusively for private industry concerns such as Siemens and Bosch. The move could potentially cut Vodafone out of lucrative deals, since these players could approach hardware vendors directly and bypass middlemen like Vodafone and Deutsche Telekom altogether. The US and UK are mulling over similar plans, with the latter already having created one of the world’s biggest private mobile networks at Heathrow Airport.

Under fire from all sides, Vodafone currently finds itself staring into the business abyss. Creaking under the weight of an estimated $30 billion debt, the company must spend billions more in 5G infrastructure if it is to keep pace with its competitors. Tellingly, a recent report of the 5G marketplace identified the major players in the industry –Vodafone was conspicuously absent.

With mounting debt, a diminishing customer base and assets that consistently lose the company money, Vodafone is doing all it can to keep its head above water. Read has undergone something of a baptism of fire in his first 12 months on the job– but worse could still be to come for this flagging giant of the telecoms world.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes.