Vodafone's annual results show voice and messaging in decline in major European markets. Can new tariffs protect revenues

by Terry Norman

Vodafone's (preliminary) end of financial year results were published on Tuesday (22 May 2013). One noteworthy issue was the slow-down in the volume of SMS across most major European markets. The chief causes for this decline are suspected to be the rise in smartphones and OTT messaging services. Vodafone's Dutch and Spanish OpCo's reported the sharpest decline in the volume of SMS - dropping almost 70% since Q1 FY 11/12 (see chart).

Chart 1: Decline in volume of SMS in major European markets, Vodafone (Q1  FY 11/12 - Q4 FY 12/13) 

Vodafone seems to be using its integrated tariffs (the 'Vodafone Red' family of tariffs) to address the challenge of OTT messaging. These plans give unlimited voice and SMS. These tariffs neutralise the cost attractiveness of OTT messaging, while also lessening the impact of declining volumes of SMS on revenues. Integrated tariffs now generate the bulk of Vodafone's revenues in both the Netherlands and Spain (see chart). The impact of the new tariff strategy on maintaining revenues is not yet clear, while messaging continues to decline in these two markets.

Chart 2: Proportion of total revenues generated by integrated tarriffs, Vodafone (Q1 FY 11/12, Q4 FY 11/12, Q4 FY 12/13)

Vodafone’s approach seems to be working in the Netherlands. Revenues for the Dutch OpCo rose by 1.1% over the financial year. However, revenues for the Spanish OpCo fell by 8.7% (see chart). However, in Spain, there appears to be other factors affecting the bottom line. The Spanish OpCo also report an astonishing 95% pre-paid churn rate which can be attributed to recent and fierce, competition in the Spanish low-cost market. Vodafone state that revenue decline in Spain has been driven by "continued macroeconomic weakness, high unemployment leading to customers optimising their spend, and a lower customer base following our decision to remove handset subsidies for a period earlier in the year."

Chart 3: Revenue Change, Vodafone (Q1 FY 12/13 - Q4 FY 12/13)

Intuitively the new tariffs should be somewhat effective and rising revenues in the Netherlands is some evidence in their favour, but the jury is still out on whether Vodafone’s Vodafone Red tariffs are effective at managing the challenge of OTT messaging.

Contact Wireless Explorers at info@wirelessexplorers.com to discuss the threat from OTT in more detail. Also join Wireless Explorers' Dr. Terry Norman at the  Monetising OTT Services Conference in London between Monday, June 17, 2013 and Wednesday, June 19, 2013.