Vodacom asking for a hiding in m-commerce - TechCentral

Vodacom asking for a hiding in m-commerce

Dirk-de-Vos-180TechCentral’s recent interview with Herman Singh is interesting coming in the same week that his employer, Vodacom, was part of a court action to preserve its unreasonably high mobile termination rights arrangement.

Vodacom, along with MTN, threw everything it had into a court action to protect a legacy voice business model that is on its way out.

The 70% market penetration rule that Singh mentions in the interview is interesting because it is about the same figure that represents Vodacom’s traditional voice revenues compared to its total revenues. The balance is mostly made up by data – and not data services, mind you, just connectivity. But the third wave of data is much less profitable.

Most of Vodacom’s sister companies in the Vodafone stable are far less profitable than Vodacom because those companies operate in countries where the third wave is far more advanced, where data represents half or more of total revenues.

The more successful mobile operators have realised they are or soon will become commodity businesses and have begun to operate as private utilities by cutting costs and outsourcing noncore parts of their businesses.

Indeed, many mobile operators, in an effort to maintain profits, are even getting out of network ownership. Sharing network infrastructure to cut costs has now become a key strategic issue.

For a company clinging to the first and second waves so tightly, and just starting to deal with the changed economics of the third, the prospects of making a success of the fourth wave look dim. Vodacom shareholders should be cautious about the money that the company could waste in trying to catch the m-commence wave.

A prospective customer looking for m-commerce solutions, prioritises service levels above most things, including functionality of the solution. But unlike traditional voice services, these customers can buy online services from a wide range of providers, mostly from providers outside the telecoms industry. They use the mobile network operator for their communication infrastructure as a utility service.

It is unclear why Vodacom thinks it can build its own killer offering. No other telecoms operator has been especially successful at m-commerce. There are people who do know how to do this sort of thing, of course. Google and Amazon are two that spring to mind.

Control of the network no longer gives operators control of the customer. Vodacom has no demonstrable advantage in business processes. Instead, the company is inevitably a lumbering, vertically integrated firm. How its management thinks it can sell new offerings on the back of its network where customers are looking for relevance and agility is hard to discern.

Telecoms operators like Vodacom are risk-averse companies and are not good at developing new services. They copy best practice from elsewhere and then try to compete on brand and price.

Mobile operators have already lost the consumer content and application battle to Apple and Samsung, as well as to other Android-based manufacturers. Why do they think it would be different in m-commerce?

One area where Vodacom does have an advantage (from personal experience) is in billing. It could argue that it has a tight billing relationship with its customers, but then so do credit card companies and banks. Those that buy online use these means, or PayPal.

Vodacom can’t even keep those nasty wireless application service providers at bay, so it is unlikely it can be entrusted with its own m-commerce offerings. Moreover, as most m-commence offerings will be offered through apps or from the Web directly, they can’t provide guaranteed service levels more than another third party.


Vodacom should concentrate on things that it knows how to do relatively well, says the writer

The flexibility and agility required by m-commerce is not suited to hierarchical organisations with complex business processes. They take a long time to make decisions, and this is a huge disadvantage if wanting to operate in the m-commerce environment, which is more about real-time decision-making and fast execution.

This is not to say that there will be no role for companies like Vodacom, but their place will not be customer facing, but more in the wholesale part of the fourth wave.

Vodacom should concentrate on things that it knows how to do relatively well, namely building and managing network infrastructure. If it did this, it could reposition itself to enable the more rapid adoption of m-commerce without getting in the way.

In short, Vodacom should be the kind of company whose shares you buy for your retirement fund. It should resist losing money on betting against the odds that, in South Africa, a mobile provider will succeed in m-commerce where others elsewhere have failed.

  • Dirk de Vos runs a corporate finance consultancy with a specialisation in the ICT and energy sectors

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