Vodaphone’s Strategy

WSJ writes how Vodafone’s aggressive moves are stirring up the industry:

Vodafone’s strategy is altering the balance of power in the $500 billion cellphone business. For years, service operators and phone manufacturers coexisted peacefully, bonded by a mutual dependency. Companies such as Vodafone didn’t want to miss out on hot new phones and phone makers relied on service providers’ huge orders. But as the cellphone market slowed, their goals diverged. Now Vodafone wants to control the look and feel of a cellphone rather than leave those choices to phone makers. Its profit growth is likely to come from selling add-on services and the most effective way to market them is to embed Vodafone’s software inside customers’ phones.

At stake is control of an everyday device owned by more than a billion people. The winner will be in a position to shape the future of the cellphone business and cream off the profits that come from being a premium brand.

The losers, by contrast, could be stuck with a low-margin commodity business, one that’s subservient to its former partner. That was the fate of the U.S.’s personal-computer makers that allowed Microsoft Corp. to elevate its own brand over theirs and dominate the discussion about how PCs should operate.

This push is critical for Vodafone’s next generation phones, based on a system called 3G, or third-generation technology, which can perform a range of tricks from making video phone calls, to playing music tracks to pinpointing users’ locations. Vodafone has spent more than $27 billion on this technology and wants its phones to prominently showcase the new services. At a European and Japanese launch earlier this week, Arun Sarin, Vodafone’s chief executive, said the company is aiming to sell more than 10 million 3G handsets by March 2006, adding that “no matter what handset you are using there is a Vodafone experience.”

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Rajesh Jain

An Entrepreneur based in Mumbai, India.