TECHNOLOGY SPECTATOR: Vodafone's slow recovery

Facebook's impending public offer has Wall Street abuzz, while Vodafone isn't ready to throw in its chips just yet.

Technology Spectator

Tech Deals is a weekly column covering the latest deals in one of the busiest sectors for M&A. To read previous articles go to our Tech Deals page.

What Facebook can do with its money

The IPO drums are starting to beat faster now that Facebook is set to file regulatory documents for its massive $US10 billion IPO sometime this week. The listing has Wall Street abuzz and could value the company at up to $US100 billion. The fact that the numbers here are so staggeringly large means you can expect the regulators to pay very close attention.

The scrutiny is justified given that tech IPOs last year have so far have failed to impress investors and after all a successful float for Facebook would catapult the company to the upper echelons of the corporate world.  Not to mention make Mark Zuckerberg $25 billion on paper. The question that investors will need to ask is whether Facebook can really live up to the hype or if its growth engine is sooner or later bound to spring a leak. The network boasts over 800 million users but can it successfully leverage that base to create cold hard cash? We will have to wait and see how the market weighs up these issues but for the time being here’s a few tips from Forbes on what Facebook can do with its money. It can of course do nothing or choose to grow organically but the folks at Forbes also highlight some intriguing acquisition possibilities. Facebook has already snapped up a number of small internet players in the last couple of years but with plenty of ammunition could now look at bigger prey. 

Vodafone Australia’s customer service plan  

Vodafone Hutchinson Australia has got the ball rolling on a major restructure that will see the sales and marketing team become one and the potential departure of chief marketing officer John Casey and communications and corporate affairs director Tanya Bowes. The restructure was announced in an internal memo last week and the main catalyst for the cost cutting exercise is the fact the mobile carrier is not hitting its targets when it comes to revenue growth. However, it’s not all doom and gloom at the carrier which has a few tricks up its sleeves to start winning back customers.

The restructure is the latest move by Vodafone, which has been playing catch up with Telstra and Optus since its inception in 2009, to become a more agile player in the mobile game. The cost cutting initiative is going to leave no stone unturned at Vodafone and the next big move may focus on the carrier’s managed IT operations, particularly the tech data centres. There is a reason why the sales and marketing team has been first to feel the brunt of the restructure. The merged unit, to be headed by sales boss Noel Hamill, is already planning to make waves in customer service with an insider telling Technology Spectator the carrier is set to implement a pilot program in selected stores that will see customers swap their faulty devices for a new one on the same day instead of the regular waiting period. The program has taken shape after Vodafone recently sealed some deals with device suppliers and could be just the edge it needs to rehabilitate its brand.              

After a horror run with the network in late 2010 and early 2011, which prompted a very public mea culpa by Vodafone Australia boss Nigel Dews, things have actually been picking up for Vodafone. Commonwealth Bank analyst Alice Bennet reckons Vodafone has become the sector's bargain driver and after losing 375,000 customers in the first half of last year, the carrier’s customer base is starting to show renewed signs of life.

Just how much momentum Vodafone can get out of this will depend on how effectively it spruces up its network with new radio equipment at all of its 8,000-odd mobile base stations around the nation with the help of China’s Huawei. That’s not going to be cheap and then there’s also the $670 million it potentially needs to fork out to renew its 800 megahertz spectrum licence. The massive network upgrade and the renewal of the licence are critical to the carrier’s future but are also major cost drivers for Vodafone. So it’s not surprising that cutting costs is at the forefront of Dews’ mind.

The news of the restructure did prompt veteran telco analyst Paul Budde to tell Computerworld Australia  that Vodafone Australia may be better off ditching its infrastructure business and instead becoming a Telstra or Optus reseller. Budde argues the carrier can’t realistically keep up with Telstra and Optus as an infrastructure player and will struggle to invest in the likes of spectrum and long term evolution technologies down the line. Faced with such a scenario Vodafone is probably better off becoming a reseller, but it’s unlikely to happen. Vodafone Australia has poured too much money into infrastructure to call it quits now, and it’s unlikely the carrier will be willing to trade away its primary competitive advantage – the ownership and control of its physical infrastructure.

There’s no question that Vodafone had a poor December quarter and the network problems, further magnified by the poor response by management, have cost it market share. However, Ovum analyst David Kennedy says Vodafone Australia is still very much in the game.  

"Vodafone will be operating a new network and will be in a position to recover lost ground in the market, so it is too early to be talking about Vodafone becoming a retail-only player.”

Telstra, Optus time shifting tussle enters the final quarter  

Staying in the telco sector, the legal tussle between Telstra, the Australian Football League and Optus over the right to stream programs to mobile devices just minutes after broadcast is about to be settled this week with sporting codes across the country keeping a close eye on the end result.

The tussle centres on Optus’ controversial TV Now service which was launched last year and threatens to derail the $153 million broadcast deal between Telstra and the AFL. The deal gives Telstra exclusive rights to show AFL games live on handheld devices from 2012 to 2016, and the telco is negotiating a similar deal with the National Rugby League. Everything was on track until Optus launched TV Now, which allows mobile users to record a program and watch it on their device while it is broadcast, on as little as a two minute delay. Optus argues the service it provides is akin to a VCR given it allows a user to make a single copy of a show and shift the time of their viewing, which is allowed under Australian copyright law. Telstra and the AFL beg to differ and have taken Optus to court.  

With Telstra threatening to tear up its deal with the AFL, Federal Court justice Steven Rares is set to make a ruling on the issue on Wednesday.  A win for Optus could have immense ramifications on sports broadcasting across all sporting codes. However, the concept behind the TV Now product might be short lived, with the head of Deloitte's Australian Technology, Media and Telecommunications advisory arm Damien Tampling recently telling ZDNet the legislation enabling services like TV Now are most likely set for re-examination this year.

Elsewhere, Telstra is also reportedly in discussions on the internet and mobile phone coverage rights for the London Olympics following a recent deal with Athletics Australia. Telstra's BigPond Sport is the exclusive live broadcaster of the Athletics Australia season and the telco’s news and sport general manager Jose Barea has told The Australian the organisation was in talks about opportunities from the London Olympics, which begin on July 27.

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