Vodafone's 4G road to redemption

The launch of Vodafone Hutchinson Australia’s (VHA) 4G network in June won’t bring immediate relief to customers hoping that the operator can get its act together. But their faith in Vodafone Australia boss Bill Morrow might not be entirely misplaced.

If things go to plan – and Morrow certainly hopes they do – 2014 could be the year Vodafone finally makes a comeback.

Getting the 4G network up and running by June will be a significant step for Vodafone Australia and the first tangible landmark of Morrow’s rescue mission. With its three-year rehabilitation program gathering pace, there is talk that Vodafone Australia could be on its way to leapfrogging Optus, as both operators try to catch up to Telstra.

Ovum analyst David Kennedy for one reckons that Vodafone Australia has what it takes to overtake Optus, especially as it reinvests the money it will save by opting to sit out the 700 MHz spectrum auction.

Vodafone has 25 to 30 MHz of 1800 spectrum in all capital cities and at least 15 MHz of continuous spectrum as well. All of which puts it in a very good position to roll out a robust LTE 1800 network to service metro areas.

That’s what going to come online in June and given Vodafone’s metro focus Kennedy told those gathered at the Commsday 2013 summit this week that Morrow is much better off spending the $600 million needed to buy 2X10 700 MHZ on its physical network, which frankly needs the investment.

Vodafone is currently a distant number three in Australia’s telco race, as the high average revenue per user (ARPU) customers it once enjoyed continue to desert its network.

Vodafone’s plan to redeem itself involves it building a strong LTE network, but that is only one part of the remedy. That’s actually the easy part, as far as Morrow is concerned, because repairing Vodafone’s tarnished reputation is going to be an almighty struggle.

If and when Vodafone is able to get the churn under control Optus will find itself fighting a two-pronged battle. According to Kennedy, Optus has always run the risk of being squeezed between Telstra and Vodafone and while the operator talks about strengthening its core network and customer experience, there is a very real need for it to start putting some distance between it and Vodafone.

An aggressive Telstra has spoiled Optus’ party, while a metro-focused Vodafone is leveraging the assets it has to potentially pose a headache for Optus. Faced with such a scenario, it is almost certain that Optus will pick up its 700 MHZ spectrum allocation. Right now, Optus is behind Telstra and Vodafone when it comes to low frequency spectrum. The auction is an opportunity too good for Optus to pass up.

The one thing that Optus has running in its favour is Vividwireless Group which the operator bought from Seven Group Holdings for $230 million last year. The Vivid deal gives Optus up to 98MHz of spectrum in the 2.3GHz band, a band already used by some of the world’s leading operators to provide 4G services. It helps Optus strengthen its overall 4G network.

The Vivid deal has given Optus the breathing room it needs to be a competitive in the metro areas but Kennedy says that Optus’ biggest task is to make sure that its perceived difference from Telstra is as small as possible.

It’s a valid point when you take into the account that the biggest beneficiary of Vodafone’s woes has been Telstra, not Optus.

“Optus’ average ARPU is falling, their market share is stable, which suggests that a lot of Vodafone’s high ARPU customers have chosen to go with Telstra rather than Optus,” Kennedy says.

He adds that Optus will have to improve its offer in the high ARPU market or risk giving away too much ground to Telstra.

The concern is that while Telstra forges ahead, Vodafone has the potential to creep up on Optus. However, that scenario will only play out if Morrow’s plan manages to tick every single box. Many users, myself included, are yet to see any discernible improvement in performance, even in CBD areas.

As a brand, Vodafone has managed to tick off so many of its customers and turning that ship around won’t be easy. However, Kennedy says that Vodafone is yet to complete the job of sprucing up it network footprint and completing that job as efficiently as possible will be key to its comeback.