Vodafone's break-up may backfire

With mobile penetration in most developed countries now well above 100 per cent, opportunities for growth on this front will be limited – something companies embarking on restructuring plans, like Vodafone, which has interests in Australia via Hutchison Mobile, should keep in mind.

We are already seeing the mobile voice market declining in revenue and this is set to continue over the next few years. Of course, mobile broadband is a new growth area and it looks as of for the next one or two years this will at least compensate operators for the decline in voice revenues.

However, eventually also this revenue growth will have its limitations.

The real growth that we are now seeing in the market is in the hardware (smart phones, tablets, etc) and in the applications that run on them.

As we have seen, both these markets have experienced a significant shift away from the mobile operators. Until the arrival of the iPhone, the mobile operators were largely in charge of the handset market. They did the deals with the manufacturers and basically decided which handsets would be sold. While there are obviously still such relationships in place these relationships have now fundamentally changed in favour of the suppliers.

Also the apps market has changed beyond recognition from the mobile-operator-dominated content portals – which didn't need seem to go anywhere over the last decade – to a totally new industry with literally tens of thousands of new players.

While all has not been lost for the mobile operators there should be clear messages in all of this for them. Monopolising this market and being overly greedy and not providing proper wholesale services are all issues that should be addressed with great urgency. The mobile operators have the great advantage that they still have a powerful billing connection with the customer. However, there should not be any complacency here as alternative billing and charging systems and indeed totally different business models will arrive where the mobile operators could be further bypassed.

Another key element for the mobile operators to consider is that they are only national players in a mobile environment that is increasingly becoming global. The market is dominated by players such as Apple, Google, Amazon, Facebook and others and the market power that mobile operators had in the past is shrinking in the wake of globalisation.

The fact that Vodafone is reviewing its operations is a clear indication that all is not well in the industry. The mother company is struggling and is looking at how it can cut costs. It recently sold down its stake in China Mobile, netting £4.2 billion ($6.89 billion) and it's widely expected that it would offload some of its other units. However, the reality of the process means that their international size will come under pressure.

By selling off elements of the organisation they will actually go against the trend in globalisation and this could mean the end of this global company as we know it.

This could be a strategic mistake for the company. True, in the short-term the very expensive acquisitions made by the company in previous years have not delivered the shareholder value that was anticipated. However, moving forward in the mobile broadband world, market penetration will become more important than average revenue per user.

These global content and hardware partners would want mobile operator partners of significant size for the partnerships they envisage. However, in such a development the nature of the relationship will have to change and this could hurt the ego of the mobile operators– and as such this will be a painful and difficult process of negotiations.

Size does matter and if done well, a large Vodafone would be a much better global partner than a slimmed down one.

Paul Budde is the managing director of BuddeComm, an independent telecommunications research and consultancy company, which includes 45 national and international researchers in 15 countries.