Vodafone Charts Path to Transformation

Operator is morphing into a “technology communications company”

Last week, CCS Insight attended Vodafone’s annual enterprise summit for industry analysts in London. Here, Nick McQuire and Kester Mann share their views on the main outcomes.

Vodafone’s core message, and one that group CEO Nick Read reinforced in his opening address, was that the company is on a “mission-critical” transition from a classic telecom provider to a “technology communications company”.

It’s a similar digital-first approach that some other telecom operators, such as Telefonica and Orange, are also pursuing. The aim is to simplify internal process, improve agility and responsiveness, shorten the time to market for new products and create new revenue opportunities beyond connectivity.

For some time, Vodafone has bracketed the enterprise segment as one of its biggest engines for growth. According to Mr Read, it currently accounts for about 30% of group service revenue and is outpacing its consumer business. Still, the operator continues to be challenged by an external perception that it remains largely orientated toward consumers and mobile services. It’s seeking to address this by offering broader packages of communication services to a wider range of companies in a variety of industry sectors.

Candidly, the CEO admitted that Vodafone has been too risk-averse in the past and this has stifled innovation. In response, he has sought to create a more innovative and dynamic culture to better exploit its global assets.

Insourcing IT

A leading aspect of this effort has been to bring software development back in-house. The company admitted that a decision to outsource IT development in 2006 was a mistake; although it helped cut costs, the move translated into a lack of product innovation, weaker customer experiences and a lack of a digital mind-set in the company. The shift toward hiring more software engineers will be enabled as more network operations become automated over the next decade.

Vodafone also charted a move to common internal platforms, such as for TV, the Internet of things (IoT), payments and more, with standard APIs. This, it hopes, will create a more solid base on which to build new products, overcome a more clunky and fragmented structure of its past and tap into what’s arguably its biggest competitive asset, its global scale. To illustrate progress, Mr Read said that conversations with some partners now only need to take place once at a group level, rather than multiple times in every market where it operates.

Edge Computing and Private Networks

Vodafone consistently touted opportunities in multi-access edge computing and mobile private networks. This is a growing focus for telecom operators seeking to push into new industries and better use their 5G capabilities, most notably, sub-10 millisecond low-latency applications.

Vodafone appears to be among the more ambitious in this area, having more than 150 trials in mobile private networks and calling out its burgeoning relationship with Amazon Web Services (AWS) and the AWS Wavelength service several times at the event (see Amazon’s AI Leadership Advances at re:Invent 2019).

Vodafone is the first European operator to launch the service and says its 5G network is being deployed with a goal to reach more than 90% of the population in the European markets it serves with sub-15 millisecond capability. The operator also said at the event that in 2017 it re-architected its networks to ensure they have a maximum of 210 km between any customer and an edge location. This asset will be a major vehicle for further partnerships with hyperscale cloud providers in 2020, including with Microsoft, Google Cloud and a deepening of Vodafone’s partnership with IBM and Red Hat. As we predicted in 2018, we’re seeing a growing collaboration between business-focussed telecom operators and hyperscalers to bring commercial cloud services to the network edge. We think 2020 will be an important year for this trend.

Dr Gunther Schuh, CEO of German electric microcar company e.Go Mobile, shared its partnership with Vodafone on automotive manufacturing. The company has deployed a private network that securely identifies and delivers production materials to each specific vehicle during assembly.

End-to-End Solutions

Private networks form part of a wider focus on end-to-end solutions, another broad theme of the summit. The new CEO of Vodafone Business, Vinod Kumar, defined “end to end” as a managed service of connectivity, bookended by hardware and software, often created for a specific customer and industry. It’s a strategy that should take Vodafone into new markets but brings challenges in terms of scalability.

An emphasis on solutions rather than pure connectivity meant that 5G network roll-outs received a relatively limited profile at the event. Vodafone gave a brief update about its progress, highlighting that the technology is now live in 63 cities in seven markets. It also showcased trials in Milan, where it has invested €90 million and identified an impressive 41 different uses for 5G.

Internet of Things

Another area that stood out was IoT, where Vodafone’s focus on solutions rather than just mobility was also illustrated. IoT has clearly been a success story for the company; it is on the verge of passing 100 million IoT connections, up 22% year-on-year, and with annual revenue of about €1 billion. Johan Wibergh, chief technology officer, said that Vodafone is now aiming for 1 billion IoT connections, although he didn’t say when this might be achieved.

Vodafone said it plans to focus on six industry sectors where its solutions play best: manufacturing, insurance, retail, energy, utilities, automotive and transport. It was keen to stress that it’s not taking a scattergun approach; leading criteria include wide-area mobility, ease to deploy in multiple territories and opportunities to go up the stack beyond connectivity. When asked why healthcare wasn’t on the list, Vodafone pointed to varying regulation in different markets.

Vodafone’s greatest share of IoT connections are in automotive. This has been a leading vertical market for the operator since it bought Italian telematics company Cobra — now rebranded as Vodafone Automotive — in 2014. Already, Vodafone counts about 27 million connected cars.

Next Steps for Vodafone Business

A range of other products were covered at the event, and overall, Vodafone is taking all the right steps in being more “purpose-led” in its transition to becoming a technology communications company. Several customers on display at the event, from Centrica to Porsche and Ryanair, all represented important areas for Vodafone that will be fundamental to its transition. They include being a trusted provider for mission-critical solutions, supporting more co-innovation projects with its customers and being more partner- and ecosystem-friendly.

Vodafone hasn’t necessarily been front of mind in the past in the areas of innovation, security and trust or having high-profile strategic partnerships, but it’s hoping to change this. However, it will need to step up two important tenets of its strategy that surprisingly received little attention at the event.

Security and Trust

Since reshaping its cybersecurity arm and merging it with its cloud and hosting business in 2017, Vodafone has dialled down its focus on security. This is surprising for two reasons: firstly, it runs counter-intuitively to arguably the biggest priority among enterprises right now. This is especially true for small and medium businesses; a survey we carried out in 2019 shows that Vodafone can play a huge role in the 70% of companies planning to consolidate their security suppliers and tackle growing complexity (see Security, Cloud and Ethics Dominate IT Priorities in 2019).

Secondly, Mr Read said in 2019 that Vodafone was an “admired brand”, but wanted the operator to be “a loved brand” like other tech companies. We believe being loved by enterprises is irrelevant; instead, Vodafone should aim to be a trusted brand by enterprises, a more appropriate goal in an industry plagued by a lack of trust. A stronger focus on security and in particular 5G security — a topic where Vodafone should be leading — would boost its positioning in the market.

Developers

Additionally, Vodafone needs to be more proactive in reaching developers and creating an enterprise developer story, especially as 5G-enabled edge computing takes hold. Part of this is working more deeply with its cloud partners like AWS, Microsoft and IBM and Red Hat to equip cloud-native developers with 5G services, building on its AWS Wavelength announcement, for example. Vodafone should also look to build programmes for developer communities, perhaps taking a page from Cisco’s DevNet book.

The bottom line is that in the future, the quality of Vodafone’s network APIs available to developers will determine how it differentiates and the types of 5G solutions that run on its network. Above all, the edge computing market is getting competitive in terms of reaching software developers and Vodafone must be quicker and bolder in building engagement programmes for them, especially as the need for skills in multi-access edge computing and low-latency app development grow in the coming years.

Looking ahead, these areas, along with opportunities in high-performance computing and quantum networking opening up over the next five years, indicate no shortage of innovation opportunities for Vodafone.

All eyes are now on its ability to successfully transform into a technology communications company.