Massive customer outage increasing: Vodafone loses 8.4% in six months – Delimiter

news Vodafone Australia has it lost a further 551,000 customers in the first half of this year, in further evidence that the turnaround plan put in place for the telco by its new chief executive Bill Morrow is having little effect upon the company’s fortunes; in fact, the numbers of customers leaving the troubled telco are actually accelerating.

Late last week, Vodafone’s half-owner Hutchison Telecoms filed its updated financial results for the first six months of 2013 with the Australian Stock Exchange. The results, for those who have been hoping that Vodafone’s problems stemming from its ‘Vodafail’ series of outages were on the mend, will be highly disturbing.

Vodafone had previously revealed in May that it had lost some 216,000 customers in Australia in the first quarter of this year. That figure alone shocked some in the telecommunications industry, as it showed Vodafone’s customer losses were rapidly accelerating. The company had previously lost 443,000 in the entire 2012 calendar year before that.

However, late last week, Vodafone revealed the situation was even more disastrous. In its financial results, it revealed that it had lose some 551,000 customers in the six months ended 30 June this year, indicating that the company’s losses had further accelerated in the quarter to the end of June. The company now has some 6 million customers left.

Consequently, Vodafone’s overall revenue also depreciated significantly. In the six months to the end of June this year, the company’s total revenue dipped a massive 15.7 percent to $1.7 billion. The company suffered another substantial new loss — about $218 million for the quarter — although earnings before interest, depreciation, taxation and amortisation increased by 68.9 percent to 378.4 million. EBITDA is a key measure of operational profitability; the increases in this area likely reflect Vodafone’s attempts to remove costs from its business.

Included in Hutchison’s financial statement was a detailed justification of Vodafone’s current turnaround strategy under Morrow. The company noted that in the past six months, it had taken a number of steps to remediate its business, including closing its Crazy Johns-branded stores and the ’3′ brand Vodafone acquired when it merged with Hutchison; introducing what it described as ‘industry-leading customer-centric pricing for data’; on-shoring its customer call centres back to Australia (especially Tasmania); launching its 4G network; and significantly expanding its regional coverage with 1,200 new sites.

“These initiatives have been supported by the ongoing focus on lowering VHA’s cost structure which, since the first half of 2012, has included nearly halving the number of non-customer facing staff and reducing operational expenditures such as high-profile sponsorships to direct investment to network and front-line services,” Hutchison’s sattement said.

“As a result of these activities, VHA’s brand perception is expected to recover partially in 2013. However, the full impact of existing and upcoming changes for customers will not be seen in VHA’s results until next year, and the continued decline in the customer base has been factored into the company forecasts on which the turnaround plan is based.”

“Although VHA’s financial results show continued decline, HTAL is confident that the strategic initiatives commenced in 2012 will enable VHA to transform its business. VHA will continue its momentum to: Provide a fast reliable network; offer worry free products and services; and provide a competitive experience across each customer touch point. The creation of a single network under the global Vodafone brand is another initiative to enable a more consistent customer experience with lower costs, following the closure of the 3 and Crazy John brands.”

“[Hutchison] is confident that VHA is making progress in achieving its turnaround but growth in customer base and revenue is not expected to be realised during 2013. VHA will continue to focus on implementing its turnaround plan with support from its shareholders but until the momentum from improvements in brand perception takes effect, the net customer loss and increased investment to drive growth will impact financial performance.”

“[Hutchison] is committed to its investment in VHA, and despite the challenges facing VHA, continues to support the strategy to return VHA to growth and profitability in the future. Although continuing losses are anticipated in 2013, [Hutchison] expects improvements in VHA’s operating performance through the remainder of the year and into 2014.”

Hutchison’s statement also stressed that Vodafone’s finances were under no immediate threat, saying: “In June 2013, with the support of both its ultimate shareholders, Hutchison Whampoa Limited and Vodafone Group Plc, VHA refinanced with a two-year US$3.5 billion loan that enabled VHA to repay $1,427 million on maturity of a facility entered into in 2010 and substantially all shareholders’ loans. VHA’s business plan, including the network investment, is fully funded.”

However, the company is also still facing some massive challenges, among them being how far behind its rivals it is in terms of its next-generation 4G infrastructure. Vodafone finally launched its 4G network in Australia (two years after Telstra and one year after Optus) last month, claiming some initial technical speed advantages in some regions over the pair. However, Telstra quickly responded by flagging plans to almost double its number of mobile towers with 4G support by the end of this year. Optus is also engaged in a substantial 4G infrastructure rollout.

opinion/analysis
If you talk to Vodafone executives about the company’s current problems, one thing they’ll remind you is that apples aren’t apples, when it comes to customers.

In Australia, people normally sign up to two-year mobile contracts when they purchase mobile services. What this means is that the current batch of customers who are exiting Vodafone as fast as possible are constituted, in large part, of those customers who signed up or renewed contracts with the company two years ago. This was during the height of the ‘Vodafail’ scenario when Vodafone’s network was suffering greatly. Because of this, those customers are among the unhappiest with Vodafone and thus most likely to switch to another telco when their contract is up.

Vodafone tracks customer sentiment through a metric called the ‘net promoter score’ — which measures the extent to which customers are likely to promote a brand they use to their family and friends. Vodafone believes the NPS score of customers who signed up more recently than two years ago, that is, those that didn’t experience the Vodafail saga, will be much better than those who lived through it. And it has plenty of data to show this.

To be honest, I’m not sure what to believe at the moment. From some friends, colleagues and readers on Vodafone, I’m hearing that the company’s mobile network has drastically improved. They’re no longer anxious to switch networks, and although the service they’re getting isn’t perfect, Vodafone’s prices aren’t as high as those of Telstra or Optus, so they’re relatively OK with that.

However, I’m also constantly hearing that people are still frustrated with the company, and this is bourne out by the extraordinary results which Vodafone has seen over the past six months, with something around 8.5 percent of the company’s total customer base jumping ship. I shudder to think what Vodafone’s annual financial briefing will look like in another six months.

Perhaps we can all agree on one thing, when it comes to Vodafone’s survivability: Right now, the company is at an absolute crux point in terms of its fortunes. If Vodafone chief executive Bill Morrow is right, things are as bad right now as they are going to get, and from here we should start gradually seeing a stem in the tide of customers leaving Vodafone. From there it can start to move forward positively again. But if he’s not, and this level of customer exodus is to continue unabated, then Australia is once again facing a future in which we have only two major mobile telcos — Telstra and Optus. Right now, we’re balanced on a knife edge as to which direction we go — and the evidence so far is not positive for the big V. We wish Morrow and his team good luck — judging on last week’s financial results, they’ll need every ounce of it to pull this troubled telco back into the black.

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