Enterprise Data Drives Vodafone

Business customers are the driving force behind Vodafone Group plc (NYSE: VOD)'s strong data revenue growth in first half of this year. (See Vodafone Rakes in Data Revenues and Vodafone Reports H1 Results.)

Data service revenues were up 48.8 percent to £967 million (US$2 billion) in the first half of this year, which accounts for 6 percent of the operator's total service revenues.

In Europe, enterprise services account for 28 percent of Vodafone's service revenues, which totaled £12 billion (US$25 billion) in the first half of this fiscal year.

Enterprise devices have proliferated as well. Vodafone now has 1.7 million Mobile Connect PC cards -- including GPRS and 3G versions -- which is an increase of 72 percent compared to the same fiscal period last year.

The number of handheld business devices, such as BlackBerrys, grew by 112 percent to 1.9 million.

Vodafone's chief financial officer, Andy Halford, said that service revenues from the PC cards have more than doubled, while revenues from business devices are up 80 percent.

"With the rollout of HSDPA, data cards can finally be useful," says Jeremy Green, principal analyst for enterprise mobility at Ovum Ltd. "With data cards, Vodafone covers the waterfront with multiple tariffs. They don't seem to be letting anything stand in the way of adoption." (See Vodafone Launches HSUPA and V'fone Adds HSPA Handsets.)

But Green notes that Vodafone has struggled to deliver enterprise applications beyond mobile email.

"As for the aspiration of being more than just a pipe provider, there isn't much sign of achievement in terms of revenue from data services beyond access," says Green.

Vodafone's CEO Arun Sarin said on the half-year earnings call that connectivity was the "fastest growing part of data services revenue, and connectivity has a very good margin." Data services margins vary widely, but overall they are "a little lower" than the company average, he said.

The implication regarding the higher margins associated with connectivity is that content services typically involved revenue sharing agreements with third parties, which eats into operators' margins. (See Vodafone Grooves to MusicStation.)

"Vodafone gave the impression that connectivity offers higher margins than content-related data services," says Gabriel Brown, chief analyst at Unstrung Insider. "This implies a smart-pipes strategy is a good one."

But Vodafone's data pricing strategy may be too much geared toward its enterprise customers and too high for mass market consumers. (See 3 Heats Up HSDPA in UK, Vodafone Soups Up HSDPA, and Vodafone Flattens Rate.)

Vittorio Colao, Vodafone's chief executive for Europe, said that €30 ($44) per month was the right price for a data service and that going below that would put pressure on the operator.

"Vodafone's data revenues are boosted by its strong enterprise customer base, but €30 is too high for the mass market," says Brown. "Operators need some form of tiered data service that ensures premium service for higher paying customers and offers lower-cost, lower-grade services to the mass market.

"This will involve data caps and rate limiting," he adds. "On the technology side, this will require [quality of service] mechanisms largely absent from the mobile network."

Revenue from messaging services -- which Sarin said have "very high" margins -- was up 9 percent to £2 billion ($4 billion) for the group.

Vodafone's new Mobile Internet service has 500,000 subscribers since it launched in May, and it is available in eight markets. Sarin said the service puts mobile Internet users on a regular service. (See Vodafone Opens the Internet, Vodafone, Google Partner, Vodafone Offers YouTube, Vodafone Takes EBay Mobile , Vodafone, MySpace Partner, and Vodafone Takes MySpace Mobile.)

Sarin insisted that last week's partnership with Nokia Corp. (NYSE: NOK) to offer co-branded Internet services did not mean the end of its own portal, Vodafone Live. (See Vodafone Opens the Ovi.) "We will continue to provide Vodafone Live branded services," he said. "In some cases we will partner with others, such as Nokia."

— Michelle Donegan, European Editor, Unstrung

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