Vodafone Flattens Rates & Gets Social

Vodafone Group plc (NYSE: VOD) is banking on social networking services and flat-rate pricing to boost data usage and revenues. Last week, the operator launched its YouTube Inc. service in the U.K., where a MySpace will be launched "imminently," according to a senior executive. (See Vodafone Offers YouTube, Vodafone, MySpace Partner, and Vodafone Takes MySpace Mobile.)

This summer, the operator will also introduce flat-rate data pricing so that users pay the same amount for Vodafone Live content and off-portal services. The operator admits that high prices and confusing tariffs have discouraged users from taking data services.

"We've made data plans far too complicated, and it's a huge barrier," said Al Russell, head of mobile Internet and content services at Vodafone, speaking at the PMN Mobile User Experience conference in London today.

Vodafone wants to tear down the walls to its Vodafone Live portal and offer more open Internet-based services. Even though Vodafone Live has 4 million users in the U.K., the operator says the walled garden approach limits further takeup.

"We're shifting our approach," said Russell. "[Vodafone Live] is a walled garden, essentially... That's why we're missing an opportunity for a wider group to use these services more often."

Russell pointed to Vodafone's partnership with Google (Nasdaq: GOOG) as a good example of opening the walled garden. "We need to let people access what they want," he said. "We'll still have a portal, but we'll make it easier to use." (See Vodafone, Google Partner.)

Unstrung Insider chief analyst Gabriel Brown says that ease of use is a big issue to resolve to encourage more data service takeup. "If they're trying to make it easier to use, that's where they can be really useful," he says.

Non-messaging data accounts for 6.2 percent of revenues for Vodafone's European operations, which generated revenues of £12.5 billion (US$24 billion) and free cashflow of £3.2 billion ($6.3 billion) in the first half of the operator's fiscal year 2007. But investors are concerned that data service revenues will not compensate for the price erosion in voice services. (See Vodafone Data Up, Shares Down.)

Vodafone's YouTube service is free for now, and the first few days of usage are encouraging, said Russell.

In January, Vodafone offered video clip downloads of the TV program Celebrity Big Brother for free. The operator found that when the service was offered for free, there was 50 times more volume of downloads than when it had previously charged 35 pence to 50 pence per download.

While the YouTube service has only been available for just five days, Russell said that the usage was "of an order of magnitude larger than the Celebrity Big Brother volume," but could not specify the number of clips downloaded from the TV program service.

Vodafone is also working on a mobile advertising-based service, developed through its partnership with Yahoo Inc. (Nasdaq: YHOO), which will launch this summer. Advertising may compensate for free Internet services like YouTube, MySpace, and Google. (See V'fone, Yahoo Extend Partnership.)

"Revenue won't be just from the end consumer," said Russell. "There is an opportunity to ad-fund" the services.

YouTube and MySpace are key to Vodafone's strategy for social networking services. "A big part of our plans are in the community area," said Russell. "We want to mobilize existing online communities… and we want to build out the mobile community we already have and make them do more stuff."

— Michelle Donegan, European Editor, Unstrung

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