A Tale Of Two Strategies: Home And Away With Orange And Vodafone

Vodafone (NYSE: VOD) and Orange have long been rivals in mobile phone markets in Europe, but as growth slows down in the region, the two are, at least in part, taking somewhat different paths in their search for fresh revenues: Vodafone is increasingly looking at its investments in emerging markets, while Orange wants to drive more revenues at home by investing in European companies outside of its core business as a mobile operator.
Vodafone yesterday reported results that indicated that data revenue is still growing strong, rising by 23.8 percent to £3.1 billion across the group. Data now accounts for 14 percent of the group’s service revenue. Similarly smartphones are going gangbusters: in Europe they now account for 21.7 percent of all mobiles on Vodafone networks. Vodafone notes that 58.7 percent of those smartphone users take data allowances with their devices. And in Germany the company has picked up 50,000 LTE customers since launching the service in September.
But in terms overall revenues, which take into account the declines in voice revenues, growth in Europe has slowed right down, with service revenues for the region actually declining by 1.3 percent for the first half of the year.
European countries where Vodafone’s operations have been hit the worst are those being slammed in the current economic crisis: Spain’s service revenues were down by 9.6 percent, while Italy’s were down 2.3 percent. Greece’s revenues are not broken out in Vodafone’s balance sheet (they are listed under “others”) although the company did admit to taking a £450 million ($725 million) charge for that operation.
Not so though in emerging markets, which Vodafone points out are in many seeing higher GDP growth than their European counterparts. Revenues in India were up by 18.4 percent; South Africa’s Vodacom was up 7.3 percent and Turkey up 27.9 percent.
Vodafone is becoming a little more an emerging market company and a little bit less a European company,” CEO Vittorio Colao said during Vodafone’s earnings presentation (via Guardian).
Overall the company reported revenues up 4.1 percent to £23.5 billion ($37.8 billion), with pretax profits up 2.3 percent rise to £7.5 billion ($12 billion), and increased its dividend payment to shareholders by seven percent: it will pay out £4.7 billion in ordinary dividends this financial year, and an additional £2 billion in January, partly fuelled by earnings at Verizon, which will be paying out a dividend to 45 percent owner Vodafone for the first time in six years.
Vodafone’s focus on and benefits from fast-growing markets outside of Europe is in contrast to some of the recent investments announced by France Telecom/Orange, which appears to be looking to developing new services closer to home as a way of expanding its business, with the start of a VC fund with Publicis and an investment in a French social media company.
Of course, Orange too has extensive holdings outside of Europe, with operations in Africa, the Middle East and Asia, but in the last few days it has proven that it is also focusing on growing revenues at home with a series of new media investments.
Orange has paid €14 million ($19 million) to take a 34.15 percent minority interest in Cascadia, a newly-formed company that holds the web operations for Skyrock, a French radio station targeting 12-24 year-olds.
The deal does not signal a move into traditional radio for Orange; it’s for Orange to get more exposure to young people through new media services, and enhance the services it offers to its existing subscribers — a strategy it has already been investing in with its stakes in streaming music provider Deezer and online video company Dailymotion.
The web operations mainly consist of a blog platform on Skyrock.com, which Orange says is the leading blog platform in France with over one billion page views per month covering some 33 million active blogs. But the company also runs an instant messaging service and is now exploring “future geo-localized and group messaging services for mobile users.”
Orange is looking to leverage the investment with its other holdings from the word go. Skyrock.com and Dailymotion will promote each other regularly, and Orange’s R&D and design teams will work with those of Skyrock.com on new services. Skyrock will also help sell advertising for both Deezer and Liveradio — which, if successful, might prove to be a most direct impact of all on the revenues of these other ventures.
That is not the only investment that Orange has committed to in the last few days: it is also teaming up with the advertising giant Publicis to start a VC fund that the two say digital technology startups.
Among the “likely sectors” are marketing, e-commerce, mobile content and services, online gaming and social networks; as well as related technologies and infrastructures such as middleware, cloud computing, security, and online payments.
The two are jointly putting in €150 million ($208 million) and are looking for more investors to bring the total up to €300 million. The amount invested in each project will vary depending on the stage of funding although the two say that a typical amount for a late-stage investment might be €15 million ($20.8 million).
Which route is likely to yield better returns for the two carriers: more investment abroad or drilling down at home? It will be interesting to see which approach proves the more successful.