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Agenda

Welcome Arun Sarin


Chief Executive, Vodafone Group Plc

Vodafone Italy Vittorio Colao / Pietro Guindani


Q&A Vodafone Italy SEMEA Regional CEO / SEMEA Regional CFO

Industry overview Arun Sarin


Vodafone’s priorities
Financial outlook
Q&A
Vodafone achievements and
challenges in Italy

Vittorio Colao, SEMEA Regional CEO


Pietro Guindani, SEMEA Regional CFO

Milan, 12 September 2003


This presentation is being made only to, and is directed at (a)
persons who have professional experience in matters relating
to investments falling within Article 19(1) of the Financial
Services and Markets Act 2000 (Financial Promotion) Order
2001 and (b) persons to whom it may otherwise lawfully be
communicated (together "relevant persons"). Any person who
is not a relevant person should not act or rely on this
presentation or any of its contents.
Contents

“Vodafone’s challenges in Italy”:


Market evolution and competitive environment

“Vodafone’s achievements in Italy”:


Summary of Results

“How we delight our customers”:


Commercial and Operating Strategy
Italian mobile market overview
Italian Market penetration has reached 98% in June 03
EOP
EOP K Market
60,000 Penetration as a % of
population 95%
98% Share
91%
50,000 BLU WIND 17%
75%
40,000

54%
30,000 TIM 47%
37%
20,000

10,000
Vodafone 36%

1998 1999 2000 2001 2002 Jun-03

Source: Internal Vodafone data


How we compete: positioning & strategy
Group strategy . . . in Italy

We want to be the operator of choice for


Grow voice and data revenues through
the most valuable customer segments,
an increased marketing focus
through:
Customer driven Innovation:
Extend operational leadership of the Innovations that really simplify
industry through maximising the professional life or add pleasure to
benefits of scale and scope daily life

Excellence in caring and relationship


Extend service differentiation, investing
in delivering Vodafone branded, easy to
use, customer propositions for mobile, Superior level of service quality and
voice and data reliability
Competitive positioning
TIM and Vodafone co-leaders with differentiated market perception

At the
leading
Traditional Italian leader:
edge reliable, conveying a
feeling of security.
INNOVATION

The affordable operator


that provides low end
tariffs.

Low
Innovative player, strong
Standard / High brand awareness through
CUST. ORIENTATION
low service touch “videocompany” claims.
Key consumer segments
Segment Definition Value
Self-employed (often SOHO). Use the mobile for professional
Professional use. H
Socialising is top of their agenda. Mobile is for fun, they want to
Young
be at the leading edge in life and with technology. H
Young people; students or not employed
Teens Use mobile to be always in touch with their community. Mobile is a
personal statement.
M
“Functional” attitude to mobile mainly for voice and basic VAS: it is
Adult a “problem solver”, do not use it for lengthy/emotional
communication. (scared of cost)
M
Voice-only users, infrequent personal use. Older age, more likely
Mature to be women
Main need is safety, reachability and dependability
L
Vodafone stronger on Young, Adults and Professionals

Rest of 61% 59% 63% 62%


Market 75%

Avg VF
Vodafone Average
Market Share
Market Share
36%
36%

39% 41% 37% 38%


25%

Professional Young Teens Adult Mature


Successful migration to the Vodafone global brand
Enrichment of original brand equity & values
Dependable
Empathetic

Innovative

Can-do

Joie de vivre

LIVE

MMS
ROAMING
FERRARI
I FEEL VODAFONE OMNITEL
Pricing and promotional strategy

Stabilise price levels, with use of price only as a promotional


lever (e.g. Summer Card)

Develop powerful usage stimulation across the board


through segmented activities

Services that stimulate usage (“Call me”, call-back on busy)

Occasion-based marketing initiatives that take advantage of relevant events in the


lives of our customers (Valentine’s, Summer, Back to school, etc.) to increase usage

Target new high value customers

Pricing progressively more attractive for high usage/value customers (volume rebates, etc..)

Pag. 1
Distribution channels strategy

From . . . . . . To

Focus on customer acquisitions Focus on quality acquisition and


customer base value management

Compensation based on upfront Compensation based on upfront plus a


remuneration variable portion depending on value to
Vodafone

No monitoring of quality of service Close control of dealer activities through


delivered KPI monitoring: ARPU, zero traffic….
Mystery Shopping Programme
Change in distribution structure

Creation of Vodafone One “operationally controlled channel” . . . ~800 new Mono-Branded


stores (Franchising light contracts) on top of current 20 Vodafone “flagship” stores

Vodafone One Shops build and enhance an exclusive relationship between Vodafone and
its customers:
Information point Assistance point
Demo new services Redemption of rewards
Channel compensation strategy
Dealer compensation reduction
Reduction in up-front fees, while dealer incentives (variable based on results) slightly increase

Radical shift in dealer incentives from quantity (new add target) to quality (ARPU generated by
new SIMs)

Dealer compensation per Gross Add SACs Breakdown Mar 02-03

~15 Eur Eur


Connection
-25% Fees
Equipment
~ 11 Eur Margin 3
(7)
Dealer incentives

(15)
Up-front
commissions Dealer
Compensation

Mar 02-03 03-04E


Contents

“Vodafone’s challenges in Italy”:


Market evolution and competitive environment

“Vodafone’s achievements in Italy”:


Summary of Results

“How we delight our customers”:


Commercial and Operating Strategy
Summary of results

Vodafone market performance in Italy

Service revenues and ARPU highlights

Data revenues and ARPU

Redeployment of resources: SRCs versus SACs

OPEX and CAPEX trends

EBITDA and Net Operating Cash Flow


Vodafone performance on customer focus

Customer Satisfaction
Customer Index
Satisfaction ( 0 (–0-100)
Index 100 )

100
Vodafone strengths in Italy:
VF
Vodafone
Customer Care
COMP.1
COMP.1
Brand
COMP.2
Commercial offer
always interesting & competitive
COMP.2

1 01 1 2 02 2 3
y-0 ul-01 p- v-0 an-0
2
r-0 n -02 p- c-0 - 03 r-0
m a j se n o j m a j u se de jan m a
Vodafone market performance in Italy
Continued growth of EOP customer base . . .

EOP (SIMs)
19,590,000
19,412,000
17,426,000
14,919,000

10,418,00

6,190,000

2,460,000
713,000

dec-96 dec-97 dec-98 dec-99 dec-00 dec-01 mar-03 jun-03


Market
11% 21% 30% 34% 35% 34% 36% 36%
share
Service revenues 15%
14% Vodafone 14.3%

13% 12.1%
Service Revenues: YoY Growth Rate 12% 11.3%
11%
30%
10% TIM
26.4%
9%
25%
21.2% 21.6% 8.7% 8.5%
20.3% 8%
8.1%
20% Vodafone 7%
16.9%
6%
14.3%
15% 12.1% dec-02 mar-03 jun-03
11.2% 11.3%
TIM 10.8%
10%
10.6%
8.5% 8.2% 9.2% 8.7% 8.1% 8.5%
5%
1.5% 6.4% Solid Service Rev. double digit growth
4.5%
0%
mar-01 jun-01 sep-01 dec-01 mar-02 jun-02 sep-02 dec-02 mar-03 jun-03
Share On Revenues vs Mkt Leader
90%

85%

% Market Leader 80% 77% 77%


Revenues 75% 74%
73%
Vodafone Service Revenues 75%
71%
72% 72%

market share consistently grows 70%

65%

60%
sep-01 dec-01 mar-02 jun-02 sep-02 dec-02 mar-03 jun-03
ARPU
Vodafone consistently shows higher than competition ARPU growth . . .

(1)
ARPU Growth rate (YoY)

4.1% 4.0% 4.1% 6.0%


5.0%
1.0% 1.2%
0.3% 3.9% 3.9%
2.7% 2.5%
0.0% -2.1%
TIM -4.8% 0.0%
-3.5% -2.8%
-3.7%
-5.0% -6.5%

-8.5%
-10.0%
Vodafone
-13.1%
-15.0%
mar-01 jun-01 sep-01 dec-01 mar-02 jun-02 sep-02 dec-02 mar-03 jun-03

(1) - Vodafone ARPU does not include Visitors,


consistent with TIM’s ARPU calculation
Usage growth: higher quality of new adds
. . . thanks to shift towards dealers compensation plans based on new adds
long term value . . . positive effect on double SIMs & “fake” activations

First year traffic of New Prepaid Adds Inactive SIMs

Monthly outgoing minutes per user 3 month Zero traffic (OUT+IN+VAS)% of CB

57 7.5%
-8%
+ 12%
6.9%

51

FY 01-02 change in FY 02-03 may-02 may-03


compensation
structure
Data Revenues
Vodafone data ARPU outperforming competition, enhancing contribution
to Service Revenues

(1) (2)
ARPU DATA Data revenues as a % of Serv. Rev.

4.0 14%
3.6 12.4% 11.9%
3.4
3.5 3.3 12% 11.5%
3.2
10.3% 10.0% 10.4%
3.0 2.8 10% 11.1%
2.8 3.11 9.3%
2.6 3.0 3.0 Vodafone 10.3%
10.6%
8.2%
2.5 Vodafone 2.4 8%
2.7 7.0% 7.3% 8.7% 8.8%
2.0 8.0%
2.3 7.5%
2.0 1.9 2.3 6% 7.1%
2.1 2.1
6.1% 6.1%
1.8 1.8
1.5 4%
TIM TIM
1.0 2%
mar-01 jun-01 sep-01dec-01mar-02 jun-02 sep-02 dec-02mar-03 jun-03 mar-01 jun-01 sep-01dec-01mar-02 jun-02 sep-02 dec-02mar-03 jun-03

(1) Vodafone ARPU does not include Visitors consistent with TIM’s ARPU calculation
(2) Vodafone Data Revenues do not include Visitors, consistent with TIM’s data revenue calculation
Redeployment of resources: SRCs versus SACs
Mix of commercial costs dramatically re-focused from Acquisition to loyalty
management . . .
Acquisition Costs (SACs) Retention Costs (SRCs)
300 EurMM Eur/GA 44
EurMM Eur/sub
140
250 240 6
5.4 5.1
37
200 181 37 100 95
91
4
150 35
125
60 2.2
100 30
2
30
50 25
20

23
FY 00-01 FY 01-02 FY 02-03 FY 00-01 FY 01-02 FY 02-03

SACs & SRCs as % of Serv. Revenues

FY 00/01 FY 01/02 FY 02/03

5.7% 4.8% 3.5%


OPEX & CAPEX

Opex as % of Serv. Revenues Capex as % of Serv. Revenues

25%

25%
23%

15%
21% 24% 24%
21%
22% 17%
5%
19% 20%

FY 00-01 FY 01-02 FY 02-03 FY 00-01 FY 01-02 FY 02-03

Continuously decreasing weight on revenues Decreasing as % of revenues but…


with absolute growth below revenue trend …strong volumes required to support growth
EBITDA & Net Operating Cash Flow
(1)

(1)
EBITDA & EBITDA Margin Cash Flow – Abs Value & % of Rev

4.0 2.5 % of Rev


Eur B % of Rev Eur B 2.3
42%
3.4
50% 2.0
3.0 2.8 22% 33.3%
49.6% 41%
1.6
2.3 24% 1.5 32%
26.5%
2.0 24% 46% 1.1 42%
46.2% 1.0 21.6%
22%
1.0
42% 0.5
43.0%

12%
FY 00-01 FY 01-02 FY 02-03 FY 00-01 FY 01-02 FY 02-03

YoY Growth
1) Ebitda less Tangible additions – FY 00-01 excludes UMTS Licence
Contents

“Vodafone’s challenges in Italy”:


Market evolution and competitive environment

“Vodafone’s achievements in Italy”:


Summary of Results

“How we delight our customers”:


Commercial and Operating Strategy
Segment Marketing Plan
Segment Strategy
Increase market share by proposing new services that
Professional
improve productivity

Attain overall leadership through occasion based


Young marketing and innovative services

Increase market share by enabling budget management


Teens and facilitating group interactions

Consolidate results and focus on usage increase with


Adult occasion based marketing and by facilitating family
communication
Increase value of existing customer base by promoting
Mature more frequent/ natural usage (lift emotional barriers)
Voice: Continuous innovation to stimulate usage
Professional Bis
Innovative proposition allowing
customers 2 SIMs with same number:

In the car
In the PDA
As a back-up

Young Alter Ego


Innovative proposition allowing customer
1 Sim with 2 different numbers:

1 personal number and 1 professional


1 for everyone and 1 for a special person
1 for the Boss and 1 for anyone else
Voice: Continuous innovation to stimulate usage
111 For Me

Collect call to the receiver (father,


24.63
mother, etc) both on fixed line and
Vodafone Italy numbers 23.68

Teens Only way to call if you have no credit

Collect call from abroad

Collect call to the receiver (father, mother,


etc) from anywhere in the world
Only way to call if you have no credit

Multiparty

Conference call with other Vodafone Italy


customers
Every participant shares the cost: low
cost per person, but high revenue per call
Voice: Continuous innovation to stimulate usage
YouForMe

Permanent reverse charging to the father/


mother, etc to allow children to call without
Adult using prepaid credit

Summer Card

Credit back of all traffic (to Vodafone Italy and


fixed line) generated in 1 month with payment
of activation fee
Consumer: Overall DATA services portfolio
Teens Young Professional Adult Mature

SMSretention
SMS retention and
and network
network stimulation
stimulation SMS CB initiatives + education

SMS occasions: voting, interaction TV, charity, ….

MMS
Messaging Vodafone live!
Community and chat
SMS Vodafone live!
Vodafone Mail
Vodafone live!
Gaming and entertainment
SMS Vodafone live!
Content Info-mobility services
Services Vodafone live! Voice / 412
News, sport, weather, horoscope…
Vodafone live! SMS
Vodafone Mobile Connect Card
Access
Vodafone PDA

= type of service
Italic = way the service is delivered

Pag. 2
Data: Continuous innovation to promote occasions of use

Professional
Vodafone Mobile Connect Card
Vodafone leading solution to provide fast and
easy-to-use PC access to the internet

E-mail
Web browsing / access to corporate LAN

Young
Vodafone live!
Communication with more than just words: a world of
colour, sound and fun to share the things that excite you
with those that matter to you
Icon based portal
Integrated camera handsets
MMS, games, polyphonic ring tones
Business: Overall services portfolio

Business services
Consumer
services
Devices Access Applications

Top/ Special
Vodafone Connect Connected by Projects
Int’l Acc
Card Vodafone (OEM)
(2.5 G, Wlan, 3G)
SMS Vodafone Dashboard Corporate
(2.5 G, Wlan, 3G) Mobile
MLA Solutions*
MMS
Vodafone PDA
Multi Messenger
SME Access Vodafone Mail
Packages

* - Hand Office: mail + PIMS, Salesforce Automation, Workforce Automation

Pag. 3
CRM and campaign management

Value based segmentation Value based CRM resource allocation

HIGH VALUE 1
CUSTOMERS 2x Average
2 Customer Value

3
CRM costs/ARPU

4
ARPU
MEDIUM-LOW 0.4x Average
VALUE
CUSTOMERS 5 Customer Value

6
Value Band 1 Value Band 2 Value Band 3 Value Band 4 Value Band 5
Campaign management : up-sell/cross-sell

1. Gather comprehensive customer information 2. Analyse and segment


- Customer centric DataWareHouse
customer base
- Segment
- Score
- Propensity

6. Improve 3. Develop targeted


marketing campaigns
campaigns for
- Message/creativity
next round - Channel
- Redemption process
(direct, shop, web)

SMS

5. Measure results 4. Roll-out marketing campaigns


-Redemption
-Test & Control Group
-Impact on Churn/ARPU: Test vs Control
-Test on multiple channels: Email, SMS, DM
Campaign management: Churn risk profiling

Churn clusters Probability to churn Main Predictive Variables

 Handset
Green 6%
 Significant drop in traffic during
Low Churn Risk (70% CB)
recent months
Medium Churn Risk (20%) Yellow 35%
 Abnormal traffic pattern,

High Churn Risk (10%)


dropped calls
Red 65%  Low penetration/usage of
Valued Added Services

The likelihood to churn is estimated on a monthly basis for each VF customer through
data mining. Customers flagged in RED are five times more likely to churn than an
average customer: they are treated accordingly.
High value retention focus: Vodafone One loyalty
program
Objective is to strengthen customer motivation with a reward based mechanism, with direct link
with his/her traffic spending

Almost 9 million customers, largest loyalty program in Europe

Vodafone One Shops instrumental to reward delivery

Loyalty Program for Customers Owned/controlled specialised shops

Rewards
Vodafone One churn impact

High value Customers Low/Medium value Customers

- 50% Churn -18% Churn

Base Vodafone One Base Vodafone One


Churn Rate Churn Rate

Vodafone One: reduction of high value customers’ churn more than

double compared with churn reduction of low/medium value customers


In summary . . .

Vodafone objective for Italy is to be the preferred operator to the


more profitable segments

Vodafone strategy is based on segmentation, excellent service,


continuous innovation and active customer base management

Customer satisfaction, usage levels and financial results are at


world-class excellence level
Great opportunity
Telecommunications

Mobile

Information Infotainment
Technology (IT)
Forces on the business
Customers

Regulatory Technology

Competitors
Our focus
Delight customers Outstanding customer service at all touch points
Deliver superior voice and data propositions by segment
Achieve brand preference

Leverage global scale & scope Deliver superior 3G based services


Achieve leadership position on costs and time to market

Expand market boundaries Consolidate footprint in a value creating way


Grow demand and capture value via industry leadership

Build best global workforce Develop capability and competency of our employees

Provide superior returns Exceed shareholder expectations


Reiterate expected outlook FY 2004
Average customer growth >10%
Similar growth in revenues*
Small EBITDA margin* improvement
Better EBITDA* growth than revenue* growth
Good adjusted EPS growth
Capital additions little up on last year’s £4.8bn
Improved capital efficiency (better than 16.3%)
Free cash flow > £5.2bn
* Proportionate before exceptionals