Vodafone Group And Its Growth Strategy Marketing Essay

ABSTRACT

In the year 2007, the world’s largest telecom company in terms of revenue, Vodafone Plc (Vodafone) made a major foray into the Indian telecom market by acquiring a 67 percent stake in the Indian telecom company, Hutchison Essar Ltd, through a deal with the Hong Kong-based Hutchison Telecommunication International Ltd. It was the biggest deal in the Indian telecom market. Vodafone’s main motive of going in for the deal was its strategy of expanding into emerging and high growth markets like India. In 2007, India had emerged as the fastest growing telecom market in the world outpacing China. But it still had low penetration rates, making it the most lucrative market for global telecom companies.

Though Hutchison Essar was one of the established players in this market, Hutchinson Telecommunication International Ltd. had exited India as the urban markets in the country had become saturated.

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INTRODUCTION

Vodafone, the British mobile company that entered India after buying Hutch’s share and by creating Vodafone Essar in July 2007, has embarked on a major rebranding exercise in the country.

The history of Indian mobile industry is not very old, not to mention the industry as a whole in itself is very new to the whole world. Telephones have been serving mankind for quite a long now and can boast of the world’s largest redundant legacy system. Thousands of miles of underground cables run through oceans to connect all the continents. Telecommunication industry as a whole has not seen a major revolution for a long time with the exception of a few new innovations in the type of services and call rated. The advent of wireless communication has brought about a slew of path breaking technological advancements in the way people use and see telephones. From being an equipment kept on the side table for talking, it has walked to occupy every persons’ pocket for all his information needs. Furthermore, the revolution has not ceased and it promises to bring even more of comfort and connectivity while on the move.

Recognizing the crucial role that can be played by the telecommunication sector in India’s development, the Government of India in 1999 initiated a number of changes in the telecommunication and regulatory and policy framework. Through these the Government hoped to facilitate an increase in telecommunication penetration, which stood at 1.3% in 1995. The reforms, with an eye on a telecommunication penetration of 15% by 2010, resulted in a flurry of private operators entering the market breaking the monopoly of the incumbent operator Bharat Sanchar Nigam Limited (BSNL).

India’s 1.1 billion population currently boasts a mobile telephone penetration rate of just 13 per cent. But it is growing by more than six million subscribers every month, making it the fastest growing market in the world and the focus of the industry.

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At the start of the decade, India was pretty much a telecom backwater. But now, India’s tele-density has grown by about 100 per cent to 17.16 per cent over the past two years. Last year it actually grew at a faster rate than China for the first time in new mobile phone connections.

Even as the mobile telephony market in India is booming, the number of fixed line telephone subscribers dropped, suggesting that first-time users of telephones are opting for mobile phones. The number of fixed line subscribers was down to 40.43 million in December as compared to 48.43 million a year ago.

Mobile penetration in India is growing rapidly and it is becoming increasingly rare to see anyone without a ‘hand-phone’ as they are known, whereas growth of internet access at home is much slower. Rather than listing a web address, many billboard ads offer an SMS short-code which people can text to get more information. There are expected to be somewhere around 200 million subscribers by the end of the year, with around six million customers being added every month, so the Indian market is certainly a growth one, with increased mobile internet access expected to push up average revenues per user.

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Although the average Indian mobile user remains cost-conscious because of low-income living and huge size of mobile subscriber in India uses only SMS or voice services; new and more multifunctional handset with features like cameras, FM radio and mobile video. Also, India is the largest untapped market where the 20% of the total world’s population lives. The Indian telecom industry recently witnessed its biggest deal – Vodafone bidding for 67% stake in Hutch-Essar.

The telecom market is at a stake with $22 billion which is expected to double by 2010. The dramatis personae include leading names of India Inc-Sunil Bharti Mittal, Anil Ambani, Kumar Mangalam Birla, Ratan Tata and A K Sinha (of BSNL) – not to mention the 51-year-old Arun Sarin of Vodafone, whom the Hutch puppy will follow dutifully henceforth. But for a nation of 1.3 billion people, India’s tele-density of 17% is dreadful. And therein lies both the opportunity and the challenge.

Vodafone Group and Its Growth Strategy

In 1982 Racal Electronics plc’s subsidiary Racal Strategic Radio Ltd. won one of two UK cellular telephone network licenses; the other going to British Telecom The network, known as Racal Vodafone was 80% owned by Racal, with Millicom and the Hambros Technology Trust owning 15% and 5% respectively. Vodafone was launched on 1 January 1985. Racal Strategic Radio was renamed Racal Telecommunications Group Limited in 1985. On 29 December 1986, Racal Electronics bought out the minority shareholders of Vodafone for GB¿¡110 million.

In September 1988, the company was again renamed Racal Telecom, and on 26 October 1988, Racal Electronics floated 20% of the company. The flotation valued Racal Telecom at GB¿¡1.7 billion. On 16 September 1991, Racal Telecom was demerged from Racal Electronics as Vodafone Group.

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In July 1996, Vodafone acquired the two thirds of Talkland it did not already own for ¿¡30.6 million. On 19 November 1996, in a defensive move, Vodafone purchased Peoples Phone for ¿¡77 million, a 181 store chain whose customers were overwhelmingly using Vodafone’s network. In a similar move the company acquired the 80% of Astec Communications that it did not own, a service provider with 21 stores. In 1997, Vodafone introduced its Speechmark logo, as it is a quotation mark in a circle; the O’s in the Vodafone logotype are opening and closing quotation marks, suggesting conversation.

On 29 June 1999, Vodafone completed its purchase of AirTouch Communications, Inc. and changed its name to Vodafone Airtouch plc. Trading of the new company commenced on 30 June 1999. To approve the merger, Vodafone sold its 17.2% stake in E-Plus Mobilfunk. The acquisition gave Vodafone a 35% share of Mannesmann, owner of the largest German mobile network.

On 21 September 1999, Vodafone agreed to merge its U.S. wireless assets with those of Bell Atlantic Corp to form Verizon Wireless. The merger was completed on 4 April 2000.

In November 1999, Vodafone made an unsolicited bid for Mannesmann, which was rejected. Vodafone’s interest in Mannesmann had been increased by the latter’s purchase of Orange, the UK mobile operator. Chris Gent would later say Mannesmann’s move into the UK broke a “gentleman’s agreement” not to compete in each other’s home territory. The hostile takeover provoked strong protest in Germany, and a “titanic struggle” which saw Mannesmann resists Vodafone’s efforts. However, on 3 February 2000, the Mannesmann board agreed to an increased offer of ¿¡112bn, then the largest corporate merger ever. The EU approved the merger in April 2000. The conglomerate was subsequently broken up and all manufacturing related operations sold off.

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On 28 July 2000, the Company reverted to its former name, Vodafone Group plc. In April 2001, the first 3G voice call was made on Vodafone United Kingdom’s 3G network.

File:Vodafone World Footprint.jpg

A map showing Vodafone Global Enterprise’ footprint.

Vodafone Operating Countries

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Vodafone’s partners and affiliates

In 2001, the Company took over Eircell, then part of eircom in Ireland, and rebranded it as Vodafone Ireland. It then went on to acquire Japan’s third-largest mobile operator J-Phone, which had introduced camera phones first in Japan.

On 17 December 2001, Vodafone introduced the concept of “Partner Networks”, by signing TDC Mobil of Denmark. The new concept involved the introduction of Vodafone international services to the local market, without the need of investment by Vodafone. The concept would be used to extend the Vodafone brand and services into markets where it does not have stakes in local operators. Vodafone services would be marketed under the dual brand scheme, where the Vodafone brand is added at the end of the local brand. (i.e., TDC Mobil-Vodafone etc.)

Vodafone in the Indian Market

The major reasons for Vodafone to make a move in the Indian market was that, India, among the European investors, is believed to be a good investment despite political uncertainty, bureaucratic hassles, shortages of power and infrastructural deficiencies. India presents a huge potential for overseas investment and is vigorously encouraging the entrance of foreign players into the market. No company, of any size, aspiring to be a global player can, for long ignores this country which is expected to become one of the top three emerging economies.

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Success in India will depend on the correct estimation of the country’s potential, underestimation of its difficulty or overestimation of its possibilities can lead to failure. While calculating, due consideration should be given to the factor of the inherent difficulties and uncertainties of functioning in the Indian system. Entering India’s marketplace requires a well-designed plan backed by serious thought and careful research.

India is an opportunity for long-term growth. India is the fifth largest economy in the world and has the third largest GDP in the entire continent of Asia. It is also the second largest among emerging nations. India is also one of the few markets in the world which offers high prospects for growth and earning potential in practically all areas of business.

Vodafone after completing the acquisition of Hutchison Essar in May 2007 and the company was formally renamed Vodafone Essar in July 2007 was granted for good in India’s market place. Vodafone is to be the leading telecommunication company in India, by making customers uses their mobile communications and making their life more fulfilled due to their experience; and by making mobile communications the primary means of personal communications.

Vodafone has a strong aim to help people find information, entertainment or assistance wherever they are. Over the past few years they have worked hard to build a company capable of delivering innovative and compelling mobile services to all customers throughout the world. Right now, they are introducing new mobile services that will make Vodafone an even more important part of customers’ lives.

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Segmentation, Targeting and Positioning

Segmentation

The segmentation that Vodafone adopts can be classified as a multi segmentation approach. There are different levels to this segmentation starting with a demographic segmentation.

Demographic: Vodafone uses the occupation aspect in the demographic category of segmentation. They divide their users as consumer and business. On their website these two segments are catered to by two completely different web pages. The business users are offered company solutions, machine to machine solutions and all other end to end business connectivity solutions. The consumers on the other hand are again segmented as follows

Geographic: The company provides different plans, tariffs and offers to different customers depending on the state that they come from.

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Behavioral (User Status): The users are further segmented depending upon whether they are post paid users or pre paid users. Separate plans are then provided to each user depending upon their category.

Targeting

Vodafone is adopting a multi segment targeting. They are targeting the high end user, low end user, the business professional as well as the common man. While they are providing “chota recharge” for their pre paid users, at the same time they are also providing international roaming facility, calling card etc for their high end users or post paid users. A multi segment targeting approach makes sense also as India is a rapidly growing telecom market and with the tele density increasing, one can be sure that people of all strata’s would start owning a mobile phone very soon. Thus to target the huge population a multi segment targeting approach makes more sense.

Positioning

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The current positioning of Vodafone is “Power to you”. With the competition in the telecom space heating up, most of the telecom providers are providing almost the same tariffs. As the companies understand that they cannot gain advantage through the price wars, each is trying to differentiate itself by providing something extra. Vodafone is treading the same path by providing the user with different offerings like special alerts, magic box, call filter etc. With these Vodafone wants to empower its customer with the power to control all the aspects of the service that he possibly can.

Marketing Mix

Product: Vodafone services and handsets

The services provided by Vodafone range from a simple text message to high end video conferencing. The handsets provided by Vodafone are low cost and sometimes are developed in collaboration with different handset manufacturers. Any kind of service delivered by Vodafone would come under its product feature.

Price: The services that the company offers are differentially priced. While calls can be availed at as less as one paisa per second, other high end features can be availed at monthly or yearly rentals.

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Place: Vodafone India is present throughout all the circles in India. They have dedicated Vodafone stores at a number of locations where customers can go to interact and avail some services as well as in case they need to buy some handset, recharge card etc. The website provides a platform for reaching a mass audience from one place. It also helps in communicating to the users any new offering in a fast and efficient manner. The website provides a place for all users to stay connected at one place and also to share their thoughts, views and experiences. One can also shop online.

Promotion: Vodafone relies on well made advertisements and special offers to its customers in order to promote the brand. The promotion comprises of online advertising, print ads, mailers, online promotion, social media promotion et all. A 360 degree promotion mechanism is used by the company in order to ensure and improve its customer base.

Physical Evidence: The Vodafone stores, their merchandise like sim cards, handsets etc, their website, personnel etc all contribute to the physical evidence of the company.

People: All the employees and personnel associated with the Vodafone company represent the people aspect of the marketing mix.

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Processes: The process for such a company depends on the kind of product or service that the customer wants to avail. As the complexity of the customer increases, for eg: from a normal customer to a business user to an enterprise, the complexity of the process would also increase.

Marketing Strategy

Vodafone India has an integrated marketing strategy to ensure that they reach the maximum customer base and provide a number of touch points for the user. The sales and distribution of Vodafone products is done through their dedicated outlets as well as other outlets, small shops and stores. Vodafone has set up similar format Vodafone stores all over India to give their consumers a seamless and coherent experience wherever they maybe. At the same time a number of mini stores ensure that the customers have more number of places to resolve their minor problems and enquiries. These also provide an avenue for the customers to settle their bill dues immediately. Vodafone India also pushes its sim cards through general retailers and pays them a small margin on the sale of each sim card. Post paid consumers are given offers and upgrade schemes to ensure that the company maintains a relationship with them. Thus the sales and distribution aspects of Vodafone in India are taken care by

Dedicated outlets

Mini outlets

Retail shops

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Mobile shops

The marketing communications of Vodafone are typically very up market and generally the positioning is such that amongst the masses Vodafone is perceived as an aspirational brand. With a focus on the “Power to you” positioning all the current advertisements of Vodafone are focusing on picturization of the benefit that the consumer will get once he becomes a Vodafone customer. The marketing communications always depict Vodafone as a young and up market brand. The TV advertisements of Vodafone are always targeted at ensuring that the customer can understand the benefit that they want to offer. Vodafone typically does not emphasize strongly on print ads and radio ads. Although at the times of important tie ups and events one can see single page ads in the newspapers, magazines etc as well as small audio clips on the radio network.

Vodafone uses the events platform as a promotion tool. Events like IPL which are sure to grab eye balls are sponsored by Vodafone and large scale TV advertising is done to ensure that the customer may avail IPL related services on his handset. Currently Vodafone has combined with the highest TRP grossing Big Boss and is providing a chance to the customers to visit the Big Boss house.

Advertising

Vodafone lays special emphasis on creative advertising. They came up with the highly successful zoo zoo campaign which became a hit with all the consumers. All their ads clearly portray the benefit for the user and are done in such a way such as to induce good brand recall. Television advertising is a major tool used by Vodafone to push its brand as well as the promotions that they are coming up with. From time to time they use other media like print and radio also to push their product or offering to the masses.

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Events

Vodafone ties up with a number of events which are designed to create daily or special brand related interactions. They generally combine with high popularity TV shows and events which provides them good eye balls and ensures that a particular number of people always view what they have to offer. Vodafone emphasizes more on above the line activity. Their strong financial background ensures that they can pump in their money in such events and ensure a strong brand recall.

Interactive Marketing

Vodafone is making extensive use of the online segment to involve more and more consumers with the brand. They have a presence on all the social networking sites and are providing special offers on those pages as well. A number of users can connect with the brand and talk , discuss about the various aspects of the brand online itself. They periodically keep revising the promotional offer advertisement that they put up on such pages. They are providing their entire range of products, service and promotion related information on these sites.

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PEST Analysis

PEST analysis is a strategic tool used to analyse external factors affecting the business and stands for political, economical social and technological factors (Lancaster et al, 2002).

The main political factors affecting Vodafone include EU Roaming Regulation that aims to decrease charges for mobile phone usages abroad by 70% (Preissl et al, 2009) and increasing level of consumer rights within Europe, and decisions made by European Union Regulatory Framework for the communications sector. Moreover, any government intervention through legislation or otherwise in the markets Vodafone operates can be considered as political factors.

Economical factors also affect Vodafone main of which are the growth of GDP and the level of inflation rate within markets where the company operates. Furthermore, global economic issues like the global financial crisis of 2007-2010 are also economic factors affecting Vodafone. Generally any external economic changes affecting Vodafone can be classified as external economic factors.

There is a range of social factors as well that affect Vodafone. For instance, changing work patterns that are becoming very popular make people work from home increasingly relying in communication technologies. Also, there are issues like people going ‘green’ and ageing population in developed countries that are going to affect Vodafone directly or indirectly.

The impact of technological factors on Vodafone is without any doubt due to the nature of the telecommunications industry. Specifically, a technological innovation in communications and emergence of alternative means of communication such as online chatting, and Yahoo! Messenger are going to affect Vodafone strategy in a way that the company is left with a choice of either to form strategic alliances with above companies or to commit to considerable amount of research and development in order to introduce innovative products and services to the market.

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SWOT Analysis

Strengths:

Prominent market position

Extensive global reach and diversified

revenue base

Significant brand image

Weaknesses:

Legal proceedings

Opportunities:

Growth of mobile advertising

Increasing 3G penetration

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Focus on M2M solutions

Mobile money transfer services market

Growth of Indian telecom market

Threats:

Intense competition

Regulatory environment

Matured markets

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Vodafone Group (Vodafone) is one of the world’s leading providers of mobile telecom services. The group provides mobile voice and data communication services to consumers and enterprise customers. The group has global operations spanning Europe, the Middle East, Africa, Asia Pacific, and the US. Its prominent market position will provide a competitive advantage to the group over other players and helps it in enhancing the operating performance. However, intense competition in the telecommunications industry will adversely affect the group’s market share and revenue growth in the coming years.

Strengths

Prominent market position

Vodafone is a prominent player in most of the markets it operates. The group operates in Europe, the Middle East, Africa, Asia Pacific, and the US through its subsidiary undertakings, joint ventures, associated undertakings and investments. In 2009, it held approximately 7% share of the global mobile market. As of FY2010, Vodafone had 341.1 million customers worldwide, as calculated on a proportionate basis. At the end of 2009, it had considerable market share in most of the countries it operates. In the European region, its operations in Germany had a market share of approximately 32%, Italy (33.5%), Spain (31.2%), Romania (33.1%), Turkey (24.5%) and the UK (23.4%). In the Asia Pacific and Middle East region, the group had market share of 42.1% in Egypt. In addition, in India, Vodafone added nearly 32 million customers in FY2010 to reach nearly 111 million subscribers. It had 17% share of India’s mobile-phone market at the end of July 2010 and is the second largest telecom player in India in terms of revenue. Further, in the US, its associate had a market share of 32% in 2009.

Prominent market position will provide a competitive advantage to the group over other players and helps it in enhancing the operating performance.

Extensive global reach and diversified revenue base

The group has strategically expanded its presence across the globe through acquisition of stake in various companies and partner networks. As of FY2010, Vodafone was one of the world’s leading international mobile telecommunications companies, with equity interests in over 30 countries and partners in more than 40 countries. The group has significant mobile operations in Europe, the Middle East, Africa, Asia Pacific and the US. In addition, the company has a diversified revenue base. For instance in FY2010, the group’s largest geographical market, Germany, contributed 18% of the total geographic revenues.This was followed by Italy (13.5%), Spain (12.7%), the UK (11.2%), Vodacom (10%), and India (7%). In addition, in FY2010, the group’s other Europe, other Africa and Central Europe, and other Asia Pacific and Middle East operations accounted for 12%, 8%, and 7.5%, respectively, of the total geographic revenues. The group’s global reach along with diversified revenue base reduces its business risk, while providing synergies associated with multinational telecom operations like roaming facilities and international call charges, among others.

Significant brand image

Vodafone has established a significant brand image. The group’s mobile subsidiaries operate under the brand name Vodafone. The Vodafone brand is recognized around the world. It was ranked number 10 in the BrandZ Top 100 global brands list in 2010, published by Millward Brown, with an estimated value attributable to the brand of $44,404 million. It is the top brand in the UK and second largest mobile operator brand worldwide. In addition, according to Brand Finance’s Global Brand Survey 2010, the Vodafone brand is the seventh most valuable brand, compared to eighth position in 2009. The group’s robust brand value will act as a differentiating factor as well as will allow it to introduce new products to the market.

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Weaknesses

Legal proceedings

Vodafone is part of various legal proceedings related to tax issues. A subsidiary of the group, Vodafone 2, is responding to an enquiry by HM Revenue & Customs (HMRC) with regard to the UK tax treatment of its Luxembourg holding company, Vodafone Investments Luxembourg SARL, under the Controlled Foreign Companies section of the UK’s Income and Corporation Taxes Act 1988 (CFC Regime) relating to the tax treatment of profits earned by the holding company for the accounting period ended 31 March 2001. Vodafone 2 enquiry and other enquiries involving similar holding companies in Luxembourg are ongoing. As a result, the group had taken provisions for the potential UK corporation tax liability and related interest expense, which amounted to approximately £2.2 billion ($3.5 billion) at end of FY2010. Additionally, Vodafone Essar (VEL) and Vodafone International Holdings (VIH) each received notices in 2007, from the Indian tax authorities alleging potential liability in connection with alleged failure by VIH to deduct withholding tax from consideration paid in the transaction to Hutchison Telecommunications International (HTIL). The notice was issued in respect of HTIL’s gain on its disposal to VIH of its interests in a wholly-owned subsidiary that indirectly holds interests in VEL. Following the receipt of the notices, VEL and VIH initiated a legal proceeding, which is pending outcome. In September 2010, the Bombay High Court dismissed Vodafone’s challenge of a tax claim exceeding $2 billion, ruling that Indian authorities can pursue the case. Earlier, the Bombay High Court ruled in 2008 against Vodafone’s initial challenge of the tax claim. The carrier’s appeal of that ruling was dismissed by India’s Supreme Court in January 2009. The group’s involvement in various legal proceedings related to tax issues, may subject it to fines as well as affect its brand image.

Opportunities

Growth of mobile advertising

The mobile advertising market is forecast to record strong growth in coming years. With mobile phone becoming the center of the digital convergence, advertising on mobiles will be a major growth area of growth for telecom players. According to the industry sources, the global mobile advertising market is expected to grow at a compounded annual growth rate (CAGR) of about 40% until 2014. The growth is primarily due to the increasing mobile phone users and evolving mobile platforms. Vodafone has been focusing on mobile advertising in recent times. In 2009, the group completes roll out of mobile advertising services to its 18 operating markets. In the previous year, Vodafone Marketing Solutions had run over 2000 campaigns across its global footprint for hundreds of global brands. Growth of mobile advertising will increase the group’s revenue in coming years.

Increasing 3G penetration

The demand for third generation (3G) services is expected to increase with the growing need for advanced data and video services. The 3G technology allows services providers to provide a host of services including high speed mobile broadband, mobile TV, and mobile VoD, among others. As the traditional voice revenues of mobile operators are being hit by changing tariffs, increasing competition and alternative technology, among other factors, operators are migrating to 3G services to facilitate stable or increasing average revenue per user (ARPU). As a result, the worldwide 3G penetration rates are forecast to increase in coming years. For instance, the 3G penetration rates in advanced economies like the US is forecast to increase from nearly 43% in 2009 to over 60% by 2013. Similarly, the 3G penetration in Asia-Pacific is expected to reach 40% 2014. Vodafone is one of the leading players in the worldwide telecom market.The group offers 3G services based on wideband code division multiple access (W-CDMA) technology. At the end of FY2010, Vodafone had 3G licenses in Germany, Italy, Spain, the UK, Greece, Ireland, Malta, Netherlands, Portugal, South Africa, Czech Republic, Egypt, Hungary, New Zealand and Romania. In addition, Vodafone secured 2×5 MHz of 3G spectrum in nine circles in the Indian auction for a total price of £1.74 billion ($2.8 billion) in May 2010.

Increasing adoption of 3G will contribute to the group’s revenue growth in coming years.

Focus on M2M solutions

The group has been increasing its focus on machine-to-machine (M2M) solutions. It supports M2M solutions ranging from location monitoring of vehicles and remote patient monitoring through to supporting real-time secure payments and providing real-time inventory reports for retailers, corporate, and MNC segments. In July 2009, the group launched a global M2M service platform to help companies deploy and manage large, wireless M2M projects. Furthermore, in February 2010, Vodafone, Verizon Wireless and nPhase, a Verizon Wireless/Qualcomm joint venture, formed a strategic alliance aimed at increasing the adoption of global M2M deployments by simplifying the remote management and monitoring of devices spread across both European and the US networks. The alliance is designed to provide an international management solution for a growing number of companies looking to use M2M wireless communications to enhance their customer service and create new service offerings in sectors including energy, healthcare, automotive telematics, consumer and commercial products. According to the industry sources, industry-wide operator revenues for wireless M2M are forecast to increase from $4 billion in 2008 to $13 billion in 2012. Vodafone’s increasing focus on M2M solutions will add to its top line growth in coming years.

Mobile money transfer services market

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The mobile money transfer services market is expected to grow in the coming years. According to the industry sources, the international mobile money transfer market is forecast to reach $62 billion by 2014, based on gross transactio

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