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MARKET COMMENT
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Carburton Street, London -- Vodafone Group (LSE: VOD) and British Telecom (LSE: BT.A) both reported customer numbers for their wireless businesses today. For the year ended 31 March 2001 Vodafone added 30 million new customers, taking its total subscriber base worldwide to 83.4 million. British Telecom grew its customer base by 11 million to 25 million in fourteen countries. In the UK, Vodafone now has 12.3m subscribers, ahead of BT's domestic customer base of 11.2 million. The two companies also reiterated their underlying strategies in terms of customer focus. Vodafone said that given the level of penetration, it expects a slowdown in customer growth. It also plans to move to margin improvement, customer retention and cash flow growth, rather than customer growth and overall market share. British Telecom said its focus would be on customer retention and development of value added and mobile data services. What we are witnessing is saturation in terms of mobile telephony usage in developed markets. Up to now, mobile telephone operators have been able to increase their subscriber base by acquiring customers through generous subsidies. In part this has been agreed with the handset makers, which have also benefited by increasing their market share through alliances with the mobile operators. However, Vodafone is reaching the point of diminishing marginal productivity. In other words, the addition of more customers by this method will yield progressively smaller increases in revenue. Up to now, most operators have charged prices at or below average total cost in order to gain market share. Now that the industry is approaching its mature phase, prices can afford to rise to cover average total cost. We should start to see increased profitability for these companies from their 2G operations. The only fly in the ointment is the cost of building the next generation of mobile telephony. Discussion boards: Vodafone | BT | Telecommunications sector