Analyzing Vodafone's Foray into Consumer Internet of Things in Europe—Poor User Experience Will Be Just One of the Challenges

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4Q 2017 | IN-4819

On November 7, 2017, Vodafone launched its consumer Internet of things (IoT) service ‘V by Vodafone.' The platform and products are currently available in the U.K., Spain, Germany, and Italy.

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Vodafone Launches ‘V by Vodafone’ in Europe

NEWS


On November 7, 2017, Vodafone launched its consumer Internet of things (IoT) service ‘V by Vodafone.' The platform and products are currently available in the U.K., Spain, Germany, and Italy. The four connected devices and IoT services are as follows:
  1. V: Auto, a dongle that provides functions such as an emergency call function and acts as a GPS location tracker.
  2. V: Camera, targets indoor and outdoor home security. 
  3. V: Pet is a location and activity tracker for pets.
  4. V: Bag, a location tracker with GPS that attaches to your bag to provide location information. 
Each of these connected devices is connected using a V-Sim, a Vodafone sim card, and is currently available to only existing Vodafone mobile customers.

Potential Opportunities in Vertical IoT Use Cases

IMPACT


Vodafone is one the largest telcos in the world in terms of subscribers and operates its networks in 26 countries with partner networks in another 50 countries in the world. Of Vodafone’s US$41 billion revenue reported in 2016, four European countries, namely, the U.K., Spain, Germany, and Italy accounted for 54% or US$22 billion of its total revenue. In all these markets, Vodafone’s overall service revenue declined from 0.3% to 3.5% for the year. For the 2016-2017 year, Vodafone’s IoT business reported 38 million IoTconnections (formerly machine-to-machine connections) as of 2016, and 29% YoY revenue growth. Vodafone’s enterprise business, which includes IoT, accounted for £10 billion or 28% of the total service revenues. Vodafone’s consumer IoT offer currently includes four connected devices that are embedded with multiple connectivity technologies and sensors but use only cellular connectivity for backhaul with a one-time device cost and monthly subscription fee of £3-£4/month based on the service.

According toABI Research's latest estimates, consumer wireless security camera annual shipments to Western Europe are expected to grow from 175,000 units in 2016 to 1.2 million units in 2021 at a CAGR of 33%. Penetration of cellular connectivity in the consumer segment has been negligible with Wi-Fi being the preferred connectivity option in the end node, further supported by a fixed line or cellular connectivity backhaul from the gateway. The lack of cellular connectivity’s adoption is further compounded due to its initial adoption in indoor environments where cellular connectivity, especially 4G coverage, has been traditionally poor. V-camera will witness the most adoption for outdoor environments which lack Wi-Fi coverage and mains power.

Vodafone’s V-Auto dongle that connects to a cars on-board diagnostics (OBD) port targets the retrofit aftermarket telematics market, leveraging GPS location and the cellular network which enables consumers to add safety and security features. In Western Europe, portable aftermarket solutions such as connected personal navigation devices (PNDs), OBD dongles, and dedicated GPS tracking units with integrated GPS receivers and cellular modules that do not require specialist installation will witness shipment growth from 2.6 million units in 2016 to 9.9 million units in 2021.

The two location tracking devices, V-Pet and V-Bag, have traditionally used short-range wireless connectivity technologies such as Bluetooth, Zigbee, and Wi-Fi but could significantly benefit from cellular technologies wide-area network (WAN) connectivity. That said, one of the critical reasons for the lack of penetration of cellular connectivity in this segment has been due to low-power requirements of battery operated devices.Devices used for tracking currently use Wi-Fi and GPS along with 2G, 3G, and 4G cellular connectivity. While V by Vodafone could potentially leverage the more battery-friendly cellular low-power, wide-area (LPWA) technologies such as NB-IoT or LTE-M in the future, current lack of network support is a barrier to broader consumer adoption.

Can Vodafone Replicate Enterprise Business Success in the Consumer Market?

COMMENTARY


Like any good mobile operator, Vodafone’s consumer IoT offering seeks to upsell its existing customer base. Vodafone needs to do this to counter its current slide in mobile services revenues which have declined between 0.7% to 8% in these fourcountries. However there are four reasons why these new products will struggle to drive any significant revenues for the operator.

First, Vodafone is not exactly the good Samaritan among various mobile operators serving in some of the regions. In the U.K. regulatory authority, Ofcom’s report on service quality of telcos providers revealed a higher proportion of Vodafone customers (7%) had a reason to complain as compared to the market as a whole. Furthermore, in October 2016 Ofcomfined Vodafone a sum of £4.6 million for mis-selling, inaccurate billing, and poor customer complaint handling procedures. Already Vodafone has the hurdle of low favorability to overcome.

Second, its location tracking products for pets and bags will have to deal with poor battery life. These devices will initially operate on 2G, 3G, and 4G network technologies and not cellular LPWA technology NB-IoT due to current lack of sufficient geographical coverage. While the add-on services could be attractive to some customers, poor service experience initially could severely damage the telcos effort in capitalizing on a fast-growing market opportunity. It is not a good idea to win the scorn of early adopters if Vodafone hopes to grow into the mainstream. Another challenge is the recent announcement by three U.S.-based airlines restricting transport of “smart bags.” Delta, American, and Alaska airlines have all announced that as of January 15, 2018, travelers will no longer be allowed to check-in battery-powered smart bags due to concerns of lithium ion battery explosions and fire in the baggage hull of an aircraft.

Third, the pricing and offer around these services seem not well-aligned to value limiting mainstream adoption. The subscription service is tied in with customer mobile connection and independent of data usage. The service can be activated or deactivated anytime, but customers still pay a monthly service fee. While bandwidth heavy applications such as V-Camera at £4/month may be attractive plans to boost adoption, the same does not apply to low-bandwidth applications such as V-bag and V-pet service at £3/month and £4/month respectively.

Finally, Vodafone hopes to potentially replicate its enterprise IoT success in its consumer mobile business with the consumer IoT offering, adding new revenue streams to mitigate decreasing revenues in the U.K., Spain, Germany, and Italy. That said, a poorly designed service offering, along with bad service experience, could further worsen its problems in the consumer business and have indirect impact on its growth in the enterprise IoT business. 

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