Vodafone 2004 Annual Report Download - page 23

Annual Report 2004 Vodafone Group Plc
21
Risk Factors
Regulatory decisions and changes in the regulatory
environment could adversely affect the Group’s
business.
Because the Group has ventures in a large number of geographic areas, it must
comply with an extensive range of requirements that regulate and supervise the
licensing, construction and operation of its telecommunications networks and
services. In particular, there are agencies which regulate and supervise the
allocation of frequency spectrum and which monitor and enforce regulation and
competition laws which apply to the mobile telecommunications industry. Decisions
by regulators regarding the granting, amendment or renewal of licences, to the Group
or to third parties, could adversely affect the Group’s future operations in these
geographic areas. The Group cannot provide any assurances that governments in
the countries in which it operates will not issue telecommunications licences to
new operators whose services will compete with it. In addition, other changes in
the regulatory environment concerning the use of mobile phones may lead to a
reduction in the usage of mobile phones or otherwise adversely affect the Group.
Additionally, decisions by regulators could further adversely affect the pricing for
services the Group offers. Further details on the regulatory framework in certain
regions in which the Group operates can be found in “Business Overview –
Regulation”.
Increased competition may reduce market share or
revenues.
The Group faces intensifying competition. Competition could lead to a reduction in the
rate at which the Group adds new customers and to a decrease in the size of the
Group’s market share as customers choose to receive mobile services from other
providers.
The focus of competition in many of the Company’s markets continues to shift from
customer acquisition to customer retention as the market for mobile
telecommunications has become increasingly penetrated. Customer deactivations are
measured by the Group’s churn rate. There can be no assurance that the Group will
not experience increases in churn rates, particularly as competition intensifies. An
increase in churn rates could adversely affect profitability because the Group would
experience lower revenues and additional selling costs to replace customers, although
such costs would have a future revenue stream to mitigate the impact.
Increased competition has also led to declines in the prices the Group charges for its
mobile services and is expected to lead to further price declines in the future.
Competition could also lead to an increase in the level at which the Group must
provide subsidies for handsets. Additionally, the Group could face increased
competition should there be an award of additional licences in jurisdictions in which a
member of the Group already has a licence, whether 2G or 3G.
Delays in the development of handsets and network
compatibility and components may hinder the
deployment of new technologies.
The Group’s operations depend in part upon the successful deployment of
continuously evolving mobile telecommunications technologies. The Group uses
technologies from a number of vendors and makes significant capital expenditures in
connection with the deployment of such technologies. There can be no assurance that
common standards and specifications will be achieved, that there will be inter-
operability across Group and other networks, that technologies will be developed
according to anticipated schedules, that they will perform according to expectations or
that they will achieve commercial acceptance. Commercially viable 3G handsets may
not be available in the timeframe required or in the amounts needed, which may delay
Risk Factors and Legal Proceedings
commercial launch of, or reduce the potential revenue benefits from, 3G services. The
introduction of software and other network components may also be delayed. The
failure of vendor performance or technology performance to meet the Group’s
expectations or the failure of a technology to achieve commercial acceptance could
result in additional capital expenditures by the Group or a reduction in profitability.
The Group’s business would be adversely affected by
the non-supply of equipment and support services by a
major supplier.
Companies within the Group source their mobile network infrastructure and related
support services from third party suppliers. The removal from the market of one or
more of these third party suppliers would adversely affect the Group’s operations and
could result in additional capital expenditures by the Group.
The Company’s strategic objectives may be impeded by
the fact that it does not have a controlling interest in
some of its ventures.
Some of the Group’s interests in mobile licences are held through entities in which it
is a significant but not controlling owner. Under the governing documents for some of
these partnerships and corporations, certain key matters such as the approval of
business plans and decisions as to the timing and amount of cash distributions
require the consent of the partners. In others, these matters may be approved without
the Company’s consent. The Company may enter into similar arrangements as it
participates in ventures formed to pursue additional opportunities. Although the Group
has not been materially constrained by the nature of its mobile ownership interests, no
assurance can be given that its partners will not exercise their power of veto or their
controlling influence in any of the Group’s ventures in a way that will hinder the
Group’s corporate objectives and reduce any anticipated cost savings or revenue
enhancement resulting from these ventures.
Expected benefits from investment in networks,
licences and new technology may not be realised.
The Group has made substantial investments in the acquisition of 3G licences and in
its mobile networks, including the rollout of 3G networks. The Group expects to
continue to make significant investments in its mobile networks due to increased
usage and the need to offer new services and greater functionality afforded by
3G technology. Accordingly, the rate of the Group’s capital expenditures in future years
could remain high or exceed that which it has experienced to date.
Please see “Business Overview – Licences and network infrastructure”for more
information on expenditures in connection with the acquisition of 3G licences and
expected expenditure in connection with the roll-out of 3G services. There can be no
assurance that the commercial launch of 3G services will proceed according to
anticipated schedules or that the level of demand for 3G services will justify the cost
of setting up and providing 3G services. Failure or a delay in the completion of
networks and the launch of new services, or increases in the associated costs, could
have a material adverse effect on the Group’s operations.
The Group may experience a decline in revenues per
customer notwithstanding its efforts to increase
revenues from the introduction of new services.
As part of its strategy to increase usage of its networks, the Group will continue to
offer new services to its existing customers, and seek to increase non-voice service
revenues as a percentage of total service revenue. However, the Group may not be
able to introduce commercially these new services, or may experience significant
delays due to problems such as the availability of new mobile handsets or higher than
anticipated prices of new handsets. In addition, even if these services are introduced