Vodafone 2005 Annual Report Download - page 27

Risk Factors and Legal Proceedings
Business |25
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, and on
regulatory proceedings can be found in “Business Overview – Regulation”.
Increased competition may reduce market share or
revenue.
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, or other
competing 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 revenue 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 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.
Expected benefits from the One Vodafone programme may
not be realised.
The One Vodafone programme represents the Group’s plan to achieve full integration of
its global operations and is designed to maximise the benefits of Vodafone’s scale and
scope. The programme is premised on six core initiatives, further details of which can
be found on page 13. The Group has previously stated publicly that it expects to
realise operational cash flow benefits by the financial year ending 31 March 2008.
These expected benefits have been formulated by management on the assumption that
all of the core initiatives which comprise the One Vodafone programme generate the
results anticipated and that the Group is able to take advantage of its size and exploit
the associated economies of scale to their fullest extent. Management still considers
these targeted cost savings and revenue enhancements to be achievable. However, no
assurance can be given that the full extent of the anticipated benefits of the One
Vodafone programme will be realised.
Challenging environment in Japan.
Vodafone continues to encounter difficult market conditions in Japan due to the
strength of competitor offerings, specifically in 3G customer propositions. The Group
has strengthened Vodafone Japan’s management team and continues with the ongoing
transformation plan. However, in a constantly evolving competitive environment, no
assurance can be provided with respect to Vodafone’s ability to perform in Japan either
operationally or as a management team and secure a local competitive advantage.
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.