Vodafone 2008 Annual Report Download - page 49

As many of the cost reduction initiatives are centralised in common functions, as
described earlier, the Group’s target in respect of operating expenses for the total
of the Europe region (excluding Arcor) includes common functions but excludes
the developing and delivering of new services and business restructuring costs.
On this basis, these costs grew by 3.5% in the 2007 financial year for the reasons
outlined in the preceding paragraph.
Associates
SFR, the Group’s associated undertaking in France, achieved an increase of 3.5% in
its customer base, higher voice usage and strong growth in data services. However,
service revenue was stable at constant exchange rates as the impact of these
items was offset by a 5.7% decline in ARPU due to the increase in competition and
significant termination rate cuts imposed by the regulator. The voice termination
rate was cut by 24% to 9.5 eurocents per minute with effect from 1 January 2006
and by a further 21% to 7.5 eurocents per minute with effect from 1 January 2007.
France is the first European Union country to impose regulation on SMS
termination rates, which were cut by 19% with effect from 1 January 2006 and
a further 30% with effect from mid September 2006 to 3 eurocents per SMS.
Cost reduction initiatives
The Group has set targets in respect of operating expenses and capitalised fixed
asset additions. The operating expense and capitalised fixed asset additions
targets relate to the Europe region (excluding Arcor) and common functions in
aggregate. During the 2007 financial year, the implementation of a range of Group
wide initiatives and cost saving programmes commenced, designed to deliver
savings in the 2008 financial year and beyond. The key initiatives were as follows:
The application development and maintenance initiative focused on driving
cost and productivity efficiencies through outsourcing the application
development and maintenance for key IT systems. In October 2006, the Group
announced that EDS and IBM had been selected to provide application
development and maintenance services to separate groupings of operating
companies within the Group. The initiative was in the execution phase in the
2007 financial year and was progressing ahead of plan, with a number of
operating companies having commenced service with their respective vendors.
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The supply chain management initiative focused on centralising supply chain
management activities and leveraging Vodafone’s scale in purchasing activities.
Through the standardisation of designs and driving scale strategies in material
categories, the Group aimed to increase the proportion of purchasing
performed globally. The alignment of all objectives and targets across the
entire supply chain management was completed during the 2007 financial year.
The IT operations initiative created a shared service organisation to support the
business with innovative and customer focused IT services. This organisation
consolidated localised data centres into regionalised northern and southern
European centres and consolidated hardware, software, maintenance and
system integration suppliers to provide high quality IT infrastructure, services
and solutions.
The Group commenced a three year business transformation programme to
implement a single integrated operating model, supported by a single enterprise
resource planning (“ERP”) system covering human resources, finance and
supply chain functions.
The network team focused on network sharing deals in a number of operating
companies, with the principal objectives of cost saving and faster network rollout.
Many of the Group’s operating companies participated in external cost
benchmarking studies and used the results to target local cost reductions.
Initiatives implemented in the 2007 financial year included reductions to
planned network rollout, outsourcing and off-shoring of customer services
operations, property rationalisation, replacing leased lines with owned
transmission, network site sharing and renegotiation of supplier contracts
and service agreements.
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Vodafone Group Plc Annual Report 2008 47