Vodafone 2010 Annual Report Download - page 40

38 Vodafone Group Plc Annual Report 2010
The following discussion of principal risk factors and uncertainties identies the most signicant risks that may
adversely affect our business, operations, liquidity, nancial position or future performance. Additional risks not
presently known to us, or that we currently deem immaterial, may also impact our business. This section should be
carefully read in conjunction with the “Forward-looking statements” on page 140 of this document.
The focus of competition in many of our 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 our churn
rate. There can be no assurance that we will not experience increases in churn rates,
particularly as competition intensifies. An increase in churn rates could adversely
affect profitability because we would experience lower revenue and additional
selling costs to replace customers or recapture lost revenue.
Increased competition has also led to declines in the prices we charge for our 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 we must provide subsidies for
handsets. Additionally, we could face increased competition should there be an
award of additional licences in jurisdictions in which a member of our Group already
has a licence.
Delays in the development of handsets and network compatibility and
components may hinder the deployment of new technologies.
Our operations depend in part upon the successful deployment of continuously
evolving telecommunications technologies. We use technologies from a number of
vendors and make significant capital expenditure 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. The introduction of software and other network
components may also be delayed. The failure of vendor performance or technology
performance to meet our expectations or the failure of a technology to achieve
commercial acceptance could result in additional capital expenditure by us or a
reduction in our profitability.
We may experience a decline in revenue or profitability notwithstanding
our efforts to increase revenue from the introduction of new services.
As part of our strategy we will continue to offer new services to our existing customers
and seek to increase non-voice service revenue as a percentage of total service
revenue. However we may not be able to introduce these new services commercially
or may experience significant delays due to problems such as the availability of new
mobile handsets, higher than anticipated prices of new handsets or availability of new
content services. In addition, even if these services are introduced in accordance with
expected time schedules, there is no assurance that revenue from such services will
increase ARPU or maintain profit margins.
Expected benefits from our cost reduction initiatives may not be realised.
We have entered into several cost reduction initiatives principally relating to network
sharing, the outsourcing of IT application, development and maintenance, data
centre consolidation, supply chain management and a business transformation
programme to implement a single, integrated operating model using one ERP
system. However there is no assurance that the full extent of the anticipated benefits
will be realised in the timeline envisaged.
Changes in assumptions underlying the carrying value of certain Group
assets could result in impairment.
We complete a review of the carrying value of Group assets annually, or more
frequently where the circumstances require, to assess whether those carrying values
can be supported by the net present value of future cash flows derived from such
assets. This review examines the continued appropriateness of the assumptions in
respect of highly uncertain matters upon which the valuations supporting carrying
values of certain Group assets are based. This includes an assessment of discount
rates and long-term growth rates, future technological developments and timing and
quantum of future capital expenditure as well as several factors which may affect
revenue and profitability identified within the other risk factors in this section such
Adverse macroeconomic conditions in the markets in which we operate
could impact our results of operations.
Adverse macroeconomic conditions and deterioration in the global economic
environment, such as further economic slowdown in the markets in which we
operate, may lead to a reduction in the level of demand from our customers for
existing and new products and services. In difficult economic conditions, consumers
may seek to reduce discretionary spending by reducing their use of our products and
services, including data services, or by switching to lower-cost alternatives offered
by our competitors. Similarly, under these conditions the enterprise customers that
we serve may delay purchasing decisions, delay full implementation of service
offerings or reduce their use of our services. In addition adverse economic conditions
may lead to an increased number of our consumer and enterprise customers that are
unable to pay for existing or additional services. If these events were to occur it could
have a material adverse effect on our results of operations.
The continued volatility of worldwide financial markets may make it
more difficult for us to raise capital externally which could have a
negative impact on our access to finance.
Our key sources of liquidity in the foreseeable future are likely to be cash generated
from operations and borrowings through long-term and short-term issuances in the
capital markets as well as committed bank facilities. Due to the recent volatility
experienced in capital and credit markets around the world, new issuances of debt
securities may experience decreased demand. Adverse changes in credit markets or
our credit ratings could increase the cost of borrowing and banks may be unwilling
to renew credit facilities on existing terms. Any of these factors could have a negative
impact on our access to finance.
Regulatory decisions and changes in the regulatory environment could
adversely affect our business.
As we have ventures in a large number of geographic areas, we must comply with an
extensive range of requirements that regulate and supervise the licensing,
construction and operation of our 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
law s, which apply to the mobile telecommunications indus try. Decisions by regulators
regarding the granting, amendment or renewal of licences, to us or to third parties,
could adversely affect our future operations in these geographic areas. 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
us. Additionally, decisions by regulators and new legislation, such as those relating to
international roaming charges and call termination rates, could affect the pricing for,
or adversely affect the revenue from, the services we offer. Further details on the
regulatory framework in certain countries and regions in which we operate, and on
regulatory proceedings, can be found in “Regulation” on page 133.
Increased competition may reduce our market share and revenue.
We face intensifying competition and our ability to compete effectively will depend
on, among other things, our network quality, capacity and coverage, pricing of
services and equipment, quality of customer service, development of new and
enhanced products and services in response to customer demands and changing
technology, reach and quality of sales and distribution channels and capital
resources. Competition could lead to a reduction in the rate at which we add new
customers, a decrease in the size of our market share and a decline in our ARPU as
customers choose to receive telecommunications services or other competing
services from other providers. Examples include but are not limited to competition
from internet based services and MVNOs.
Principal risk factors and uncertainties