1. Introduction
This project will involve the comparison of three companies in the
telecommunications industry, which established in Ireland but which have
considerable assets and involvement in other geographical markets. It will focus on
 Vodafone Group PLC
 Telefonica (operating in Ireland as O2)
 Hutchinson (operating in Ireland as 3)
These companies operate in mobile communications (handsets) and broadband in
both the individual and business markets, with further subdivision in payment
schemes (i.e. pay-as-you-go and bill pay). Other operators include Meteor, Tesco
Mobile, eMobile and recently 48. By reviewing the the companies on many key
ratios it will be shown how the mobile landscape is changing and also how the
financial model will need to change in the upcoming years.
Scenario
With the introduction of improved broadband infrastructure and the improvements in
mobile data networks, free messenger services are reducing revenue for existing
mobile network operators. Whatsapp, Viber etc. are responsible for a worldwide loss
in revenue to these operators. ‘It is estimated that operators lost $13.9 Bn. in 2011
due to social messaging’ (Dharia, 2012). According to COMREG mobile operator
revenue in 2011 was €1.6 Billion made up of 12 billion text messages and 12 billion
voice minutes the level of profits in this sector is and will continue to be heavily
impacted by mobile telephony technology.
VOIP services have had implications in the mobile sector. The use of data bundle
consumers are able to use their handsets to communicate internationally for little to no
cost e.g. Skype, this problem has been worsened by the increased sales of
smartphones and the increase in mobile data speeds. The operator’s profits will be
further reduced, if the application within the EU to eradicate roaming charges gains
approval (Kroes, 2013).
*NB. All financial information used have been taken from thecorporate accounts ofVodafone Group PLC, Hutchison 3G
and TelefonicaSA,years 2009-2012(inclusive). All dataused in graphs are visiblein the Appendix.

2. This analysis will concentrate on assets and return on assets for all three companies
since two thousand and nine looking at
 Operating Margin
 Current Ratio
 Quick Asset Ratio
 Fixed Assets Turnover
 Return on Assets
The analysis will also look at the potential for development in mobile business for the
immediate future up until two thousand and sixteen.
Payment and Smartphone ownership by network.
(IrishTechNews, 2012)
As seen above three of the big four in Irish network operators provide the majority of
their services to the prepay market whereas the split is inverted with a majority of bill
pay customers, this data becomes clear when the smartphone ownership figures are
taken into account with the need for cheap data plans needed to fully utilize the
device.
(IrishTechNews, 2012)
0
20
40
60
80
100
120
Vodafone O2 Eircom 3 Ireland Other
Contract Type
Billpay
Pre Pay
0
5
10
15
20
25
30
35
40
45
50
Vodafone O2 3Ireland Other Eircom
Market Share
0 10 20 30 40 50 60 70 80 90
Vodafone 41%
O2
Eircom
3 Ireland
Tesco
Smart Phone Ownership

3. Operating Margin
The operating margin is a measure of profitability that, as clearly demonstrated above
was highly volatile for all operators in the past four years. The average is skewed by
the twenty five percent increase between 2010 and 2011 in Hutchinson. The sharp
decline in 3’s operating margin is as a result of its strategy to invest heavily in its
mobile broadband capability and in the 4G-network capacity,
‘Three has invested over €800 million in infrastructure… the smartphone economy is
driving huge demand for data services’ (3, 2011). This investment leaves 3 in the
fore of 4G technologies and in the lead in terms of future consumer needs.
Current and Quick Asset Ratio
As seen from above the current ratio for Hutchinson is far above the other two
companies and their average, this is accounted for in the fact that Hutchinson are

4. operating on the Vodafone network in Ireland and have similar network agreements in
place throughout their mobile network operations. Vodafone and Telefonica both
lease out network bandwidth to other providers (e.g. Tesco Mobile, Meteor etc.)
which means that the cost of installing, maintenance and depreciation are taken into
account for former and Hutchinson 3G pays a fixed fee for the use of the network (as
is the case with Meteor etc.). The dip seen in 2009 and 2010 in both Hutchinson and
Telefonica was because of their retail stores, whereas Vodafone moved had moved
the majority of retail stores to Carphone Warehouse.
‘Consolidation of sorts has already taken place with the mobile operators sharing
networks rather than duplicating the costs of rolling out separate ones. Keeping up
with the evolving technologies is a costly business and consolidation might actually
be good for consumers in the end in terms of investment and innovation by the
operators’ (Hancock, 2013).
This consolidation of infrastructure would have the advantage of reducing investment
costs on an individual provider and could be implemented on a pro rata basis.
The increase in both ratios in for all operators in 2012, are partially as a result of the
sale of the 4G spectrums for Ireland, this will generate profits through data packages.
As stated previously the amalgamation of infrastructure investment would offset the
long term and short term bottom line for the operators through consolidated risk
sharing.
(Kennedy, 2012)

5. Fixed Asset Turnover and Return on Assets
Both of these ratios measure the generation of returns with respect to their fixed
assets; Vodafone and O2 are both at and above the average with Hutchinson
performing below average. Vodafone and O2 control over seventy percent of the
market, and the remaining thirty percent operated by the other operators. These other
operators rent or buy up bandwidth within the network giving a return on assets; this
provides a consistent revenue stream for Vodafone and O2 while increasing costs and
liabilities for other providers. Given the high investment cost of entry into the market
place, this structure seems likely for the future.
Return on assets measures the ability of the business to efficiently generate income.
All three carriers saw an increase in this ratio form 2009 – 2010, however with the
developing smartphone market and the need for data services the this led to a shift in
the consumer needs.
0
0.5
1
1.5
2
2.5
3
2009 2010 2011 2012
Fixed Assets Turnover
Telefonica
Vodafone
Hutchinson
Average
0
1
2
3
4
5
6
7
8
9
2009 2010 2011 2012
Return on Assets %
Telefonica
Vodafone
Hutchinson
Average

6. In 2007 with the release of the first iPhone and the need for data packages O2 was the
first to market. Because of historical contracts (24 month terms) coming to an end and
3 bringing the new headsets and O2’s exclusive contract with Apple coming to an end
it meant that consumers were ready to move to another network in search of better
prices and better tariffs.
‘iPhone traffic was static between September and November 2009 but increased by
50pc in December 2009 versus November’ (Kennedy, 2010). Due to 3’s mobile data
network and the high usage allowance in terms of data, they were positioned to
capatalise on consumers who were ready for an upgrade.
‘Three has also fully embraced the smartphone revolution through offering the most
innovative services and ground-breaking 'All you can eat' data plans’’ (3, 2011). This
advantage was transient as other networks now offer similar usage deals.

7. The Future
The growth of the smartphone market and the need of the customer to be ever more
connected through use of apps on smartphones to send messaging is reducing the
amount of revenue generated by text messages (SMS). This is having a negative
effect on the operator’s bottom line. With the upcoming introduction of 4G
technology and connectivity, at the minute one percent of smartphone users generate
half of the planets mobile data traffic (Kennedy, 2010), network capacity is nearing
peak levels hence the high level of investment in 4G.
 As discussed previously the level of SMS messaging is declining as
smartphone market penetration increases, this in conjunction with increased
data usage and lower price tariffs is leading to an erosion of this revenue
stream. In Ireland Vodafone recorded ‘1.46 Bn texts were sent by Vodafone
Ireland customers in the quarter (Quarter 3 2011)’ (Kennedy, 2011).
Messaging applications and social messaging are influencing heavily on
revenue and this trend is set to continue, given the evidence that ‘a per MB
basis, texts net the operator 100 to 1,000 times more money than data does’
(Higginbotham, 2012).
 Another negative for the industry in terms of revenue is that VOIP (voice over
internet protocol) allows the user to use the carriers own data network to
bypass voice calls on the network itself, this means that by using e.g. Face
time or Google Talk the caller may call another user free of charge in terms of
billable minutes. Both of these factors together mean that major revenue
streams will eroded.
 The recent announcement by the European commissioner for the digital
agenda to abolish mobile roaming charges within the EU will come as another
blow to the sector.
Given that these will happen it means the operating model in this sector will have to
change along with these trends.

8. (Straight-Talk-Telecoms, 2012)
(Straight-Talk-Telecoms, 2012)
As shown above the revenue for operators will remain immobile if industry
projections follow growth predictions, and will contract in some areas. The level of
growth in Asia-Pacific could also start to stagnate in the latter half of the decade, and
could decline if the western European model is followed.
Given that all recent innovation was consumer led i.e. data, the same problems will be
seen in emerging or infant markets, which will mean a large level of capital
investment will be needed.
Presently the operators sign customers into long term contracts of various durations,
these contracts provide the operators with guaranteed income for a specific duration.
This is sold along with a handset in the majority of cases, these are heavily subsidised
with the knowledge that recouping their value will take place during the duration of
the contract.

9. This move towards rolling thirty day sim-only contract would have implications on
the provider’s bottom line i.e. when Apple released the iPhone Sprint USA paid the
firm $15.5 Billion for sole access to the device for four years in the US market (Irish-
Tech-News, 2013). This meant that the provider would have to aggressively sell the
product over other models to recoup their expenditure at the expense of more
lucrative products and plans.
Joint ventures in terms of infrastructure would also return economies of scale in the
market. The common technology would allow for better segregation in operations,
this however would be offset by the competition in pricing and branding.
In terms of profitability the market will have to start offering a diverse set of
applications in order to tempt consumers e.g. cloud storage and mobile payment
options (NFC).
Tie-ins with products and services will be needed in order to differentiate e.g. in the
area of healthcare and medical devices and services or in the area of smart appliances
where the vendors have exclusive rights to particular range of company products or
line of products.
Conclusion
In reviewing the industry, it has become evident that the current business model will
need to change (in terms of operational costs) in order to pay for the infrastructure
needed in the future and also to deliver cost savings. The maturity of the European
market means that customers are price sensitive and customer loyalty among younger
users is very low in terms of long-term revenue. Operators will have to move away
from the traditional tariff cost structure and concentrate more upon the services aspect
of the business. Another important criteria which will need to be addressed is the
operations management, lean and six-sigma models of operations will need to be
utilised in order to deliver better traffic management on the network.
Bibliography
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Press Release. 3.
http://www.three.ie/pdf/press_releases/2011/Three%20announces%20further%20EU
R38m%20investment%20in%20Ireland%20with%20new%20BT%20contract.pdf.
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11. Appendix
Current
Ratio
2009 2010 2011 2012
Telefonica 0.88 0.63 0.64 0.81
Vodafone 0.47 0.5 0.63 0.83
Hutchinson 1.68 1.56 1.33 1.57
Average 1.01 0.90 0.87 1.07
Quick Ratio
2009 2010 2011 2012
Telefonica 0.85 0.58 0.6 0.74
Vodafone 0.45 0.48 0.61 0.65
Hutchinson 1.5 1.39 1.16 1.4
Average 0.93 0.82 0.79 0.93
Return
On Assets
2009 2010 2011 2012
Telefonica 7.48 8.55 4.17 3.03
Vodafone 2.2 5.58 5.17 4.78
Hutchinson 2.07 2.84 7.77 3.43
Average 3.92 5.66 5.70 3.75
Fixed Assets
Turnover
2009 2010 2011 2012
Telefonica 1.87 1.96 1.82 1.84
Vodafone 2.28 2.23 2.25 2.39
Hutchinson 1.8 1.65 1.3 1.42
Average 1.98 1.95 1.79 1.88

12. Operating Margin
2009 2010 2011 2012
Telefonica 23.4 24.7 15.5 16.7
Vodafone 14.3 21.3 12.2 24.1
Hutchinson 6.1 9.9 35.7 9.8
Average 14.6 18.6 21.1 16.9
PrePay Billpay
Vodafone 73 27
O2 74 26
Eircom 80 20
3Ireland 37 63
Other 100 0