Vodafone 2002 Annual Report Download - page 49

added during the course of the 2002 financial year, in Italy and Spain.
In addition, research and development work in J-Phone Vodafone has been
absorbed into the overall programme and activities are underway to create a
centre of excellence in Japan, using the existing J-Phone Vodafone and Japan
Telecom teams, dedicated to research in mobile communications.
The work of the Group R&D function is organised into five main streams:
strategic technology analysis, applied research, technical standards development,
intellectual property and showcase laboratory management. The Group R&D
function evaluates and tests technologies that advance mobile communications,
or promise to improve service quality or operational efficiency of existing
networks. In addition, it develops, tests and demonstrates prototype products
and enhanced network capabilities, and it publicises and demonstrates technical
innovation to both customers and the media. This work is undertaken as a mix of
in-house proprietary projects, collaboration with suppliers, university sponsored
projects and involvement in major international research and development
programmes, in particular the European IST and 5th Framework programmes.
The work is carried out within the four research and development centres, within
the satellite centres of excellence and within the operating companies, the
precise location being determined by the desired expertise, and is designed
as a systematic and co-ordinated programme for product and service innovation,
and for technical vision for business strategy. Two significant areas of work
started this year are the All-IP programme, which is concerned with how and
when internet protocols will be used in the Group’s networks, and the use of
Java to provide mobile communications services. Considerable effort has also
been applied to rationalising and strengthening the Group’s involvement with,
and influence over, technology standards making bodies and industry fora.
A process has been created to protect and extract maximum value from
intellectual property developed by companies within the Group.
The research and development programme is shared with all subsidiaries of the
Company and Group functions. They are able to influence the programme
through governance mechanisms, management processes and working
interfaces that are designed to allow delivery of the results of the programme
directly into the business units where they are needed. Delivery has, in a number
of instances, been achieved by the transfer of staff from the Group R&D function
into other Group functions and the operating companies. The research and
development programme provides the Group with long term technical policy,
strategy and leadership, as well as providing technical underpinning for the
Group’s public policies and government relations.
The primary themes for research and development are radio technology,
including emerging radio access technologies, radio propagation and radio
spectrum, network architectures and technologies, service architectures and
enabling technologies, including mobile multi-media, m-commerce and voice,
security, with-payment and application interfaces, terminal devices and smart
cards, telematics applications and technologies which have the potential to
expand the Group’s business horizons.
The Group spent £110 million in the 2002 financial year on research and
development, compared with £72 million in 2001 and £46 million in 2000. This
expenditure was incurred principally on 3G related items in Germany and the UK
in preparation for the opening up of networks later in 2002, and on billing
system upgrades in Germany and the UK businesses.
Trend Information
This section contains certain management estimates and other forward-looking
statements. See “Cautionary Statement Regarding Forward Looking Statements”.
In early 2001, the Group realigned its strategic objectives to emphasise cost
control and margin management in response to market conditions as the mobile
telecommunications industry transitions to the full impact of new data services.
This realignment resulted in the strategic emphasis of the Group moving away
from general customer growth to a more targeted growth and customer retention
strategy, particularly targeted at those of highest value, and in the Group aiming
to stimulate more demand through the introduction of innovative products and
services. As a result, the Group expects the trend of more moderate overall
customer growth experienced in the 2002 financial year to continue in the 2003
financial year, with net customer growth of less than 10%, although continued
growth in the number of contract customers is also expected, leading to further
improvements in the overall mix of the Group’s registered customer base.
Over the last few years, the Group has experienced a trend of decreasing ARPU,
principally as a result of the significant growth in the number of lower spending
prepaid customers in the 2001 financial year, which affected the overall mix of
the customer base. However, following the realignment of the Group’s strategic
objectives, the Group has increased its focus on gaining, servicing and retaining
high-value customers, as a result of which, during the 2002 financial year,
ARPU has stabilised in most of the Group’s markets. For the 2003 financial year,
it is expected that there will be a modest improvement in ARPU in most of the
Group’s heavily penetrated markets as the expected reductions in incoming
termination rates and reduced tariffs for international roaming will be offset by
increases in revenues generated from the continuing increase in data revenues
from new applications such as Picture Mail, as the roll-out of GPRS handsets
progresses, competitive gain of high-spending customers, further increases in
active customers in the Group’s registered customer base and the greater usage
of new voice services introduced in the 2001 financial year, such as Eurocall,
assisted roaming, prepaid roaming – including in-country top up facilities –
and international short code dialling in a virtual home environment.
Notwithstanding the more moderate customer growth, it is expected that the
global market for mobile telecommunications will continue to provide the
potential for revenue growth. The Company believes mobile telecommunications
will continue to substitute for fixed line networks, capturing a greater share of
total minutes in voice services, and will be enhanced to provide services that
have never been available on mobile devices to customers before. In addition to
growth in revenues from voice services, data services are expected to be a
significant driver of future revenue growth and profitability. The Company
anticipates that revenues from data services will represent approximately 20% of
the Group’s service revenues in 2004.
The 2002 financial year saw the opening of the Group’s GPRS networks in
almost all of the Company’s major European subsidiaries. It is expected that the
“always-on” feature of GPRS handsets, combined with colour screens and a
generally wider choice of handsets, will accelerate the take-up and usage of data
services, including internet-based services.
The opening up of the Group’s 3G networks for service provides the next stage
of the Group’s service offerings. The first of the Group’s subsidiaries to open its
Operating and Financial Review and Prospects Vodafone Group Plc 47Annual Report & Accounts and Form 20-F