Welcome everyone to the live Q and A session for our Vodafone Business Investor Event. I am Vinod Kumar, the CEO of Vodafone Business and I am joined today by my colleague and CFO, Satish Kamath. I hope you've had an opportunity to review the materials on the website and if not, I'd encourage you to visit those later. The following are what I hope you would have taken away from the presentations on the website. First, there are five things that sets Vodafone business apart.
Our scale is unrivaled in terms of geographic reach, our strong gigabit networks in both fixed and mobile, our partner market agreements and our technology depth. We leverage and contribute to the scale of Vodafone Group. Secondly, we have a balanced portfolio across three customer segments, Toho, SME and corporate. This breadth gives us resilience and also lets us learn from some of the most demanding customers in the larger corporate and multinational segments and we apply these lessons across the board to the rest of our customers. Thirdly, I'd say we're a clear leader in IoT.
I hope that we've established that we we the position in the marketplace, and we see significant growth opportunity for us and a clear room to differentiate Vodafone from our peers. The other thing that's unique about us is our SME focus. We have a very strong presence in the space, and we see opportunities for us and as we focus on it much more than other telcos do, who tend to be more focused on the larger corporate segment. And finally, in terms of what sets us apart, we are truly pan European. We operate in GDPs which account for 60% of European GDP, and this positions us very differently both for our customers who need pan European solutions as well as partners who want to access those customers.
Additionally, this is creating new opportunities for us, such as those being created by the EU recovery funds, which we'll talk about a little bit later. In terms of our implementation, we see four unique elements to our strategy. First, our matrix organization model. It really leverages central product and commercial expertise, which we combine very neatly with the speed and agility and customer relationships, which are managed at a local level. The second aspect of our execution is business and consumers operate in very similar locations.
We have a symbiotic relationship with our consumer business and together we leverage the underlying assets that we have as Vodafone Group. Thirdly, our product development model leverages partners extensively. This, again, we'll be talking about, I'm sure, based on the questions you ask. But what this does is it reduces our CapEx needs. Equally, it also reduces the risk associated with launching new services since we can pick out what has already been proven and then deploy it in our markets.
And most importantly, it gives us speed of deployment, which is extremely important in changing times. And finally, our shared operations and technology model really allows us to leverage the scale of the group. With that, I'd like Satish and I to begin the Q and A session and take the questions you have. As a reminder, I'd like to request you to say only one question per person, please. We have many people who like to ask the questions, and we wanna give everybody a chance.
Over to you.
Thank you very much, Vinod. Our first question comes from Karl Murdoch Smith from Berenberg. Karl, your line is now open. Please go ahead.
Hi. Thank you very much, and thank you for all the useful materials. If I compare the growth rates of the markets on Slide four versus your growth rates on Slide six, It looks like you are growing slightly slower than the market in mobile, unified, cloud and security and in our IoT. Now I appreciate that 2020 was somewhat of a special year, but in general, is that a fair observation? Why is that the case?
And what can you do to ensure that you are growing at a similar rate to the markets going forward? Thank you.
Thank you, Karl. Really good catch. You've obviously been through the material well. Firstly, the growth rates that we have in that we show are the CAGR for the twenty one to twenty four period, whereas what we've shown as growth rates is for the year that we've just that we're going through now, which has clearly been impacted by COVID. I'll just point out to a few things there in terms of our growth rates versus the growth rate of the addressable market, which I'd like to, you know, point out that it's a €100,000,000,000 addressable market growing at a CAGR of 8%, which is a significant opportunity for Vodafone business.
When we look at this year, on mobile, we are lower than the CAGR for the period of twenty one to twenty four, largely because of the roaming effect. Roaming has had you know, has declined nearly 75% this year due to business travelers not traveling as a result of COVID. So that has dampened our growth rate. However, if you take roaming out, we've actually still you know, we're showing an improving performance. In in in fixed, you can see that we've grown at nearly 3.9 or 4%, which is better than the growth rate that's predicted, and that's because we have a lower legacy base in fixed.
In IoT, we had a slower start to the year because of q one being a slow period as a result of COVID and automotive sector where we have very strong cars were not moving around on on on the streets. But as that has rebounded, we've seen IoT accelerate to nearly double digit growth. The other point I want I'd like to clarify here is when we look at the IoT market in the future, we're including the solutions piece of the bit of the business. In the of the total IoT market, the connectivity piece of it is expected to grow around 8% to 10%, and we believe that we will keep at that pace or grow faster than that. However, we see big upside opportunity as we start rolling out our IoT end to end solutions, which we started doing this year.
One final point, when we look at unified communications, it's more of a definitional issue that I'd like to point out to. We're growing by 4% this year. The market's growing at 12%. However, we are not including the collaboration SaaS services, which we report under cloud and security. Net net, I'd say that the the breadth of our portfolio, especially the recent expansion into security, IoT solutions, and areas like unified comms will really help us outpace the market when it comes to fixed and mobile, and then grow at double digit in the coming years, which will be at market growth rates.
That's great. Thanks very much.
Thank you.
Thank you, Karl. Our next question comes from David Wright from Bank of America Merrill Lynch. David, please go ahead. Your line is open.
Thank you very much for the presentation, guys. Some very useful material. I guess my question is, you are, to some extent, a challenger, and I state that versus the incumbents who have a lot more perhaps legacy business with some of these customers. And of course, some of those legacy businesses carry very, very high margins on totally depreciated assets. So I'm assuming they try and squeeze and sweat that customer base as much as they can.
You're obviously coming in as a challenger. Do you find you are more more sort of agile from a price perspective? Do you feel like you are winning market share because you come from this position where you don't have this kind of back book profitability to to to worry about?
Very good question, David. Firstly, you're right in pointing out that we don't have much of a legacy business in our portfolio. In terms of competitors defending themselves using a depreciated asset, that only works up to a point, to be frank, because there is a generational shift taking place in terms of technology as well as enterprise architectures where businesses, both large and small, are moving to the cloud. And therefore, there's a shift to cloud based services away from traditional hosting type of services. And then associated with that, the network architecture has to change.
And this is where the legacy architectures, which are more MPLS and IP VPN, are shifting to software defined wide area networking. This presents a real opportunity for us as a challenger to go in, but we're a challenger that has underlying assets, which makes us quite strong. We're not just a pure over the top player. So combination of the fact that we have a strong SD WAN portfolio combined with underlying assets within many of the European markets gives us a real strength. Further, we're leveraging both our fixed and mobile assets to build both speed of deployment and resilience.
So when you take all these three things into account, the story of just trying to say I'm gonna reduce my prices on the legacy technology doesn't work because the customer has to make a shift in in the architecture of their network to adapt to the shift of workloads to the cloud.
Very clear. And and if I could just just follow-up on that. So, you know, do do you you're obviously indexing very well in in SMEs. You feel like you're you're taking share now in in sort of SoHo and the and the corporate market?
Yes. For for different reasons. Right? One is in the in the corporate market, like I just answered, there's an opportunity for us as a challenger with a strong portfolio in hybrid cloud management as well as in SD WAN and the next generation of unified comm services and in IoT. Right?
There's there's a lot of new technologies that we have which are right in the sweet spot of where the market's making the transition and moving to a new architecture. So that's allowing us to outpace the market in terms of fixed growth. Like you see, we've grown by nearly 4% this year against a market which is flat or declining. If you dissect the fixed growth market, actually, the legacy services are declining by 6% and the new generation services are growing by 6%. And our growth will come in that 6% of new services.
So that's the story in corporate. When it comes to SME, it's a little bit of a different dynamic. The SME market overall will grow by about 8% as we include in our slides. However, what we're doing is playing into an addressable market that we've evolved by positioning ourselves as the trusted partner for SMEs beyond connectivity into all things digital. SMEs, by and large, are a lot less digitalized compared to corporate customers, and this is the rising tide that we will be able to float up with.
And we start with a very powerful base of customers and also a good market share in that space with a strong brand consideration to move into the spaces beyond connectivity. So slightly different dynamics. What in the case of corporate is sticking to our infrastructure strength, going into next generation connectivity, and there's growth there. In SME, there is market growth, but also that's coming through the a broader perimeter because of the addressable market and the capabilities we have. Very good.
Thank you.
Thank you.
Thank you very much, Dave. Our next question comes from Polo Tang from UBS. Polo, your line is now open. Please go ahead.
Yes, hi. Thanks very much for the presentations. I really just have a slightly different question about Service revenues. So if you look at the business unit, you've obviously outlined it was able to grow 2% to 3% year to date, excluding COVID impacts. But should we think about this as the normal level of growth for the unit going forward, Or were there one off benefits from recent account wins?
And just sticking to service revenues, how should we think about COVID-nineteen impacts longer term? So for example, when government support ends, how should we think about the SME revenue stream? And then as people return to back to back to the office, how will this impact large corporates?
Thank you, Polo. Very relevant question given the period we're in. Firstly, if I look at the impact of roaming, I'll I'll start sorry, impact of COVID on us, I'll focus on the three areas which were adverse, and then I'll come to where we why we grew. First is roaming revenue declined by 75%, right, year on year. We see that, you know, that will come back, but over a period of time.
I can get into it later if required if we have time or nature of travel and so on. The second is in the first half of the year, saw project revenues being impacted because the larger customers, even where we had projects with where we were awarded the business already, they had to put them on hold because of limited site access, you know, concerns for health and safety, which were the right things to do both for them and for our employees. So we saw that slowdown in h one. Then we saw it coming back. We're beginning to see it come back in h two because these are large digitalization projects, which are important to our customers.
The third one was in q one and maybe part of q two, we saw a slowdown in IoT. Remember, we have 33,000,000 connected cars that we support. We're the largest player in the automotive space, and and and so the pace of adding new connections as well as the movement of the cars had slowed down. And these three things put together, you know, impacted us. This was offset by a higher demand in fixed line and connectivity in in pockets of of our business, especially in the larger corporate and very significantly in the public sector space.
The great examples, if you look at the videos on the website of what we've done in Spain with the the health health system there, what we've done with NHS in The UK, And this was an area where we saw a growth that offset some of the slowdown that I'd described. And finally, we saw some upside from variable usage packages, which were driving up volumes. But this was, you know, not not not that big. So these, I would say, were the impact. So in summary, yes, there was you know, we we had some slowdown, but the areas of our portfolio where we'd created new capability allowed us to grow and led to the 3% growth.
We don't see any of those factors changing even when we go back post COVID because they will still be hybrid working. The movement of the cloud is gonna continue with large corporates and SMEs will continue to digitalize, further aided by the EU recovery funds kicking in and both in creating opportunities with public sector digitalization as well as SME digitization. The one thing that my team and I continue to keep our eye on is, you know, what happens to macroeconomic factors, will there be any slowdowns, what could be the impact potentially with SMEs as furlough schemes come to an end or other government support schemes wind down. So we've got to watch it carefully, but based on what we see, we feel that we've established good momentum based on the performance this year. Thanks.
Thank you.
Thank you very much, Polo. Our next question comes from Maurice Patrick from Barclays. Maurice, please go ahead.
Yeah. Afternoon, guys, and thanks for hosting the session today. I had a question on the on the large enterprise. I mean, you show in the slides very helpfully how large enterprise is gonna be the fastest growing segment, and you also talk about partnership models to embrace that. But how do you position Vodafone as the partner of choice with, you know, the the the the large global companies in terms of penetration in the marketplace?
And how sticky is your relationship with them?
I know you've made a
number of agreements already. But how sticky are those agreements with the large partners that you get to as you partner in the space? Thank you.
More is very pertinent question because I think quite often the the market is viewed in in b to b space with the lens of large enterprise because it's a it's a big part of it and it's growing quickly. What I'd like to point out here is it is first, I'll admit that it's a crowded space. But, therefore, when we were crafting our strategy for large enterprise, it was very much about what we were not going to do and rather and then we spoke about what we're going to do. The things that we don't want to do, I'll start with that, is we're not trying to be a systems integrator. We're not trying to be a full fledged IT provider.
We're not trying to be an applications company for these large spaces. But then we'd be competing head on with systems integrators, with some of the other telcos who created a lot of capability in this space, but, you know, still working to get a return on it and with the IT majors. Therefore, our strategy is very focused on leveraging our strength in mobile, leveraging our strength in IoT, and then growing from there into adjacent spaces. And it is about offering the next generation of connectivity services. And in that, I'd say that the what is playing out really well for us now is edge computing, mobile private networks, and the widespread deployment of IoT in these in these large enterprises.
We obviously have an SD WAN portfolio which is strong, which also we we we play into. Our strategy here is to focus on what what we call gigabit for enterprise, which is about smart and next generation infrastructure and next generation connectivity. And this focus is where we believe we will be different from the others. One last point on this space. Here again, we don't do bespoke.
We don't do complex managed services. We do highly repeatable and modular solutions, which is where we get the real scale effect of Vodafone.
Great. Thank you.
Thank you, Morris. Are now turning to Gerry Dillis from Jefferies. Gerry, your line is open. Please go ahead.
Yes. Good afternoon. Thank you very much indeed for the presentation. I had a question really around Germany. Is it possible for you to clarify for us how fast you're growing in the German market, please?
I mean, what we observed looking at the disclosure is that Vodafone Germany service revenue trends are lagging rather behind those of Deutsche Telekom over a fairly prolonged period. And, obviously, the consumer offerings look pretty similar across the two brands. I wonder whether there's a difference in momentum on the enterprise side between yourselves and Deutsche Telekom. Then it would also be interesting, please, be for you to clarify for us how the cable network is coming into play and where that's useful for you. Do you really manage to leverage that mainly through the SME and SOHO?
Or is that helpful on the large enterprise side as well, please? Thank you.
We don't disclose the growth rates at the market level, but let me try and paint the picture. Firstly, Germany is a large market, nearly €34,000,000,000 and and growing. What we have seen this year is strong growth in the German market, and this has come on from from all segments, to be honest, across Spain, the larger corporates, the Mittelstand companies, as well as public sector, where we have very strong relationships that are that that are growing and will continue to be big big big contributors for growth. We are fully leveraging the assets that we have in Germany that includes, obviously, the mobile network, which I'll come to in a second with five g, and then also the fixed network, which we're expanding. And the cable network, like you pointed out, is relevant when it comes to SME customers and also some bit larger business customers, but it's more for SME and SOHO where where it's it's relevant.
I think in Germany, what I'm really excited about is the IoT possibilities in addition to, you know, the fixed growth that we're already seeing. Being the manufacturing giant that Germany is in the context of Europe and the leader in Industry four point zero, we have many examples already of five gs and MPN and dedicated edge being rolled out in our customers in Germany in the areas like manufacturing. We're also working on connected hospitals with the great project in Dusseldorf, which showcases the capabilities of both five gs and edge, which we then will leverage in other markets as well. And finally, in Germany, the automotive sector, which is a big part of that economy, we are a very strong player. And I think we're only the tip of the iceberg that we're experiencing, which is, you know, connectivity for software on the air upgrades to the car and so on that's moving to Internet in the car kind of use cases.
And finally, it'll lead to v two x and other connected mobility applications. So we have we approach the market based on our strengths, I see a considerable opportunity for us to continue growing in the German market. And this year, we've seen an acceleration of that.
Thank you.
Thank you very much. The next question is coming from Robert Grindle from Deutsche Bank. Robert, your line is now open. Please go ahead.
Hi there. Thank you very much. I saw that your existing market share is just 6% of enterprise, which is good as that's where the biggest opportunity is. Is that 6% pretty evenly spread across the markets or, say, much higher in The UK due to the Cable and Wireless acquisition? And within an within enterprise, who are traditionally more demanding customers on quality, can you compete effectively for applications which need five nines of reliability, or is that a journey you're still on to address the most critical applications for the largest customers?
Thanks.
Thank you, Robert. So enterprise, have, as as you said, 6% market share, but a market that's growing at nine percent, so we have headroom. And that it it's also the headroom's also been created by the increasing breadth of our portfolio over the last few years, as well as the inflections I spoke about earlier in terms of cloud the enterprise architecture changing and the opportunities resulting from more IoT being deployed by larger enterprises. In in terms of distribution, it's more or less the same. If I look at the geographies, UK is a little bit higher because of the Cable and Wireless acquisition like you correct correctly pointed out.
But the only other, you know, Spain corporate may be a little bit lower, will be stronger in Soho and SME, but not enough, you know, to to call out a big difference other than in the case of UK. And on your second question, on demanding customers, we serve a lot of very demanding customers now. I I would argue that what we do in case of IoT is actually, in many ways, much more demanding than some of the other areas that we're going into where there is no backup when it comes to IoT. There's one connection to one device, generally speaking, and it has to work. And we make this work across borders on a truly global basis more than anybody else.
And we do it at a scale which is nearly twice as big as, you know, the the next player. So it it we have that. The second is we run critical national infrastructure for many large public sector organizations and and and other public private organizations in The UK, in Germany, in Spain, and Italy. So the the land of demanding applications and demanding customers is not something that is unfamiliar terrain for Vodafone. So I don't think we are disadvantaged in any way at all.
It's just that we want to stay focused on what is modular and repeatable because we think those that generates higher return on capital employed and also de risk the business considerably from having over lumpy revenue tied to just a few customers.
Thank you.
Thank you, Robert. Our next question comes from James Ratzer from New Street. James, your line is now open. Please go ahead.
Good afternoon, Vinod and Satish. Thanks again for being able to do the event today. So my question really is about the European recovery fund, which you've mentioned a couple of times so far. I mean, kind of eye wateringly large numbers, you know, $750,000,000,000. I mean, I estimate you're in markets where maybe €500,000,000,000 of those revenues are available.
If 20% goes to digital, that's maybe €100,000,000,000 of potential opportunity. How are you thinking then about quantifying the impact and the opportunity of that that really is available for Vodafone to pitch for? And in the market growth forecasts that you've set out, does that include your estimates from the European recovery fund? Or could that be upside to those market growth rates that you've set out?
James, thank you for the question. And you're on top of the numbers as much as I am, so I won't repeat that. But it is a game changing opportunity for the industry and a great opportunity for Vodafone. It it is only now that it's becoming clearer while we know the overall fund allocation of the last few weeks is becoming clearer as to which countries, what sectors will those monies be applied applied against. Therefore, right now, we we we haven't fully baked it into the numbers, but we'll have to wait and see how it plays out.
But we believe that it will definitely be a contributor to our growth and potentially creating upside too. I'd like to focus on where the money is going and how it fits with our strategy. Right? There's around SME digitization, we believe, is going to be a fairly big agenda item for the EU recovery funds, given the number of jobs that are created by SMEs in Europe and this contribution to GDP across all our major markets. From what we see already, there's about 14,000,000,000 of funds allocated to SME digitalization.
And I'll come to what we're doing about it in a second. The other area is on public sector digitalization. And in some sectors, we have been caught a bit flat footed with the state of the infrastructure, and therefore areas like e health and e education or connected education are going to be very high on the agenda, and we see the and clear tons of money being allocated to that. The third area would be around smart cities and making sure that from an environmental standpoint as well as public citizens' quality of life, there is an uplift. So we see that's the third area.
And then the last one I'd call out is digital skills, and this is going to be an across the board spend that that that is made in all the major markets. Now this plays really well into where we have been building our capabilities. So when you talk about SME digitalization, as we've spoken about our presence and focus on on SME, we responded immediately after COVID broke well before EU recovery funds were even announced with a service called VHUB. You can go watch the video about it in on the website. We've had more than we'll have a near very soon, I should say, we'll have a million unique visitors to the VHUB, which is an advisory service for SMEs on all things digital, including how to avail of the EU Recovery Fund.
So we believe that this is a good area for us to play in. In eHealth, we do a lot already with our Innovus Center of Excellence in Greece for remote medicine. Work that we're doing in Germany, as I mentioned, with the Dusseldorf Hospital is a great example. You know, we see opportunities here that both that fits into our strength. IoT is gonna cut cuts across many areas, but the one I'd call out is smart cities, where we have many solutions already that are being packaged and offered to various city cities as they want to digitalize their their their platforms.
And finally, on e education, through our purpose agenda, which we care about very deeply, Vodafone Foundation has been connecting schools using advanced digital technologies, which are now evolving to the next generation of technologies, which will also position us well. So we believe that there's a lot of opportunity for Vodafone, to both contribute to the recovery of Europe post COVID, but also have some business gains as a result.
Right. Thank you. I mean, you mentioned there are €14,000,000,000 figure for SME digitization. Do you have the similar figure for the public sector digitization at this stage?
I don't have those off the top of my head, but they're of a similar order of magnitude or even greater. You're talking, you know, that around 20% of the 750,000,000,000 is gonna be used for digitization. So the numbers are quite staggering, to be honest. And not all of it will come as just pure connectivity. They will come in various forms which are driven by industry outcomes, which is important to know.
We are not chasing every opportunity. We're looking at health, education, smart cities, SME digitalisation and overall skill transformation in the economies, which gives us enough room on the demand side of the EU Recovery Funds.
That's fantastic. Thanks, guys.
Thank you very much, James. We are now turning to Georges from Citigroup. Georges, your line is now open. Please go ahead.
Good afternoon, and thank you guys for the opportunity to ask your questions. Very useful to provide us this breakdown between the different lines and the margin contributions. I just have one question, which is more of a follow-up from some of the previous questions being asked. What would be great is to get an idea of the opportunities in different countries. A, in the legacy to modern network migration, which countries are more advanced versus others.
B, in what James just asked around the recovery fund, and whether, for example, having players like Swisscom in Italy makes it harder there versus somewhere else. And then, finally, on the IoT side, who do you consider to be your main competitors, and which countries are the ones where you see the most potential? Thank you.
Yeah. There's a broad range of questions there, so I'll try to go through them fairly quickly. And okay. When we look at our we're not going to provide the detailed country breakdown. But what I can say is if you look at the 10,000,000,000 order of Vodafone business revenues, about two thirds of it, Georges, comes from EU four countries.
Obviously, Germany and UK are our biggest markets, followed by Spain and Italy, which are roughly equal size. So that's two thirds. And then the remaining one third is equally split between the rest of Europe. So it's the one sixth. And then the remainder of it comes from Africa and the rest of the world.
So we have presence in Asia and America and so on. So that's roughly the geographic split. In terms of legacy to future, that's an interesting question. I I don't think we are particularly exposed more in one market or the other, but naturally because we have a higher fixed fixed business and corporate business in sorry, I should say, corporate business in The UK because of Cameron Wireless. We have a little bit more legacy there.
However, I must say that the team there has done a fantastic job of migrating customers of legacy to newer services. And some of this has actually happened at rapid pace during COVID, where customers are shifting to hosted contact center solutions, you know, are cloud based away from legacy captive deployments. And similarly, the cloud migrations, we're leveraging the partnership we have with IBM and making sure that it's working really well. So I don't think we have a particularly risky exposure even in The UK on on on legacy. Your next question on on European recovery funds, it really is, you know, a pan European opportunity, which we believe will will play to our strength.
There are obviously very national projects, but there are tenders which are coming out which are pan European, and there's a consistency in in in the requirements that that the way the EU would drive it in in for certain programs, which we believe positions Vodafone really well because we are present in more markets than any other player in Europe. Also, are some projects which are likely to come, are corridors between countries or along supply chains for which you need to be present in multiple countries, which again could be to our benefit. In terms of IoT competition, I'm I'm not gonna name names here, but seven years in a row, we've been the leader in in the Magic Quadrant from Gartner in the IoT connectivity space. And each year, we've strengthened our leadership position. And I can say that we're nearly twice as big as the next player and 40% as big in terms of volume of connections, which is now at 120,000,000 connections in total.
We have a global platform available in more countries than any other player. We have a platform that is an in house platform, so the IP is ours, and we are able to create more features and capabilities. And this platform is also being used and integrated into our MPN solution portfolio, which is a big space we see for ourselves. So IoT is something that we we are very proud of. The team has built something fantastic, and it is being used as a glue in to bring together other parts of our product families as well.
I've covered a lot of ground. Hopefully, I've give answered most of your questions.
Thank
you very much, Peter. Our next question comes from Andrew Lee at Goldman Sachs. Andrew, your line is now open. Please go ahead.
Yes. Good afternoon, guys. So I had a question on the structural opportunity, for growth and sustained high returns that you've picked out today, particularly in cloud and IoT I I I o t, particularly in a b to b space that, you know, as European, what, telco and this, we're used to having it's being a drag on revenues for most players. And maybe if we can just contextualize it, you we've seen in b two b over the past decade, let's say, a combination of high preexisting market shares, high returns, and a low marginal cost to compete for the challenges in a largely commoditized space translate to revenues and returns plummeting across European telco b to b. And so, actually, I think a lot of
people when they looked at
your yes. As people said, really useful slides today, were positively surprised at at what you're delivering. But I wonder if you can just talk about what's different this time, you know, particularly for cloud and IoT that stops those high returns being competed down like all the rest of the returns in the space? Thank you.
Great question, Andrew. I'm gonna bring Satish at the end of this also to back it up with some numbers. But I think what differentiates our strategy from what you'd normally see is the fact that it is a large spectrum of things you can do in the b to b space. There's obviously the core connectivity areas where there's a lot of competition. And in mobile, it you know, of course, you know, the quality of the infrastructure matters a lot, which helps us with large corporates and MNCs.
But it is right. You know, there's there's a, you know, there's a lot of price tension, I would say, in that space. However, as you move away from that into fixed, the dynamic changes a little bit if you don't have a legacy portfolio, which we don't, and therefore, we're able to play in the space of fixed, which is growing at 6%. Right? And that was important to dissect fixed into legacy and and and the future fixed.
So and the future fixed tends to be things like SD WAN, and maybe Satish will comment about the profitability profile of that. But there's growth there, and that's the growth that we're playing into. And then on the other end of it, a lot of players go try to compete very far away from the core by trying to be managed services, systems integration, create a lot of industry specific IP and so on. In Vodafone business, we're not doing that. And we believe that there's an opportunity adjacent to the evolving fixed portfolio, which leverages five g edge computing, mobile private networks, our strength in IoT, modular security services, and so on, which are highly repeatable.
And therefore, both give us a revenue growth opportunity, but also allow us to create a good return on capital because of our strategy of using partners, which I'll come come to in a second. So our playbook is a little bit different from some of the others who'd either just compete intensely at the lower end of of growth and margin on the only on connectivity or try to go too high end and try to be all things to all people. We are very focused on corporate connectivity, but advanced connectivity solutions. And then the other thing would differentiate us is SME focus. Right?
SME, you know, there's there's a good 6,000,000,000 upside in that market. We are a strong player across all the geographies in SME with good brand consideration. And SMEs, by the way, are the least digitalized of the corp of of the spectrum of customers. I'll give you a real data point. SME digitalization, those SMEs that were digital during COVID actually managed to survive better than those who were not.
So we have actually been advising a lot of customers through our rehab service of getting digital, going online, setting up the ecommerce, and so on. And and and we've seen these companies thrive and grow, whereas those who have not been as digital haven't been able to do so. We are laser focused on this segment. We are going to help them by being a champion for SMEs in Europe and Africa by moving them through the digitalization journey, And this is a often overlooked segment of the market. So I can go on talking about why our strategy is different, but it is really about not getting seduced by the overall market, but looking at where the growth is coming from.
And within that, looking at what is relevant to Vodafone, what is adjacent, where do we have brand permission and consideration to play, and then selectively partnering to create services at speed and at with lower CapEx. Satish, do wanna give a numerical
Sure.
Flavor to that?
Sure. Thank you, Vinod. Andrew, when it comes to profitability on IoT, there are a number of benefits that work our way. Start with scale is fantastic, and we are growing at a rapid pace. So the benefit of scale in IoT that we have is something that really translates into bottom line.
The second benefit I would add on top of it is the fact that we've got our own in house platform, which significantly tilts the cost structure in our favor. It not only is beneficial from a cost perspective, as Vinod explained earlier, it is also significantly beneficial when it comes to the IP that we are creating around it. Given the fact that IoT is one of the growth areas, we see further profitability and return on capital employed coming in from that area. If I move to cloud now, we have got a good mix of businesses within cloud. This reseller business that is very asset light, where we make thin margins, but it's all in your cash generating strong cash returns and better return on capital employed.
So that's a portion of a cloud business. We also have cloud businesses which are with deeper engagements with the customers. Here, we've got this excellent partnership that we have had with, IBM, where we ride on IBM's infrastructure capability and our customer management capability, which again keeps it asset light, CapEx light, and gives great return on capital employed. I hope that answers your question.
Yeah. It does. Can I just ask I I don't wanna label the point? I realize, it's a long question at the start anyway. But just you you've highlighted how you pick the right ways of growth, and you also highlighted how you're able to generate higher margins.
Yeah. Thanks for that. Just do you think it's easier or harder? Do you see more more or less competition over the next ten years in the in your growth areas than have been present in or has been present in the last ten years in the more, you know, core connectivity legacy areas?
I think it will be more or less the same if I had to pick an answer there. And and the reason for that is we believe that the most important thing is customer relationship and and and building their intimacy with customers. Therefore, where we're spending our money and building IP and improving our digital experience is with the customer. And we are choosing to do that over trying to go create new services ourselves, which we will selectively in IoT, MPN, and so on. But in other areas, we believe that we better serve partnering and pick technologies which have been proven and then take it to our customers.
So holding on to the customers is our focus. And if you look at it from that lens, I think the competition will decline because we believe that we can really serve them well. We have improving NPS, and we will we will support that. However, there'll be next generation players, people coming with software, over the top solutions, so on and so forth. But we believe we will pick the right partners, but we'll defend our customers.
So it's gonna be two ways. We'll have more choices on who we take to our customers. But for the customer battle, it's tough to come and beat the 6,000,000 customers that we have already that we serve on a pan European basis. And keep in mind that our the scale plays a big big factor here because an SME customer in Italy is no different from an SME customer in Spain or from The in The UK. Right?
So we're able to build once and deploy in many markets unlike other players who tend to operate in just one country or a handful of countries, not with the reach of Vodafone.
Thank you.
Thank you very much, Andrew. We are taking the next question from Jacob Bluestone from Credit Suisse. Jacob, your line is now open.
Hi. Good afternoon. Thank you for taking the questions. And, again, thank you for the videos earlier as well. I was hoping you could flesh out a little bit your thinking around the major pricing trends that you see within b two b.
Maybe if can just sort of help us understand what's actually going on with pricing. I don't know if it makes more sense to look at it geographically or by the sort of main product lines. But just to sort of help us understand, you know, typically when a customer when a large enterprise is is renewing, does your ARPU tend to go up or down? So just any sort of color on on the main pricing dynamics would be quite helpful. Thank you.
Yeah.
Thank you for the question, Jacob. The pricing question is a really important one, but it's very difficult to give a generic answer. But I'm going to try because it really varies by by segment product and and so on. So, obviously, the Soho customers tend to be the most price sensitive if you just compete for the just the traditional connectivity services. However, Soho customers do see value when you can give them targeted business add ons to their to to the core connectivity they buy.
When they do so, we see that the price erosion actually slows down and churn also comes down. But this is where the portfolio that we're building around SME is being leveraged in SOHO as well. So a traditional telco play used to be give a Soho customer some roaming or some a premium customer service. That works up to a point, but anyone can replicate that. But if you start adding to that a productivity application, a collaboration application, an ERP SaaS solution, some advisory service, then the profile of churn and price erosion begins to change quite dramatically.
But they would, I'd say, are the ones where you have the highest price erosion, where unless you have things to offer, you will see spend come down. That that's, you know, that that's the name of the game there. I'll go to the other end of the market with large co large corporates, very sophisticated buyers who know how to negotiate very tough terms. However, large corporates are realizing, especially during COVID and even before that, I would say, the importance of connectivity for their business in terms of resilience, continuity of supply chains, and so on. And therefore, if you are able to discuss business outcomes and you're able to show value by new services, I think it's there will be unitary price reduction, but there's volume growth.
Right? There's volume growth that's happening both within the same service, so there's an upsell opportunity that generally presents itself, and quite often a cross sell opportunity if we have a broad portfolio. And and the reason why we feel, you know, optimistic about our growth prospects is because our portfolio in this space for both large corporates and SMEs expanded, that although even there may be price pressure on some of our core offerings, we have new things that we can take to them. And based on the customer intimacy I spoke about, we can get them to maintain or grow their spend. And that's where our confidence comes from in terms of growth.
So price pressure in our industry, core connectivity, I'd say, is a natural phenomenon, but we have we're changing what is addressable for us and redrawing the perimeter. Thank you.
Thank you.
Thank you very much, Jacob. The next question comes from Akhil Dutani at JPMorgan.
I just wanted to maybe step back a bit and just think about how you consider and evaluate the merits of operating the business segment at a group level rather than a regional level. And and I guess the things I was trying to think through and appreciate any kind of color around is, if we look at your market shares, they're higher in what seem to be more regional elements, SME and Soho, which are customers that are actually very regional and they're not pan European. Whereas, obviously, your market shares are lower in the enterprise segment where there is a benefit to being pan European. So I guess I'm just trying to understand how we think about that and and how that plays into what you're doing. And I guess in a very similar way, generally, it's the incumbent that has a high market share.
And broadly speaking, as much as the industry is declining, they've managed to sustain very high market shares over the last decade, despite the fact they're very national. So I guess just trying to understand how that all plays out and how you think about your ability to differentiate. I guess just one follow-up just in terms of understanding the way you run. How do you actually work with the local opcode? So in terms of the group level strategy versus the local strategy, how does that really work?
Thanks.
Thank you, Akhil. All really good questions. Let me work backward from that. Right? So first is unlike in our consumer business, we see an opportunity and we've been running Vodafone business a bit differently.
We run it as, you know, the of course, you know, the it's a matrix structure, but we run-in a much more cohesive way. And the reason comes from who our customers are, what they buy, and how they behave. Right? So as I've alluded to a bit earlier, and we've done a lot of market research on this. If you go from a SOHO or a SME or a corporate or a multinational sector, we have found that they buy what they buy, how they buy doesn't really change depending on which country they belong to.
And we have we did a lot of research on this because the strategy in a way leverages this a lot, which is to say, okay, maybe a Soho customer, which is a very local business like you say, but the the Soho what you can create for a Soho customer in Spain can be taken to a Soho customer in Italy. And if you combine that with and in The UK and Germany and so on, and we have real examples of that in our portfolio. If you combine the common needs with them going and finding the best partner that we can get or build a solution once and deploy it against common platforms across markets, there's a scale benefit that Vodafone has that our peers don't have. Right? And this is something that we are deploying and we see this playing out even more in the coming years because we are leveraging this group scale much more through the way we're building our IT stack, the way we are looking at our marketplace platforms, the way we're building our product operating model, and so on.
So it apply Soho is a very local business. So the the feet on street, the channels to market need to be intensely local. No question about that. Right? But what we take through those channels can be created once and deployed in multiple markets.
And so that's why we believe that the scale effect is important and plays out more in the Soho and SME space. And you're right. In the larger corporate, in the multinational space, being pan of European, in our case, being truly global helps a lot because then you're able to offer solutions. You know, we have a even off off our footprint, we have large French companies choosing us because of the presence that we have around the world and choosing us for services like SD WAN because we approach it with very fresh thinking and with solutions that the incumbents may not always be willing to offer due to fear of cannibalization. So the incumbents have a disadvantage when it comes to that.
Sorry. I'm gonna jump around a little bit in the interest time. So the question on incumbents holding on to the market share, they're holding on to market share in the legacy areas through aggressive pricing. But when it comes to the newer services, we believe that there is a there's opportunity for us. I must admit though, in the larger corporate segment, in the last couple of years, that the complexion and depth of our portfolio has changed a lot.
Right? We were over indexed on mobile, but I think what we've done with SD WAN in the fixed space, what we've done with RingCentral in the unified com space this year, what we've done with IBM in the cloud multi cloud and cloud management space has added capability. Similarly, what we've done with Accenture in the cybersecurity space has seen us really catapult our capability. So we have a much broader portfolio in that space then, and we're beginning to see signs of that translating into growth, which is shown in the numbers even this year. So that's kind of a quick summary of hopefully, I've answered your questions.
I think I have Yeah. You need to ask
me just how you work with the local opcos.
Oh, yes. Okay. Yeah. That that's really important. So the we we work in a matrix, and we really work as a team across the markets and with the the central functions.
So the central functions are driving the the the product development and have centers of excellence around commercial management, pricing, service management areas like the which can be done at scale with real experts rather than generalists in the center. What we have in market are specialists in how to go to market, how to build the local market propositions, in channel management, and so on. Of course, it's a matrix, and we have to seek the input of the local markets when we're building products at at a group level. But that is really working well now when we have established processes, which are continuing to get refined. And in the last set of announcement that Nick made on our operating model, you'll see how that is also involved quite a bit And it's going to give us further opportunities to leverage the group scale.
But so for us, it's build expertise at the group level and in in areas like product development and new service creation, and then push it into the market with local experts.
Great. Thank you. Thank you.
Thank you very much, Akhil. We have time for one more question from Sam McHugh from Exane. Sam, please go ahead. Your line is now open.
Yes. Hi, guys. Kind of following up on a few questions from before. So your medium term guidance to achieve above market revenue growth in mobile and fixed and then double digits in the new services stuff, On my math, that implies somewhere in the region of kind of three to 4% revenue growth, I guess, compared to the 3% that you did in in q three. So a bit of modest modest acceleration.
I guess then what is is that kind of fair? Then I guess you you maybe just answered this in the response, which is, you know, the acceleration, where do you see that coming from? Is this coming from better execution, in the large corporates now you've added on those extra capabilities? Is that is that the business really changing here? Thanks very much.
Satish, you wanna take the first one on grow on growth profile?
Sure. Sam, thanks for the question. I would I would not be in a position to give you specific guidance for growth rates, but if I speak in terms of momentum in the business, on cloud, we are in a having a very strong momentum. You would have seen this in the numbers that we have disclosed. We expect the momentum to continue, of course, depending on a number of factors.
Another business where we are very strong seeing strong momentum is IoT, which last year was a tale of two halves, where the first half was slowed down because of COVID. And in the second half, we have bounced back and are getting back to close to double digit growth rates. As far as core connectivity businesses are concerned, as Vinod explained earlier on, we have strategies to address specific sections and do believe that those strategies will yield better than market rate of growth.
Thank you, Satish. And, Sam, the other thing I'd like to you know, I don't want to repeat myself. I've answered quite a bit, but you're right. Corporate is will will generate growth because of the new services. SME is another growth opportunity.
Transversely, we see the opportunities created by IoT and MPN and edge computing being real differentiation for Vodafone business. The other thing I wanna call out, you know, is really important is during the course of this year, our teams around the markets have demonstrated the strength of our customer relationships. And so one of the reasons why we've outperformed many of our peers is because of the trading intensity, the customer intimacy, and engagement of our teams for which we're very grateful. And also that strength, I believe, will really see us beginning to, you know, may keep the growth going, but also hopefully accelerate in the coming quarters. So great team on the ground who know what they're doing, who they have the relationship with the customers and they relentlessly execute.
Thank you.
Thank you very much, Sam. That concludes the questions. I would like to hand over Vinod for closing remarks.
Thank you very much for joining us today, and thank you for all the questions. Satish and I really enjoyed this interaction, and we hope that through this q and a session and also all the rich material that we have on the website, which I hope you will take the time to go and take a look at, especially the customer testimonials and the video case studies from from our team, you'll get a good idea of business, understand the uniqueness of our strategy, and also accept and endorse that we can be a good contributor to Vodafone Group's growth and also contribute to and leverage the scale of the group. Thank you very much for joining us today, and I look forward to seeing you all in person, hopefully. In the meanwhile, please stay safe.