Vodafone Strategy Italy

Vittorio Colao / Pietro GuindaniSEMEA Regional CEO / SEMEA Regional CFO

AgendaWelcome

Vodafone ItalyQ&A Vodafone Italy

Industry overviewVodafone’s prioritiesFinancial outlookQ&A

Arun SarinChief Executive, Vodafone Group Plc

Arun Sarin

Milan, 12 September 2003

Vodafone achievements and challenges in Italy

Vittorio Colao, SEMEA Regional CEO

Pietro Guindani, SEMEA Regional CFO

This presentation is being made only to, and is directed at (a) persons who have professional experience in matters relating to investments falling within Article 19(1) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 and (b) persons to whom it may otherwise lawfully be communicated (together "relevant persons"). Any person who is not a relevant person should not act or rely on this presentation or any of its contents.

Contents

“Vodafone’s challenges in Italy”:Market evolution and competitive environment

“Vodafone’s achievements in Italy”:Summary of Results

“How we delight our customers”:Commercial and Operating Strategy

Italian Market penetration has reached 98% in June 03

Italian mobile market overview

Source: Internal Vodafone data

10,000

20,000

30,000

40,000

50,000

60,000

1998 1999 2000 2001 2002 Jun-03

EOP KPenetration as a % of

population

37%

54%

75%

91%95% 98%

EOP Market Share

36%

47%

17%

Vodafone

TIM

WINDBLU

We want to be the operator of choice for the most valuable customer segments, through:

How we compete: positioning & strategy

Group strategy . . . in Italy

Customer driven Innovation: Innovations that really simplify professional life or add pleasure to daily life

Superior level of service quality and reliability

Excellence in caring and relationshipExtend service differentiation, investing in delivering Vodafone branded, easy to use, customer propositions for mobile, voice and data

Grow voice and data revenues through an increased marketing focus

Extend operational leadership of the industry through maximising the benefits of scale and scope

Competitive positioning

CUST. ORIENTATION

INN

OVA

TIO

N

Standard /low service

Low

High touch

At the leading

edgeTraditional Italian leader: reliable, conveying a feeling of security.

Innovative player, strong brand awareness through “videocompany” claims.

The affordable operator that provides low end tariffs.

TIM and Vodafone co-leaders with differentiated market perception

ProfessionalSelf-employed (often SOHO). Use the mobile for professional use.

Key consumer segments

Socialising is top of their agenda. Mobile is for fun, they want to be at the leading edge in life and with technology.

Young people; students or not employedUse mobile to be always in touch with their community. Mobile is a personal statement.

“Functional” attitude to mobile mainly for voice and basic VAS: it is a “problem solver”, do not use it for lengthy/emotional communication. (scared of cost)

Young

Teens

Voice-only users, infrequent personal use. Older age, more likely to be womenMain need is safety, reachability and dependability

Adult

Mature

Segment Definition Value

H

H

M

M

L

Vodafone stronger on Young, Adults and Professionals

Rest of Market

39% 41% 37% 38%25%

61% 59% 63% 62%75%

Professional Young Teens Adult Mature

Avg VFMarket Share

36%

Vodafone AverageMarket Share

36%

Successful migration to the Vodafone global brandEnrichment of original brand equity & values

FERRARI

ROAMINGMMS

LIVE

I FEEL VODAFONE OMNITEL

Joie de vivre

Can-do

Innovative

EmpatheticDependable

Pag. 1

Pricing and promotional strategy

Stabilise price levels, with use of price only as a promotional lever (e.g. Summer Card)

Develop powerful usage stimulation across the board through segmented activities

Services that stimulate usage (“Call me”, call-back on busy)

OccasionOccasion--based marketingbased marketing initiatives that take advantage of relevant events in the lives of our customers (Valentine’s, Summer, Back to school, etc.) to increase usage

Target new high value customershigh value customers

Pricing progressively more attractivePricing progressively more attractive for high usage/value customers (volume rebates, etc..)

Distribution channels strategy

From . . . . . . To

Focus on customer acquisitions

Compensation based on upfrontremuneration

No monitoring of quality of service delivered

Focus on quality acquisition andcustomer base value management

Compensation based on upfront plus a variable portion depending on value to Vodafone

Close control of dealer activities throughKPI monitoring: ARPU, zero traffic…. Mystery Shopping Programme

Change in distribution structure

Vodafone One Shops build and enhance an exclusive relationship between Vodafone andits customers:

Creation of Vodafone One “operationally controlled channel” . . . ~800 new Mono-Branded stores (Franchising light contracts) on top of current 20 Vodafone “flagship” stores

�Information point

�Demo new services

�Assistance point

�Redemption of rewards

Channel compensation strategyDealer compensation reduction

Reduction in up-front fees, while dealer incentives (variable based on results) slightly increase

Radical shift in dealer incentives from quantity (new add target) to quality (ARPU generated by new SIMs)

Dealer compensation per Gross Add

Dealer incentives

Mar 02-03 03-04E

-25%

Up-front commissions

~15 Eur

~ 11 Eur

SACs Breakdown Mar 02-03

Connection FeesEquipment

Margin

Dealer Compensation

(15)

(7)3

Eur

Contents




Summary of results

Vodafone market performance in Italy

Service revenues and ARPU highlights

Data revenues and ARPU

Redeployment of resources: SRCs versus SACs

OPEX and CAPEX trends

EBITDA and Net Operating Cash Flow

Vodafone performance on customer focus

Vodafone strengths in Italy:

Customer Satisfaction Index ( 0-100)CustomerCustomerCustomerCustomerCustomerCustomer Satisfaction Index ( 0 – 100 )

Customer Care

Brand

Commercial offeralways interesting & competitive

VF

COMP.1

COMP.2

Vodafone

COMP.1

COMP.2

100

may-01jul-01

sep-01nov-01

jan-02mar-02

jun-02sep-02

dec-02jan-03

mar-03

713,0002,460,000

6,190,000

10,418,00

14,919,000

17,426,000

19,590,00019,412,000

dec-96 dec-97 dec-98 dec-99 dec-00 dec-01 mar-03 jun-03

Vodafone market performance in ItalyContinued growth of EOP customer base . . .

EOP (SIMs)

11% 21% 30% 34% 35% 34% 36% 36%Marketshare

Service revenues

Vodafone Service Revenues market share consistently grows

Solid Service Rev. double digit growth

Share On Revenues vs Mkt Leader

Service Revenues: YoY Growth Rate

14.3%11.3%12.1%

10.8%11.2%

16.9%

20.3%21.6%

26.4%

21.2%

8.5%8.1%8.7%9.2%6.4%1.5%

4.5%

8.2%8.5%10.6%

0%

5%

10%

15%

20%

25%

30%

mar-01 jun-01 sep-01 dec-01 mar-02 jun-02 sep-02 dec-02 mar-03 jun-03

TIM

71% 72%75% 73% 72%

74%77% 77%

60%

65%

70%

75%

80%

85%

90%

sep-01 dec-01 mar-02 jun-02 sep-02 dec-02 mar-03 jun-03

14.3%

11.3%12.1%

8.5%8.1%

8.7%

6%7%8%9%

10%11%12%13%14%15%

dec-02 mar-03 jun-03

TIM

Vodafone

Vodafone

% M

arke

t Lea

der

Rev

enue

s

ARPUVodafone consistently shows higher than competition ARPU growth . . .

(1) - Vodafone ARPU does not include Visitors,consistent with TIM’s ARPU calculation

ARPU Growth rate (YoY)

-2.8% -3.7%

2.5%2.7%

-6.5%

-4.8%-2.1%

0.0%

3.9%

4.0%

-13.1%

-8.5%

-3.5%

6.0%

0.3%1.0% 1.2%

4.1%

3.9%

4.1%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

mar-01 jun-01 sep-01 dec-01 mar-02 jun-02 sep-02 dec-02 mar-03 jun-03

TIM

(1)

Vodafone

51

57

FY 01-02 FY 02-03

+ 12%-8%

6.9%7.5%

may-02 may-03

Usage growth: higher quality of new adds

change in compensation

structure

First year traffic of New Prepaid Adds Inactive SIMs

Monthly outgoing minutes per user 3 month Zero traffic (OUT+IN+VAS)% of CB

. . . thanks to shift towards dealers compensation plans based on new adds long term value . . . positive effect on double SIMs & “fake” activations

Data RevenuesVodafone data ARPU outperforming competition, enhancing contributionto Service Revenues

(1) Vodafone ARPU does not include Visitors consistent with TIM’s ARPU calculation

(2) Vodafone Data Revenues do not include Visitors, consistent with TIM’s data revenue calculation

Data revenues as a % of Serv. Rev.

11.9%12.4%11.5%

10.4%10.0%10.3%9.3%

8.2%7.3%7.0%

10.6%11.1%

10.3%

8.8%8.0%

8.7%7.5%7.1%

6.1%6.1%

2%

4%

6%

8%

10%

12%

14%

Vodafone

TIM

3.43.3

3.22.8

2.82.62.4

2.01.9

3.6

3.03.0

2.72.32.3

2.12.11.81.8

3.11

1.0

1.5

2.0

2.5

3.0

3.5

4.0

mar-01 jun-01 sep-01dec-01mar-02 jun-02 sep-02 dec-02mar-03 jun-03

Vodafone

TIM

ARPU DATA(1) (2)

mar-01 jun-01 sep-01dec-01mar-02 jun-02 sep-02 dec-02mar-03 jun-03

Redeployment of resources: SRCs versus SACsMix of commercial costs dramatically re-focused from Acquisition to loyalty management . . .

SACs & SRCs as % of Serv. Revenues

FY 00/01 FY 01/02 FY 02/03

5.7% 4.8% 3.5%

Acquisition Costs (SACs) Retention Costs (SRCs)

125

181

240

25

35

37

50

100

150

200

250

300

FY 00-01 FY 01-02 FY 02-03 23

30

37

44EurMM Eur/GA

FY 00-01 FY 01-02 FY 02-03

91 95

30

5.4 5.1

2.2

20

60

100

140

2

4

6

EurMM Eur/sub

OPEX & CAPEX

Opex as % of Serv. Revenues Capex as % of Serv. Revenues

Decreasing as % of revenues but…

…strong volumes required to support growth

Continuously decreasing weight on revenues

with absolute growth below revenue trend

20%22%

24%

19%

21%

23%

25%

FY 00-01 FY 01-02 FY 02-03

24% 21%17%

5%

15%

25%

FY 00-01 FY 01-02 FY 02-03

EBITDA & Net Operating Cash Flow

EBITDA & EBITDA Margin Cash Flow – Abs Value & % of Rev

1) Ebitda less Tangible additions – FY 00-01 excludes UMTS Licence

42%

41%

24%

22%

% of Rev

1.6

1.1

2.3

26.5%

33.3%

21.6%

0.5

1.0

1.5

2.0

2.5

FY 00-01 FY 01-02 FY 02-0312%

22%

32%

42%Eur B % of Rev

2.8

3.4

2.3

43.0%

49.6%

46.2%

1.0

2.0

3.0

4.0

FY 00-01 FY 01-02 FY 02-03

42%

46%

50%

Eur B

(1)

24%

YoY Growth

(1)

Contents




Increase market share by proposing new services that improve productivity

Segment Marketing Plan

Professional

Young Attain overall leadership through occasion based marketing and innovative services

Increase market share by enabling budget managementand facilitating group interactionsTeens

Consolidate results and focus on usage increase with occasion based marketing and by facilitating family communication

Adult

Increase value of existing customer base by promoting more frequent/ natural usage (lift emotional barriers)Mature

Segment Strategy

Professional BisInnovative proposition allowing customers 2 SIMs with same number:

In the carIn the PDAAs a back-up

Voice: Continuous innovation to stimulate usage

Young Alter EgoInnovative proposition allowing customer1 Sim with 2 different numbers:

1 personal number and 1 professional 1 for everyone and 1 for a special person1 for the Boss and 1 for anyone else

Teens

111 For Me

Collect call to the receiver (father, mother, etc) both on fixed line and Vodafone Italy numbersOnly way to call if you have no credit

Collect call from abroad

Collect call to the receiver (father, mother, etc) from anywhere in the worldOnly way to call if you have no credit

Multiparty

Conference call with other Vodafone Italy customersEvery participant shares the cost: low cost per person, but high revenue per call


23.68

24.63


Adult

YouForMe

Permanent reverse charging to the father/ mother, etc to allow children to call without using prepaid credit

Summer Card

Credit back of all traffic (to Vodafone Italy and fixed line) generated in 1 month with payment of activation fee

Pag. 2

Consumer: Overall DATA services portfolio

SMS retention and network stimulation SMS CB initiatives + education

SMS occasions: voting, interaction TV, charity, ….

MMS

Community and chat

Vodafone Mail

Gaming and entertainment

Info-mobility services

News, sport, weather, horoscope…

Vodafone Mobile Connect Card

Vodafone PDA

Messaging

Content Services

Access

Voice / 412

SMS

Teens Professional Adult MatureYoung

Vodafone live!

Vodafone live!

Vodafone live!

Vodafone live!

Vodafone live!

Vodafone live!

SMS retention and network stimulation

SMS

SMS

= type of service Italic = way the service is delivered

Vodafone live!Communication with more than just words: a world of colour, sound and fun to share the things that excite you with those that matter to you

Icon based portalIntegrated camera handsetsMMS, games, polyphonic ring tones

Data: Continuous innovation to promote occasions of use

Vodafone Mobile Connect CardVodafone leading solution to provide fast and easy-to-use PC access to the internet

E-mailWeb browsing / access to corporate LAN

Professional

Young

Pag. 3

Business: Overall services portfolio

Consumerservices

Business services

SpecialProjects

Corporate MobileSolutions*

Access ApplicationsDevices

MMS

Access Packages

SMS

Vodafone Connect Card (2.5 G, Wlan, 3G)

Vodafone PDAMulti Messenger

Vodafone Mail

Connected by Vodafone (OEM)

Vodafone Dashboard(2.5 G, Wlan, 3G)

* - Hand Office: mail + PIMS, Salesforce Automation, Workforce Automation

Top/Int’l Acc

MLA

SME

CRM and campaign management

3

12

HIGH VALUE CUSTOMERS

4

5

6

MEDIUM-LOW VALUE

CUSTOMERS

Value based CRM resource allocation

Value Band 2 Value Band 3 Value Band 4 Value Band 5Value Band 1 Value Band 2 Value Band 3 Value Band 4 Value Band 5

Value based segmentation

2x AverageCustomer Value

0.4x AverageCustomer Value

ARPU

CRM costs/ARPU

SMS

6. Improve campaigns for next round

Campaign management : up-sell/cross-sell

1. Gather comprehensive customer information- Customer centric DataWareHouse

2. Analyse and segmentcustomer base- Segment- Score- Propensity

3. Develop targeted marketing campaigns- Message/creativity- Channel- Redemption process(direct, shop, web)

4. Roll-out marketing campaigns-Test & Control Group-Test on multiple channels: Email, SMS, DM

5. Measure results-Redemption-Impact on Churn/ARPU: Test vs Control

Campaign management: Churn risk profiling

The likelihood to churn is estimated on a monthly basis for each VF customer through data mining. Customers flagged in RED are five times more likely to churn than an average customer: they are treated accordingly.

Low Churn Risk (70% CB)

Medium Churn Risk (20%)

High Churn Risk (10%)

Main Predictive Variables

� Handset � Significant drop in traffic during

recent months� Abnormal traffic pattern,

dropped calls� Low penetration/usage of

Valued Added Services

Churn clusters Probability to churn

65%

35%

6%

Red

Yellow

Green

High value retention focus: Vodafone One loyalty program

Objective is to strengthen customer motivation with a reward based mechanism, with direct link with his/her traffic spending

Almost 9 million customers, largest loyalty program in Europe

Vodafone One Shops instrumental to reward delivery

Loyalty Program for Customers Owned/controlled specialised shops

RewardsRewards

Vodafone One: reduction of high value customers’ churn more than

double compared with churn reduction of low/medium value customers

Vodafone One churn impact

BaseChurn Rate

Vodafone One

- 50% Churn

Vodafone One

-18% Churn

BaseChurn Rate

High value Customers Low/Medium value Customers

In summary . . .

Vodafone objective for Italy is to be the preferred operator to the

more profitable segments

Vodafone strategy is based on segmentation, excellent service,

continuous innovation and active customer base management

Customer satisfaction, usage levels and financial results are at

world-class excellence level

Great opportunity

Mobile

Telecommunications

InformationTechnology (IT)

Infotainment

Forces on the businessCustomers

Regulatory Technology

Competitors

Our focusDelight customers Outstanding customer service at all touch points

Deliver superior voice and data propositions by segmentAchieve brand preference

Leverage global scale & scope Deliver superior 3G based servicesAchieve leadership position on costs and time to market

Expand market boundaries Consolidate footprint in a value creating wayGrow demand and capture value via industry leadership

Build best global workforce Develop capability and competency of our employees

Provide superior returns Exceed shareholder expectations

Reiterate expected outlook FY 2004Average customer growth >10%Similar growth in revenues*Small EBITDA margin* improvementBetter EBITDA* growth than revenue* growthGood adjusted EPS growth Capital additions little up on last year’s £4.8bnImproved capital efficiency (better than 16.3%)Free cash flow > £5.2bn* Proportionate before exceptionals

Documents

Vodafone Strategy Italy