Featuring research from Intangible Business, this article analyses the role of the brand in the mobile telecoms industry.
Brand is the currency with which operators trade with end users. As networks and services become increasingly difficult to distinguish between, carriers look to brand strategies to gain attention and customers.
It is often remarked that this is no longer a technology-led industry. While technological advancement remains at the heart of the products and services that make up a carrier's business-and while that advancement is gaining pace-the cellular industry these days tells a marketing story. Carriers have long emphasised that they're not trying to sell technology to end users; that the mess of abbreviations familiar to those within the industry's walls is of no interest to the subscribers who dwell beyond them. In mature markets the advertising campaigns that trumpeted superior coverage or data rates are long gone, replaced across the board by the abstract and the aspirational. A mobile phone is not a piece of technology, it's a life-aid. Something that heralds a future that's bright, makes life better, or helps people to make the most of now.
Central to all of this is the evolution of cellular operator brands. According to research commissioned by telecoms.com sister publication Mobile Communications International from brand valuation specialist Intangible Business, produced in conjunction with Informa Telecoms and Media's World Cellular Information Service, the top 100 cellular brands in the world -distinct from the firms that own and operate them-have a combined value of almost $318bn. This may seem a lot but it is a sum described by Peter Matthews, managing director of branding consultancy Nucleus as conservative. It could easily be much higher, he says, because it "reflects the importance of mobile brands in people's lives all around the world. If you think about the relationship people have with mobile phones, you realise these brands are positioned in a remarkably powerful place." Once, a carrier's most highly prized asset was its network, the physical product that made service possible. Now it is often the brand, as David Wheldon, global director of brand at Vodafone explains. "You can see the difference today internally, in terms of how people think," he says. "If you were to speak to [Vodafone group CEO] Vittorio Colao, he'd tell you that-after our people-our brand is our most valuable asset." What this doesn't mean, however, is that brand and service can be separated. Brand isn't simply a logo or a tagline, it's a catch-all for an operator's entire customer-facing performance; everything from network reliability, service portfolio and pricing to high street points of sale, websites and customer support. The brand values that operators devise, if successfully implemented, are applied to all areas of the business.
So a great brand, even if it looks good and draws people in, will not be able to paper over the cracks of a poor service. "The emotion that you create with people can set up expectations," says Wheldon. "And if you don't meet those expectations you can disappoint. So if the gap between the promise of the brand and the delivery is too significant, then the brand can be damaged. It can be ahead of the delivery and it can set the standards, but you have to deliver what you promise." In this sense, a successful brand can create problems as well as solve them. Wheldon observes that, in some markets, deploying the Vodafone brand-recognised across the globe, arguably, more than any other cellular carrier's-can lead to expectations of a complete change in network performance, creating a promise that cannot be kept. In developing markets, where metrics like a customer's call quality experience can be affected by the state of the network to which the called or calling party subscribes-which is beyond an operator's control-this can be compounded.
This is just one issue raised by the march of large brands across the world. A scan of the top ranked brands table reveals a high number of international players, which is unsurprising. But a brand that works in one country won't necessarily translate to other territories. The largest international players are present on several continents, and they all strive to use single-or 'monolithic', in branding parlance-brand identities. Ibrahim Adel is the chief communications officer for Zain, a Kuwait-headquartered player (formerly MTC) that this year moved the entire Celtel portfolio of 14 African operations that it purchased in 2005 over to the Zain master brand. That brand had only been introduced in MTC's existing portfolio in September 2007. The firm harbours a serious ambition. "We want to be one of the top ten global mobile operating companies," says Adel. "So in that respect, when we selected the [Zain] brand, our emphasis was on having a global identity; a brand that transcends regions and cultures." This is a hefty requirement. But it makes sense to have a single brand if possible. Peter Matthews relates a branding truism; that if a firm supports more than one brand, it will be more expensive than building a single brand.
Vodafone's David Wheldon recalls the firm's historical brand strategy that saw a three-stage brand swap-out procedure. Following the purchase of a new property, that operation would be dual-branded, with 'Vodafone' tacked onto the existing brand-so the new addition would move from 'Cellco', for example, to 'Cellco Vodafone'. In the second stage, the temporary brand would be reversed, with Vodafone gaining prominence; 'Vodafone Cellco'. Finally, after an allotted time, the original brand would be removed altogether, leaving just the master brand. "This was torturously slow, very expensive, and confusing for the customers," he says, a realisation that led Vodafone to the current strategy of simply rebranding from the outset. But he highlights the apparent paradox of a global brand when he says: "When you look at our brand, it's now the same everywhere. It looks the same, it has the same name and it has the same brand idea behind it. But we don't try and do the same thing everywhere." In Vodafone's internal language, it now has a "global brand that's locally rooted."
But Vodafone will not be rebranding South African-based Vodacom, where it increased its 50 per cent holding to 65 per cent in November, giving it a majority stake. The firm's official line states: "Vodafone has agreed with the Government of South Africa, inter alia, that the Vodacom identity will remain visible on the African continent. Vodacom is a very strong brand in the markets in which it operates. Vodafone will look to leverage maximum value from the Vodacom brand and Vodafone's established international brand." Owners of large international brands like this argue that they can be designed to travel well. Simple brand values that are easily translated and names that, even if they belong to a certain language, are not restricted to a certain culture are crucial. Think Orange, O2 and 3 as opposed to France Telecom, BT Cellnet and Hutchison Whampoa. But Peter Matthews of Nucleus warns that operators can, "get to the point where the brand becomes very clumsy, because you can only use it in one way, which is as a global, monolithic marketing tool."
So how do carriers go about the practicalities of applying their brands to new acquisitions? Things have changed at Vodafone since the old days of phased introduction. When the firm moved into India last year, only six months elapsed between the deal formally closing and the Vodafone brand being installed. Over a final three week period, more than 480,000 pieces of signage and points of sale were replaced. India is hardly a typical market, given its size, but the numbers give an indication of the scale of these projects. Prior to the physical changes, Vodafone brings managers from the new property to a 'brand academy' at its Newbury HQ in the UK. Here they are schooled in the meaning of the brand and a plan is written for the application of that brand to the new market. A thorough understanding of the brand ahead of its actual appearance, says Wheldon, is essential, and comes from painful previous experiences.
"Look at Mannesmann, where we went into many of the markets and just changed the name and the logo," he says. "Now we do a proper brand migration, where we get internal alignment first and foremost, so that everybody knows who they work for, who they represent and what we're trying to do." The next country to receive the Vodafone makeover will be Ghana, where Vodafone acquired a presence through its acquisition of Ghana Telecom in June this year. The team overseeing this will be under pressure following the swiftness of the Indian rebrand, as Wheldon indicates that the firm looks to improve each time on the prior implementation. The next country to receive the Zain makeover, meanwhile, will also be Ghana. And if a single market re-brand sounds like hard work, imagine having to do 14 at once. Undaunted by the logistics, Zain staged simultaneous public events in the capital city of each of the 14 African markets and linked them live by satellite transmission. The individual businesses were given autonomy over the nature of their celebrations, with Uganda staging a concert by Wyclef Jean (who has previously featured in brand campaigns for Virgin Mobile) while the Kenyan operation opted for a more sober reception at the Nairobi National Museum.
Prior to the 14-way rebrand, Zain had prepared the ground for its arrival by acting as a principal sponsor the concert marketing former South African president Nelson Mandela's 90th birthday, which took place in London's Hyde Park. Zain has yet to make a move into Western markets, despite having ambitions in the area, and has scaled back its expansion plans in light of global financial turmoil. But while the Mandela concert sponsorship will have given it profile in Africa, the exposure it will have got the firm in the UK and other Western markets cannot be ignored. With a speciality thus far in Africa's developing markets, much of what Zain does to showcase its brand is related to development. The firm focuses on education and health, donates computers and books to library projects and is active in Millennium Development initiatives. But will such a focus serve it quite as well in more developed markets when the time comes for expansionist moves in that direction? "This is not Africa specific," says Ibrahim Adel. "This is our identity and this is what we want to be linked to. Even in Kuwait, where are roots are, which is one of the most affluent countries in the world, there are people in society who are marginalised." It's a less traditional brand strategy than the sports sponsorships that have seen A-list cellco brands visible in some of the most glamorous and expensive events in the world. The 2008 Formula One motor racing driver's championship was decided in dramatic at the close of the season, with McLaren's Lewis Hamilton taking the title by a single point margin. The Vodafone brand features heavily in the McLaren livery and Hamilton's win counts as a victory for the carrier as well as the man himself.
"You couldn't pick up newspaper in this country without seeing our logo emblazoned across people's uniforms on at least six pages," says David Wheldon. "Formula One, when you're with a successful team is a wonderful generator of global name awareness. We're not present in Brazil [where the deciding race was staged] but there are lots of Brazilian kids who now know the name Vodafone. They might not know what we do but they know the name and this is the first stage that you need to build to get brand awareness." Spanish carrier Telefonica, meanwhile, is currently racing alongside Ericsson in the Volvo Ocean Race (VOR), a round the world sailing event that stops at ports across the globe. In the VOR, sponsors are consulted on the route, enabling them to pick key markets for their brand to visit. In this year's race, China features for the first time. F1 sponsors get no such luxuries, and not everyone sees the value in these high profile sponsorships. As Peter Matthews points out, the McLaren win works for Vodafone in the UK, and among team supporters across the world. But it probably doesn't do much for the firm in Italy, where Ferrari is the team of choice. "That's traditional brand building in terms of raising awareness," he says. "But it's not necessarily creating a compelling brand proposition that can be delivered in a way that's different to Vodafone's competitors. It looks polished and global and international but it's a very expensive way of doing that."
Just exactly how expensive is not clear. But Ibrahim Adel says that an F1 sponsorship opportunity was offered to Zain that worked out at $250m over five years. "You're talking about a quarter of a billion dollars," he says. "I know that F1 has a huge global following and great recognition but-personally-I feel that we can get a lot more bang for our buck than we could by sponsoring a Formula One team." Nevertheless this kind of activity is one of the ways in which brands choose to differentiate themselves. It's key, says Vodafone's Wheldon, because in many ways the networks and services themselves are comparable. "In the technology area, everything can be copied," he says. "What we pioneer [technologically] today somebody else can copy tomorrow or next week. What they can't copy is our brand and who we are. So our sustainable differentiation comes from our brand and we now have total management alignment on that." It's certainly true that, in many markets, network performance and product offerings are all but indistinguishable, and any noteworthy innovations are usually hastily replicated. But it could also reasonably be argued that, in reality, there isn't a great deal to differentiate between the brands: "Often," says Nucleus' Peter Matthews "you can't get a cigarette paper between them." But brand association can be a useful means of setting yourself apart. The biggest brand story in the industry over the past couple of years has been the arrival of Apple's iPhone. Exclusive distribution rights for the likes of O2 generated a huge amount of coverage, awareness and kudos by association. But should carriers be concerned that it is a hardware brand generating more of a storm than an operator's?
In a recent global top 100 brand ranking by consultancy Interbrand, there were no mobile operators present. There were five handset vendors, though, among the familiar fashion, beverage and motoring names, as well as internet firms like Google and Yahoo. Wheldon argues that this particular ranking is unreliable given that companies' brands have to operate in the US to be counted, which means none of the large international mobile carriers were able to feature. But it does highlight the fact that carriers' brand wars are not like for like. Consumer brand loyalty extends to the handset vendors, and to the application providers. Customers, after all, churn in their millions from networks for the promise of a new handset. "We are now in a world where we need our brands to compete with every other brand out there," says Wheldon. "It's a world where everybody's a friend and a foe at the same time. So Apple is a threat to us and a partner to us at the same time. But we're now in a total telecoms world. We have to compete with everyone out there and that has created the toughest challenge yet for the brand." Peter Matthews says that Nucleus believes carriers are going to have to start developing applications of their own that are network independent in order to remain competitive in this new telecoms environment. "Carriers are going to have to have these applications which give them other revenue streams even when customers are using a competitor's network. That's the way the smart players are going to go. Because a network's a network and, if you can port all of your contacts between them, what loyalty to you have to their brand?"
It will be interesting to see how the brand valuations featured will evolve over a year. Will the top ten be any different? It wouldn't be a long shot to suggest that an Indian operator or two might break into the highest positions, given that eight million Indian customers are signing up each month. But there is consolidation yet to come, and doubtless many carriers will look to shore up their positions through mergers and acquisitions.
How it works
Brand values are a reflection of a brand's ability to generate future income. So this is a forward looking study that uses historic performance and future trends to predict future activity. The actual brand valuation calculation is relatively straight forward. It attempts to derive the amount the brand owner would be willing to pay for its brand if it did not already own it. This approach is called the relief from royalty methodology as it calculates how much the brand owner is relieved from paying by virtue of owning the brand. The more complicated parts are the components that contribute to the calculation. These three stages illustrate the process, simply:
1. Forecast sales
Three years of historical sales data was gathered for 500 of the world's biggest mobile operator brands. The top 100 brands have been given indefinite lives as they are all market leaders, with heritage and financially robust owners. The compound annual growth rate (CAGR) is adjusted to reflect the brand's long term ability for growth. This reflects more accurately a brand's growth prospects based on its current and historical performance.
2. Royalty rate
To determine the strength of the brands, each brand was scored on nine measures of brand strength, provided from qualitative panel data. This included share of market, growth, price positioning, market scope, preference, awareness, relevance, heritage and perception. Each brand was also measured on three years of hard data including turnover, subscriptions, churn, market share, growth, penetration, average revenue per user (ARPU), and profitability. The average of these two total scores (panel brand score and hard brand score) was then positioned between a royalty rate range. This determines a unique royalty rate for each brand. The royalty rate appears to be a simple percentage but in fact this hides the depth of understanding required to determine a rate that reflects accurately the profit/cash flow generated by the brand alone - separate from other elements of product delivery.
3. Discount rate
Future sales are then multiplied by the royalty rate and reduced at the relevant tax rate. They are then multiplied by a discount rate to calculate the net present value of those future cash flows. The discount rate reflects the time value and risk attached to those cash flows and for the purpose of this exercise has been left at a flat 9% as these are relatively low-risk, established brands.
Results are tested and verified by sense-checks, such as to comparable commercial transactions, and referenced to proprietary information on the value of leading brands, which all share similar characteristics of value cash flow generation. These valuations are based on an analysis of publicly available information and do not necessary reflect true past or future performance.
1. How do companies use brand valuations? On acquisition, it is mandatory for listed companies to allocate the values of acquired brands and other assets to their balance sheet, under International Financial Reporting Standards (IFRS). Brand valuations are also useful prior to acquisition to identify strengths and weaknesses of the target brand, helping influence negotiations. Brand valuations are also used in ongoing brand management. Understanding where value is derived - which market, sector, customer segment - enables management to increase the value of the brand they are operating. This looks beyond simple turnover and profit and looks at the broader drivers of value, strength of the brand in the eyes of the consumer, and competitor and market analysis. This also has broader benefits of helping rationalise brand portfolios, negotiating with partners and managing investments.
2. There are some obvious inclusions in the top ten, and one or two surprises. How often do brand valuations rankings differ from ones based on more commonly used metrics; footprint, sales, market cap, etc? Brand valuation is unique as it considers a combination of elements that contribute to value. It is therefore a more robust way of looking at the health of a brand and the business that owns it than looking at single measures separately.
3. How worried should a firm be if its income versus brand value metric is negative? (Some fairly large organisations fall into this category.) As this generally means that the brand is underperforming relative to its peers, these brands should be concerned. Another useful measure is comparing the ratio of brand value to income. This identifies which brands are punching above their weight and which require attention.
4. How rapidly do brand valuations tend to fluctuate and what kinds of factors have the greatest impact? As brand values reflect a brand's long term value, their value is often more resilient than other measures such as market cap or income. Consequently, it should fluctuate less. Current size and future growth are two of the most important factors.
5. How do you expect brand valuations to be affected by the current credit crunch? The short and medium term economic outlook across the world looks pretty bleak with growth stagnating. However, with the long term perspective relatively healthy for the telecoms industry, this impact should be relatively short lived.
6. Sometimes the same firm will use different brands in different markets. In these cases does the firm have a brand portfolio valuation that is simply the sum of its constituents? Yes. However, this multi brand, portfolio strategy could be stifling growth. There are many benefits of having one dominant brand with operating and marketing synergies and the advantages of international appeal. If local brands with value can be transitioned into one international brand, this would generally be preferable.
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