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* Vodafone's New Zealand move is model for cable strategy
* Company has invested heavily in European cable
* Telecoms companies fight to offer broad range of services
By Kate Holton
LONDON, Oct 14 (Reuters) - For those investors questioningthe potential of Vodafone's 12 billion pound ($19billion) move into the European cable business, the company'sexperience in New Zealand shows what can be achieved.
With revenues sliding at an alarming rate in Europe, theBritish mobile operator has embarked on a programme to buy largefixed-line broadband assets such as Spain's Ono and Germany'sKabel Deutschland to offer more services to customers.
While the company is still integrating the two big assets inEurope, it is much further down the line in New Zealand where itbought the smaller TelstraClear for around $670 million in 2012.
"If we look back over the last two years, and what hashappened in our market, we would have been under (a lot of)pressure in our core mobile business if we hadn't made theacquisition," Vodafone New Zealand CEO Russell Stanners toldReuters in an interview.
"While we are not the largest market in the Vodafone group,we would say that we're the furthest down the strategy globally.And it's absolutely the right strategy for us."
The conditions Vodafone had faced in New Zealand were notunlike those confronting it today in its big European markets,where organic service revenues have fallen for the last sixyears, including a 9 percent drop in its last financial year.
In New Zealand, an aggressive entrant made the mobile sectorhighly competitive, sending Vodafone's market share sliding from50 percent in 2010 to 42 percent in just two years.
In fixed-line, it was stuck at 13 percent, behind Telstra on16 percent and way behind leader Telecom, now called Spark on 49 percent, according to communications reports.
But by 2013, the market analysis showed Vodafone's mobileshare had stabilised at 42 percent and helped by Telstra, itsfixed-line market share had grown to 32 percent, boosted bydemand for mobile, fixed-line broadband and pay-TV.
"Vodafone Group was one of the first to understand that in aworld of converged services a mobile-only offering was adead-end," said analyst Henry Lancaster at Paul BuddeCommunications.
"The solution is in bundled services, which are attractivefor operators since they gain some 'stickiness' among customersless willing to churn to another operator given that they havetheir full telecom/entertainment needs met within one bill."
The concept of one provider selling a package includingmobile services, pay-TV, broadband and fixed-line telephony hasbecome the holy grail of the communications industry, withpay-TV groups increasingly selling additional phone services andtraditional telecoms firms moving into entertainment.
GROWTH IN SIGHT
Costs have risen in the enlarged New Zealand operation, butStanners said the rate of the decline in its revenue had slowed.
"While we've not got growth, what we've been able to do isdo better than our rivals," he said, adding that it had takentime to figure out how to sell multiple products. "We think itwill go back to growth in the next 12 to 18 months."
Two years after the deal completed, half of Vodafone'smobile customers now take a fixed-line service and demand fordata services has boosted the whole market.
Cost savings have been secured by putting the two networkstogether and the other big development has been in theenterprise, or corporate, sector which is more profitable.
Stanners believes his team is now in a position to offeradvice to other Vodafone national units which are embarking on asimilar path -- welcome news for a company that has beenbuffeted by the rapid pace of change in its sector.
Vodafone, the world's second-largest mobile operator withoperations in Europe, India, Africa and Asia Pacific, has 436million mobile customers.
But the group has been hit hard by the prolonged economicdownturn, by regulatory changes that have forced operators tocut prices and by fierce competition that has hit margins when it is having to invest in its infrastructure.
With more and more customers accessing the internet on theirsmartphones and tablet computers, those major telecoms firmswhich were mobile-only, such as Vodafone, needed to acquirefixed-line assets to meet the demand.
In Vodafone's core region of Europe that has left theBritish group vulnerable because nearly all of its rivals areintegrated firms with fixed and mobile, such as Telefonica, Orange and Deutsche Telekom.
In markets where Vodafone does not have its own fixed-lineinfrastructure, it provides the service by wholesaling it fromrivals, cutting the profits it can make. In response, it hasbought cable operator Ono in Spain and Kabel Deutschland inGermany and been linked with a bid for Fastweb in Italy, whilebuilding its own network in other markets.
"We can now see how we can grow, using this new model,"Stanners said. "The Vodafone brand can support being a totalcommunications business." (1 US dollar = 0.6277 British pound) (Editing by Keith Weir)
