Reprint of article that appeared in Telecom Asia Feb 15, 2011:

When a telco hits the headlines it is usually bad press. When it brushes aside the issues raised and comes up with feeble excuses, it becomes the target of even more bad press and, in the case of Vodafone Australia, a class action from an ever-increasing number of (currently 22,000) very disgruntled customers.

First came claims of poor service reception, poor data performance and dropped calls. One customer, Adam Brimo, created a website to air his grievances at the failings of Vodafone. Before you knew it, a legal firm spotting the welling-up of ill-feeling offered to lead a class action and bang, world headlines.

Vodafone CEO, Nigel Dews, faced the press and blamed “software bugs” for the problems, always a good catchall. But, just when Vodafone thought things couldn’t get worse, they did. This time a security breach put customer billing and call records on a publicly accessible website protected only by passwords that were changed monthly, reportedly via a system used by its dealer network. Early reports claimed that private customer information, including credit card details, were compromised, but Vodafone denied this, yet would not confirm whether it was able to determine which customers were affected.

The solution, obviously to defer attention, was to dismiss an unknown number of staff and investigate the matter. Again, just when the company thought things couldn’t get any worse, they did. This time it was nature and the massive floods that engulfed Queensland. Although most networks were affected in some way, the press singled out Vodafone for special attention, reporting that staff had disclosed as many as 200 cell sites were put out of action.

It seems that Vodafone may have been sparing with the truth about its problems, which insiders claim stem from its merger with competitor, ‘3’.  The word is that a concerted effort was made to reduce costs after the merger and Vodafone engineering staff were replaced with an outsourced team from Ericsson. The increasing demand for data services over voice meant that base stations had to be reconfigured to trade channels.

To achieve this and provide dynamic and centralized control the company embarked on software upgrades to the network base stations, which had a myriad of versions operating. It appears this upgrading procedure did not go according to plan, resulting in degradation in service across the network.

The company also decided to adopt 3’s direct debit system for prepaid customers and was aiming to provide the same services and plans to prepaid customers on direct debit that postpaid customers enjoy. It was reportedly this system that was responsible for the breaches of customer data security.

It is also believed that the merger has been anything but smooth, with the two camps not getting along very well. This could be an interesting case study for any other aspiring mergers in developed economies and, let’s face it, there will be more as markets are forced to consolidate.

Vodafone and 3 were a distant third and fourth in the market dominated by Telstra and Optus. Retreating was not an option for either party and the merger was seen as the most viable solution. However, the economists may have overlooked the dramatically different cultures entrenched in both companies now coming to the fore.

The market is intolerant to any downgrade in service, as the pending class action has shown. Boards will be even less tolerant of management that failed to plan properly. The buck has to stop somewhere and Nigel Dews may be well pleased he is not heading a Japanese corporation. Coming clean was an option, but now it seems a series of investigations and court cases will determine what we probably already know will be the outcome.