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Vodafone flies flag for Britain in Silicon Valley

Vodafone Xone is a test lab for tech companies wanting to trial products on its network

Vodafone, the mobile phone giant, opened a research and development centre in Silicon Valley on Friday, hoisting a British flag at the heart of the US technology industry.

Based in Redwood City, Vodafone Xone will provide a test lab for local technology companies wanting to trial products on its network before taking them to market. The unit will employ 200.

It will also act as an incubator, for up to 24 startups at a time, with a team of Vodafone professionals will be on hand to offer advice on such matters as managing a business, how the network is built, consumer electronics, payment mechanisms and data analysis.

Trials will take place on a fully functional replica of Vodafone’s global networks, and there will be connections into its actual European networks and those of Verizon, the US mobile carrier in which the British group owns a 45% stake.

Vodafone Ventures, the company’s venture capital arm, will also relocate to Redwood City to keep a close eye on companies emerging from the Xone.

The initiative follows the dramatic reorganisation unveiled earlier this week by O2-owner Telefónica, which said it would concentrate its digital operations in London amid signs that the European mobile carriers are beginning to stir themselves.

Compared to Vodafone’s move, Telefónica’s decision was far more daring putting one of its most senior executives, European chief Matthew Key, in charge of a “digital unit” whose purpose is to gee-up R&D and the development of alternative business models.

What the UK’s Vodafone and Spain’s Telefónica and its rivals need most is to maintain momentum, avoiding the future some are mapping out for them as boring, dependable utilities. Predictably perhaps, the word used by Telefónica to tie together the range of initiatives Key will be in charge of is “growth”.

Key is not being parked. Having negotiated the deal to make O2 and its owner Telefónica one of iPhone’s first distributors in Europe, he is a rising star and the decision to move him from managing 30,000 staff across Europe to a 2,500-person unit in London is a statement of intent.

Emerging markets are still there for the taking, but mobile operators have reached total penetration of western populations, and completed a decade of international consolidation. Vodafone has gone full circle and is now in slimming mode, selling off businesses where it holds only a minority interest. In Europe and America, the game has changed from a race to conquer virgin territory to a slow wrestling for market share and increased revenues per customer.

Traditionally, the mobile giants have opted to spend more cash on marketing than on developing new business models. The millennium dome was spectacularly brought back to life as the O2, Vodafone is a lavish headline sponsor on Formula 1. The company spends over bn (£630m) a year on advertising, but half that on R&D.

However, Vodafone grew more slowly last year than at any time since 2006, with total revenues increasing just 3.2% in the 12 months to end March. The double digit years are coming to an end – and the carriers must find other ways to use their networks. Fixed-line broadband has been tried, most energetically by Orange, but Virgin Media, TalkTalk and BT Group have that market cornered in the UK and the picture is similar abroad.

There is still an opportunity with using phones to make payments. They can be swiped on till readers for small purchases, or at tube and train barriers. Mobile advertising has yet to take off, but will in due course. As should clever parking, gas and electricity meters, with built in sim cards that allow them to send messages to and from a central control point.

These ideas are not new, and mobile companies have been paying lip service to them for years. But they are still niche products, and there is an opportunity now to change that. Google is already taking an interest, and has started trialling Google Wallet on Android phones, so the race is on.

While Vodafone’s not insignificant army of 200 R&D brains ultimately report in to chief technology officer Stephen Pusey, who is on the board, Telefónica has put a commercial talent in charge of its digital unit. Matthew Key’s division is one of three – the other two are Europe and Latin America. Xone is a small step in the right direction, but compared to Telefónica, Vodafone could be bolder. © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds