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Monday, August 28, 2006

Mobile UK: Time for Distribution Surgery

The recently appointed T-Mobile CEO, Jim Hyde, who originates from the USA is certainly shaking things up in the UK distribution channels.

So far, the best thing he has done is banning outbound telesales companies from marketing the T-Mobile products. These companies are a curse on the industry and I can’t believe they generate loyal customers for the cellular companies. Personally, I have received calls both on my landline (despite being a member of the normally excellent TPS scheme) and on my mobile: each time the calls have been selling the 3 UK products. I wish all the other network operators would follow the T-Mobile lead and ban outbound telesales. However, I doubt this will happen anytime soon.

In my opinion the most important thing he is trying to achieve is to reign in the power of largest phone retailers: Carphone Warehouse (CPW) and Phones4U. In order to achieve this, he is trying to improve his shop footprint and more importantly dropping commissions on T-Mobile products. He openly says that the power of retailers is due to the shortsightedness of the networks which is a position that I completely agree with.

In my opinion, we are at a point in time where power can be easily taken away from CPW and Phones4U:
• there is the closure of The Link which means there is less competition on the high street;
• there is the change in ownership at Phones4U which possibly will mean a change in direction and perhaps an opportunity for the operators to renegotiate deals;
• there is the rapid development of 3 UK’s, T-Mobile’s and Virgin Mobile’s retail presence;
• there is the tendency of the mobile networks to offer special deals through the online and inbound telesales channels supported by heavy advertising campaigns; and
• Most importantly is the CPW push into broadband via TalkTalk.

The push into broadband basically gives Orange and O2, which are big competitors to CPW in the broadband space, a big incentive to stop feeding CPW mobile commissions. I am totally bewildered that currently Orange’s products are heavily featured on the CPW websites and therefore Orange is probably paying CPW the largest commissions.

CPW are basically reliant on the short termism of the mobile operators: the network operators all make noises about reducing dealer commissions and then with the first sign of a reduction in gross additions they offer CPW higher commissions to push their products. Until I hear Charles Dunstone eating humble pie and saying that commissions are reducing, I won’t believe that the operators have altered their current suicidal short term strategy.

The latest trick that I see CPW is employing is the bundling of other products with the handsets: for instance bundling a Nokia phone with an Xbox (doesn’t Nokia see Microsoft as its’ biggest long term threat?) or even a Samsung and an iPod (aren’t phones nowadays offering music capabilities?). I see this strategy driving the handset manufacturers crazy. If Charles Dunstone doesn't start being a little more careful he will be left with zero friends in the whole telecommunications industry which admittedly would be quite an achievement, but not something that the CPW shareholders should be happy about.