Counting the cost of breaking up

Counting the cost of breaking up

When Phones 4u announced last week its trading relationship with Three was over, it led the industry to question the bond between operators and retailers.

After all, Three is not the first operator to part ways with a major high street retailer. In 2006, Vodafone famously walked out on Carphone Warehouse only to return to the fold just 18 months later.

Phones 4u said last week it wanted to focus on long-term relationships with customers, something Three is also keen to build on. The retailer claimed the level of connections to Three via its stores was ‘minimal’.

Worrying precedent

That may be so, but could the split signal a shift in how operators and retailers deal with one another? More worryingly, could other trading divorces be on the cards? Phones 4u and Three’s trading break-up is certainly being viewed with interest by the operators. The fact that Vodafone’s return to Carphone Warehouse in 2008 was hailed as a victory for the high street retailer clearly still rankles with some operators.

One operator source said: ‘All operators want to move out of the independent channels, as they are far too costly. Ideally they would all deal directly, which would give them greater control of upgrades, better control of the subscriber and they wouldn’t have to pay as much. It’s just that the volumes aren’t there yet.’

The return of operators to the high street in the past few years with ambitious plans to grow their retail footprint is part of a long-term strategy to wrest back greater control of their customers, claimed another operator.

He commented: ‘That expansion is a hugely important part of the future. It is all about getting the balance and mix right. There is an underlying desire among operators to get more of a share through their direct channels. It is the latest move in the operators’ desire to regain control of customer retentions and acquisitions.’

If this relationship is to become more productive in the future, better service and lower commissions will be needed. An operator said: ‘What we want is more of a partnership with our third party channels. They need to add value to that relationship.’

Walking away

Iain Humphrey, group CEO of Shebang Technologies Group, which trades Three deals via its network of Go Mobile stores, agreed that operators are increasingly looking for value in their trading relationships with retailers as the economic outlook remains grim.

Meanwhile, the MD of another independent mobile retailer said he felt Three’s move was part of its ongoing campaign to grow customer numbers, which shot up 18% last year on the back of cut price tariffs like The One Plan. He said: ‘You can’t blame Phones 4u. Upgrading customers is very important, and if Phones 4u is not getting the upgrades it doesn’t suggest a long-term model. It also suggests Three may be planning to go even more cut price than it is now, concentrating on directly marketing value propositions to customers through its own stores.’

Analysts point to Three’s recent decision to pull out of making b2b connections and last week’s split with Phones 4u as possible evidence of a cost-cutting strategy.

James Barford, a mobile analyst at Enders Analysis, said: ‘Three is growing new customers faster than any other operator but it is only just reporting positive profits so they have to watch every penny. It is being very aggressive in product pricing and is very focused, so closing down what is a relatively small business division makes a difference, as will stripping out retail distribution commissions.’

However, Strategy Analytics director Neil Mawston warned both parties could be left counting the costs of their messy divorce. He said: ‘Phones 4u is a major distributor in the UK and Three is a significant operator. If they are not working together that is two major distribution channels they are both missing out on. Perhaps it is a commission-based problem or a disagreement on sales strategy, but to part ways in a mature market does not make much sense.’

Written by Mobile Today
Mobile Today


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