Carphone gets its own label

Carphone gets its own label
Carphone Warehouse surprised many in the industry last week with the launch of its own-brand post-pay proposition, Talkmobile.

It is Carphone's latest move into providing its own services, effectively competing directly with its major network suppliers. Talkmobile will sit alongside Carphone's growing stable of in-house products – prepay and international calling services (Fresh and Mobile World, respectively), as well as fixed-line and broadband under the TalkTalk brand.

Some analysts were surprised by Carphone's move, but the greater surprise was with the retailer's network partner: Vodafone.

The scars are still evident from Vodafone's acrimonious withdrawal from Carphone last October. Three questions were immediately asked.

Why is Carphone doing this? Why is Vodafone doing this? And does this mean that Vodafone will return to Carphone?

As far as the final question is concerned, the simple answer is no. A Carphone spokesman said: 'The two issues are completely separate and not linked.' The next obvious question is why is Vodafone doing a deal with a business it appears keen to weaken?

Wholesale deals are a big part of Vodafone's current business plan. The operator placed former UK sales chief Tim Stone to head up the wholesale operation and UK chief Nick Read has registered virtual networks as a key element to the UK strategy.

Providing wholesale airtime is a straightforward business bringing in healthy margins. One analyst said: 'You put in a small amount of investment up front for the infrastructure (primarily billing), and then it's pretty low maintenance.'

MVNOs important to Voda
Vodafone agreed deals with Asda, TomTom and Extreme this year, with Carphone's deal last week and an MVNO with Lebara also imminent. It also has an arrangement with BT already in place.

Analyst and blogger Keith McMahon said the logic behind the Carphone deal was based on the fact that 'it is decent wholesale revenue and if Vodafone didn't take it, a competitor would'.

Vodafone also has a unique advantage. There is no risk of cannibalisation of any of the operator's post-pay customers by Talkmobile, as Vodafone is simply not sold through Carphone. Any other network would have to consider the potential loss of post-pay share as Carphone sells more of its own-brand contracts.

However, Mobile understands that T-Mobile, Carphone's network supplier for Fresh, had expected to win the post-pay deal on the basis that it was already working with the retailer and is furious that Carphone chose Vodafone.

For Carphone, the reasoning isn't immediately apparent. It will make more money selling contracts through O2, Orange, T-Mobile and 3 than it will through selling its own brand. But the attraction is to have something in the locker to wield out when the networks are not active in the market.

'It keeps us in better control of our destiny,' said a senior Carphone source. The same strategy can be seen with Fresh. It remains in the background and only comes out when the prepay market is quiet. 'They can have options and it safeguards Carphone from being put over a barrel if there's just one network looking to add customers at any one time,' said McMahon.

Carphone is also able to differentiate itself from the networks' offerings by introducing the shorter nine and 12-month contracts it knows its customers want, which networks are resistant to. A spokesman said that the deal fulfilled demand for 'lower commitment contracts with great handset prices'.

The senior Carphone source said that Talkmobile would predominantly serve as an easy stepping stone to take prepay customers onto contracts. A spokesman said: 'We are targeting prepay customers spending more than £12 per month.'

Growing MVNO appetite
Both Vodafone and Carphone have said they are in the market for more MVNO business. 'We are looking to grow our MVNO business by tapping into segments of the market that are not being served,' said a Carphone spokesman.

Vodafone's Tim Stone said: 'In March, we set out the Vodafone UK strategy to drive revenue growth and, as part of this, our ambition to grow our wholesale market share. We estimate that the wholesale market is worth around £1bn, so we are excited by the partnerships we have formed with leading brands over the last six months.'

Carphone and Vodafone already have an existing relationship in place with Onetel, acquired by Carphone in 2005.

Networks appear to have a considerable appetite for wholesale deals as low-cost, high-margin revenue, with some pointing to markets in Europe where MVNOs are taking bigger market shares.

However, McMahon warns: 'In saturated markets like the UK, it is a lot more difficult. You don't have the marketing budgets of the big players. It is difficult to find a niche that hasn't already been targeted.'

Written by Mobile Today
Mobile Today

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