11/14/2007 1:12:00 PM
Orange's two distributors
Depending on who you talk to, Orange's two solus distributors – Mainline and Midland – are either lucky to have such close ties with a network partner, or they're leaving themselves dangerously open to the whims of the operator.
At a time when distributors face increased competition and operators are reconfiguring their distribution strategies, the future for Orange's solus distributors is the cause of some conjecture in the industry.
Distributors like Redstone (previously Anglia), EBS and others are by necessity expanding into other areas like broadband, fixed-line and b2b. Meanwhile, the two solus distributors are to all intents and purposes stuck with Orange and what it wants to do (the operator has a 25% stake in both businesses). When the operator turns off the tap or is less competitive in the market, solus distributors will be more exposed than their rivals.
Concerns for solus distributors
Mainline's MD, Andrew Boden, admits that this is a concern. 'Of course, we would be more susceptible [than independents] if Orange's commissions or tariffs ever became uncompetitive.
'As long as Orange requires good volumes of good-quality business connections, Mainline has a good future with Orange and the relationship will go from strength to strength.'
Peter Liley, sales manager of Midland Distribution, explains that Orange's 'aggressive' strategies on acquisition and retention help his company, but adds: 'Everyone has to appreciate that whatever we do in the market has to be profitable for Orange and the dealer.
'Midland has always understood that the relationship has to be good for both parties and we've endeavoured to acquire profitable business for Orange.'
Boden admits to some 'exclusive perks and terms', but not better commissions, rather priority stock, being first to market with ongoing revenue packages and exclusive sales of Orange products like BlackBerry Enterprise Server (BES) and soon, Orange's broadband offering, Orange Home.
'We have much more regular senior contact with Orange and as a result we're better placed to take advantage of any market developments, new launches or network initiatives.'
The boom and bust cycle of cashback is ending and a brief renaissance in the dealer channel is over, leaving distributors to fight over a fast-shrinking dealer market. Orange itself wants to cut down the share of connections it gets from independents.
Two options for distributors are converged fixed/mobile/broadband packages and of course b2b, but these aren't without their own challenges. In converged services, distributors are up against new rivals in BT, Virgin and others, while the b2b market is much smaller than the consumer equivalent.
A senior independent distribution source with long experience of dealing with Orange explains: 'The operators say that SME is where we should be looking, but there isn't enough business for everyone if we all go down that route. I think it's a fallacy that the [b2b] commercials are better – you don't make any more money in b2b.'
However, both Mainline and Midland claim to have succeeded in b2b with Orange's backing. Midland offers Orange Business Support (including low-rate business training from Orange) and its Corporate Solutions Business partners benefit from the Orange Business Matrix, letting them apply credits to business customers' accounts.
Liley says: 'Midland, with the support of Orange, is offering a unique support package to assist our customers to win new business for Orange.'
Meanwhile, Mainline has been Orange's biggest b2b distributor since launching the first b2b distribution programme – Business Mobile – over four years ago. Boden claims this is paying off: 'As more dealers move into b2b, they're turning to specialists to get the service, support and terms they need. Being part-owned and therefore closer to Orange is a key factor.'
In the consumer space, now cashback has fallen away, converged fixed/mobile/broadband packages are the new growth area. Orange already offers Home direct, but will soon roll this out to independent channels – through its solus distributors first. But because they've waited for Orange to launch Home, solus distributors are entering a market already becoming saturated with converged packages offered by rival distributors.
Hugh Symons is one. Business manager Bob Sweetlove explains why: 'It's tough. Earning money out of networks is challenging. We're all trying to bolster our portfolios with other products and we decided to offer more choice.'
Sweetlove makes the point that while independent dealers can quickly expand their portfolios through deals with other companies like IT resellers and fixed-line providers, solus distributors are 'beholden to Orange' and its plans.
The senior distribution source agrees. 'If you're an Orange solus distributor, you can't plan ahead and you're dependent on what Orange is planning.' In the current market, he says 'you've got to look at other things like fixed line. You really do want different lines of revenues coming in'.
In Orange's hands
The fate of Mainline and Midland lies with Orange. The two distributors are both proven partners for minimising risks in rolling out its products and services into indirect channels, and they've both given Orange what it wants – high-value connections and low churn – otherwise it wouldn't have bought 25% stakes in them.
There are advantages to offering more than one operator, such as a wider product portfolio and security against the cyclical changes in commissions when one operator turns off the commission tap while another turns theirs on. However, this means independent distributors walk a tightrope of balancing the needs and expectations of several operator partners, especially when it comes to keeping churn levels down.
Boden claims this is where solus distributors have the advantage: 'Solus distributors have lower churn because unlike our competitors, we have no incentive to encourage or promote churn. We're focused solely on Orange and it's bound to give Orange better results.'
Liley agrees: 'Orange appreciates our attitude and works with us to ensure we have the tools in our box to assist our business partners to win and retain business. This includes ring-fencing their customer base.'
There's a big question about solus distributors that remains unanswered and could have a big impact on their futures: why did Orange buy its 25% stakes in the two distributors? Orange naturally expects a return on its investments, but if it has frozen its solus distributors' commissions while lowering other distributors', then it might have arguably shot itself in the foot.
As Sweetlove explains: 'Orange is now paying more [for connections and upgrades] through them than for the same customers from us. I would rather every customer has the same value – the same from solus distributors as from independents.'
The distribution source believes that Orange's stakes in the solus distributors could lead to trouble if they start to struggle. 'Orange has said it will support [its solus distributors], but I don't think it could or would bail them out and it can't make them too competitive otherwise Orange would alienate other distributors.'
For now, to prevent alienating independent distributors, Orange is tight-lipped about what its two-tier commission structure might lead to (if anything). It could have one benefit in a shrinking dealer market and an increasingly competitive distribution channel that will surely see further distribution casualties, unsettling dealers wanting a reliable distribution partner. One way or another, the two solus distributors will survive – either as semi-separate entities or possibly, one day, being bought out