Carphone Warehouse boss Andrew Harrison has declared he wants to do the same with laptops that has been done with mobile phones Ð make them free with contracts.
This will undoubtedly shake up the mobile and computer retail industries as well as the company itself.
The first glimpse of what this means for Carphone came last week when retail MD Anthony Catterson and COO John Durkan left the company, along with 50 middle managers.
Harrison told Mobile that the change in management is the result of the change in the company’s strategy towards selling wireless devices, not just mobile phones. There have even been rumours about the company rebranding itself to ‘The Wireless Warehouse’.
The mobile market has reached saturation point. With the number of Sim cards in the market exceeding the population and operators becoming more successful at acquiring and retaining customers, it has become increasingly difficult for independent retailers like Carphone to find new customers and incremental growth. Rather than fighting over existing customers, Carphone is looking towards a market with more growth potential.
One industry expert explains: ‘Carphone has to find a new revenue stream because mobile is flat. There is no real growth. The laptop plan is achievable which is why it is Carphone’s new holy grail.’
How do laptops fit with Carphone’s strategy?
This year is the year of the laptop,’ Harrison has declared.
Although Carphone only has limited experience in selling laptops, the move isn’t a massive leap in terms of business strategy. The company already sources connections and hardware from different providers and bundles them into one offering for mobile phones.
The key factors of success for Carphone in mobile have been its ability to offer a broad selection of handsets, and to ensure that a high number of customers walk through its shop doors every day.
Carphone has over 800 stores on the high street, which has facilitated the high footfall and longstanding relationships with the handset manufacturers, guaranteeing a large selection of mobile phones on offer.
As its share in mobile retail has grown, Carphone has fallen into a virtuous circle; the handset market is keen to give the retailer exclusives and consumers associate it with the best deals. So the question is can Carphone replicate the business model and its success, with laptops?
First it needs to persuade the major internet service providers (ISPs) to let it sell broadband connections for them. The majority of ISPs don’t currently have a high street presence, so their services being sold in shops could sound very tempting for some of them.
Carphone has an existing relationship with Orange and Virgin – both in mobile and broadband.
What puts Carphone in a different position in broadband compared with mobile is that Carphone also has its own broadband brands Ð TalkTalk and AOL. In effect, it would be selling its brand side-by-side with rivals such as Virgin, BT and Sky.
Although Carphone’s MVNOs Fresh and TalkMobile are sold under the same roof with competing networks, its mobile venture is merely a commercial tool that gives the company some contingency in the mobile market if other networks are quiet. TalkTalk and AOL, on the other hand, are serious, profit-maximising businesses, and are the third largest fixed-line broadband provider in the UK.
Carphone prides itself as a place where consumers can get impartial advice on mobile networks. However, with its TalkTalk sales at stake, how impartial could the company afford to remain?
‘It’s different to what happened to mobile. First they were a channel and then a competitor, but this is the other way round,’ said CCS insight analyst Shaun Collins.
‘TalkTalk is different – they compete directly with Orange (and the other ISPs),’ he added.
In addition to its own broadband brands, Carphone already has two of the major ISPs – Orange and Virgin Media – but to achieve the success in broadband that it enjoys with mobile, it would need to get Sky, BT and Tiscali too.
Carphone is openly bidding to buy Tiscali, and faces competition from broadband rivals. Tiscali doesn’t have a presence on the high street and is likely to be easier to persuade into a partnership than Sky and BT.
Collins says: ‘This is a marketplace where edges are blurring, which could lead to these kinds of relationships. I would understand why Tiscali would go this way – it wants additional retail presence, but I think it is unlikely Sky would do it. Sky goes to market through its own portfolio.’
Sky declined to comment on whether it would be interested in selling its broadband proposition through Carphone, but said it is looking into relationships with third-party retailers that have experience in selling communication devices and subscriptions. The broadcast giant has entered into a partnership with Carphone rival Phones 4u for its TV proposition.
However, according to many experts, Carphone will probably be successful in convincing the ISPs that having their connections sold through its shops is in their interest. ‘As for getting the other broadband players on boardÉ it will be a concern, but they are smart enough to make it happen,’ says an industry source.
Carphone has announced plans to separate its telecoms business, TalkTalk and AOL, from its retail side in an effort to boost credibility in its impartiality. It also hopes the separation will help convince the likes of Sky and BT to do business with Carphone’s retail operation.
The falling price of laptops makes it possible for Carphone to make a healthy profit by offering them for free. The price of laptops has now reached the point where an entry-level laptop costs roughly the same as a mid-range handset. Collins says: ‘With the economic terms, it’s more than possible now. The laptops given away are entry-level or end-of-range. It’s a sustainable model and the economics are comparable with mobile.’
With broadband going mobile, there are further commercial opportunities with bundling USB data dongle subscriptions with laptops. Carphone is already giving away free Acer laptops with an 18-month, £35 mobile broadband subscription on 3 and it sells dongles from all the networks.
One industry expert says: ‘You can imagine bundling phone contracts with dongles and PC devices for around £50 per month. That will be a cracking deal.’
A cheaper option could create a new market for smaller laptops. ‘While current PCs are perhaps too expensive for a subsidy model, a lot of mini PCs with seven-inch screens and wireless-operating systems will be available on the market this year priced around £150 to £200,’ the expert adds.
Handset selection has been one of the critical factors in ensuring Carphone’s success in mobile, and to repeat this with PCs it would need to secure deals with the major laptop manufacturers – especially brands like Apple and Sony.
However, Carphone already has agreements in place with Dell and HP, and it has an existing partnership with Apple for the iPhone.
Analysts seem to agree that Carphone is the best equipped to take the successful mobile phone model and implement it with laptops. ‘We will see more of this happening, but Carphone is more innovative,’ Collins says. And if the model proves workable the rest of th