20:20 Mobile and Data Select received the news they had been hoping for last Friday (25 July), as Nokia’s distribution tender review came to an end and the new contracts were announced.
Brightstar, Fone Logistics and Kondor were the most high profile of the companies not to make the cut, after what has been universally described as the longest and most demanding tendering process for a distributor. The word ‘unprecedented’ was used by virtually everyone involved.
Nokia’s UK management has instigated further consolidation in the mobile industry; this time in handset distribution, cutting its seven partners to two.
The process started one year ago, when Simon Ainslie, Nokia’s UK MD, decided to launch an investigation into the way the manufacturer’s handsets are distributed – a key objective he set since he joined the company two years ago.
Nokia hadn’t reviewed its old distribution contracts since they were drawn up around five years ago, so Ainslie decided to begin an extensive investigation into distribution.
‘It’s been the most thorough review conducted on the distribution market, at least from the handset manufacturer perspective.
‘The depth and professionalism of it even impressed the distributors,’ says Ainslie (pictured).
The companies had to demonstrate their suitability to distribute Nokia’s handsets and accessories, but also its new services business, which has started to receive increasing amounts of the manufacturer’s attention.
Ainslie says: ‘We have launched a huge number of services in the past six months in areas like navigation, music and email. We want distributors that are able to communicate our services strategy effectively. It’s a great new revenue opportunity for the [distribution] market.’
The companies competing for Nokia’s handset, accessories and service distribution contracts were asked to fill in an application form, which ran over 200 pages. The applications were then put in front of Mark Loughran, Nokia’s UK sales director who, with the help of finance director Debbie Eaglesfield, head of logistics Thomas Luther, and the marketing team, reduced the pile to a shortlist of 12 companies.
The companies that made it to the shortlist were invited to the manufacturer’s Farnborough offices to present to the Nokia team why they should be chosen.
‘We were looking for confidence that our partners could develop our business in products and services in the changing market. They had to demonstrate the ability to capture new channels for Nokia,’ Ainslie says.
The final decision was made last week, just before the winners were announced.
On the surface, Nokia didn’t rock the boat. It kept its biggest distributors, shook out the smaller players, and formally rejected the aspirations of Brightstar.
20:20 seems to have emerged as the big winner from Nokia’s review. It is the largest handset distributor in the UK and has a long relationship with Nokia.
The contract solidifies 20:20’s position in the market, and gives it a semblance of stability after a period when it has seen sales halved and has lost its contract with Samsung.
20:20’s position as the only distributor in the UK with official contracts with both Nokia and BlackBerry is expected to be exploited in the coming months.
Data Select’s pursuit of an acquisition of 20:20 didn’t stop Nokia from awarding the company the contract, nor did 20:20’s financial uncertainty, resulting from the takeover speculation, worry Nokia enough to stop it from choosing 20:20.
Ainslie says: ‘We went into detail about the financial capability of their accounts and we were confident of their long-term capability. We wanted to make sure they are financially secure because it’s a multimillion-pound contract. We don’t give them out lightly.’
It suggests that Nokia doesn’t believe the takeover will happen, but if an acquisition were to take place, new contracts with Nokia would be reconsidered, Ainslie says.
As for Data Select, it is now the only distributor with supply relationships with all the manufacturers, despite lacking the scale of 20:20 and Brightstar.
Meanwhile, Nokia made Dextra and Data Select its only accessories distributors, and Clockwork and Kondor lost their existing contracts.
Data Select and 20:20’s contracts run for two years. Although the general terms of the contract are the same for all, some specifics differ in how and where the distributors will represent Nokia according to the individual submissions of the companies.
With Nokia’s UK market share around 35%, those who don’t have a Nokia licence will see their playing field drop by over a third.
To keep the remaining 65% of the market, the non-Nokia distributors have to get every other manufacturer on board.
Brightstar is now resorting to its ‘Plan B’ (without Nokia). There has been a conspiracy theory that Nokia’s UK management is uncomfortable with a distributor that has the might and will of Brightstar becoming too powerful.
The immediate response is that Nokia’s decision will knock the stuffing out of Brightstar’s expansion plans, with its credibility under question, as it doesn’t stock the biggest manufacturer in the UK.
It has left 20:20 and Data Select as the only two players capable of supplying Nokia products to supermarkets, which is a hugely lucrative position to be in.
Brightstar’s optimistic view is that it would never be able to dominate its key accounts like Tesco anyway, so now it will attempt to dominate with all the other manufacturers.
Brightstar also believes that it will have greater backing from Samsung, Sony Ericsson and LG to build up their share, as it’s in the company’s interest to bring down Nokia’s dominance in the market.
Ainslie says of Brightstar: ‘They didn’t meet criteria and did not deliver as well as the others. It was a contest. In this space some are better than others.’
There is also believed to have been bad feeling between Nokia’s senior management in Finland and Brightstar on the European level, which may have filtered down to the UK and had an impact on the decision. Although Nokia works with Brightstar in a handful of countries, it is believed that those are in markets where there is no credible alternative.
The distribution landscape now mirrors what happened in multiple retail in late 2006, when Vodafone sided with Phones 4u and cut Carphone Warehouse out, and O2 temporarily cut out Phones 4u and went exclusively with Carphone. The handset distribution market now has a similar dimension with Samsung siding with Brightstar and Nokia with 20:20.
The theory goes that the model extends the power with manufacturers. This is dismissed by some with the rationale that handset distributors don’t enjoy anywhere near the power of retailers.
However, there is some belief that the new contracts are as much about Nokia taking greater control of the perennial struggle over pricing and grey trading. It is understood that the terms of the new contracts have stricter guidelines and recourse for Nokia against grey trading.
Grey trading has been pushed into the background in recent months with the unfavourable currency rate against the Euro. But there is an argument that if supply is greater outside the UK, and demand is higher in the UK, the smaller handset distributors will put huge pressure on 20:20 and Data Select by importing cheaper grey-market products.
The smaller distributors are less likely to be affected by not having a contract with Nokia because of grey-market handsets, which the smaller companies are likely to continue dealing in regardless.
None of the appl