Why T-Mobile dropped most of its indirect base?

Why T-Mobile dropped most of its indirect base?

Two-thirds of T-Mobile’s indirect base has been culled as a result of the evaluation period set up by T-Mobile’s new head of national sales, John Fannon. According to the operator, this was an inevitable result of the evaluation process – those cut were bringing in only 5% of the business volume coming through the indirect channel.

Fannon says: ‘We’ve lost quite a few partners which we anticipated… we needed to see who was open for business.’

In total, T-Mobile has cut one distribution partner, 537 dealers, 34 direct dealers and three business partners. Approximately 130 of the cut dealers have received a letter informing them – the rest will be informed shortly, also by letter.

Fannon says: ‘We’ve been very transparent about what our independent channel consists of and the rewards at each level, and what you need to achieve to get those rewards.’

Those wishing to re-apply face a stringent reapplication process. ‘If a former partner wishes to re-apply, we are happy to consider each case on its individual merits, but we need a valid reason and/or commitment from that partner in order to do so,’ Fannon explains.

As it stands, the 537 dealers will not be able to re-apply. Only the former 34 direct dealers will be able to re-apply for T-Mobile airtime through a distributive partner.

Fannon told Mobile that Fone Logistics would be terminated as a distribution partner and would not be replaced.

But even with one distributor dropped, the 537 dealers cut means a substantial decrease in the pool of dealers available to distributors to sell T-Mobile deals.

One dealer told Mobile: ‘I feel sorry for the distributors, they will be hit harder than the dealers. Smaller businesses can adapt, but they’ve got no power over the network.’

The pressure began to build in May when T-Mobile moved further toward direct-to-dealer sales in its indirect channel. Distributor targets were lowered to reflect this - targets dropped from 2,000 per quarter to 1,500 including upgrades.

Fannon says: ‘We put all our minimum performance levels (MPLs) down and at the same time I agreed to count upgrades and retention as part of that.’

However, the cuts by T-Mobile mean more pressure on the distributors, as there are simply fewer dealers to fight over.

Dealers seem less concerned about the cuts. For them, the terminations are just part of a long line of adjustments by the networks at the moment, and they are sure that the robust dealers among them will bounce back.

A common gripe is the lack of clarity from T-Mobile. The dealer says: ‘A year ago, they said they were backing the independents but there’s no consistency, this is just another stab in the back for independents.’

Others see this as part of the broader move to concentrate on direct sales. Another dealer says: ‘It certainly looks like they are going more direct, they have their own website.’

While another adds: ‘They have some good online deals; they are always undercutting the dealer.’

On the whole, dealers feel it is futile to resist to the changes and highlight that there has always been a lack of communication between the dealer and network.

The first dealer says: ‘We agreed to being resellers and to not have a direct relationship with the network… we were happy with up-front commissions…  [the system] is this way because of the dealers’ greed for commission and the networks’ greed for connections.’

‘We’re taking non-performers out’
T-Mobile’s explanation for the loss of such a large volume of partners is that they were only bringing in a meagre percentage of the overall revenue of indirect sales. Fannon says: ‘[The two-thirds cut] actually equates to about 5% of our business volume within the channel. Essentially it means we’re taking non-performers out.

‘The people left are the partners we can develop and grow. We will now work smarter, harder and closer to those organisations to make sure we can help them take advantage of the opportunities in mobile.’

T-Mobile’s head of independent retail, Roger Fletcher, says: ‘We talk a lot about these MPLs but really they’re just a marker for who we’ll deal with, now we’re there, it’s not about that.’

Fannon hinted that opportunities such as broadband and convergence devices would be taken to the indirect channel. He says: ‘We can now focus the money and the resources, and the time and the effort on that commitment.’

A changing landscape
Fannon also highlighted that the channel partner cuts were in accordance with a changing landscape of indirect sales: ‘Overall the number of dealers is falling. It’s not surprising we want to look at how to expand and deliver better quality.

‘Volume in the mobile industry is nothing like the volume a few years ago. In those days you could do enough business to keep every network mouth fed, now dealers must choose who to do business with.’

But some in the indirect channel see it differently. One dealer says: ‘No, I’d disagree. If you’re good at your job, you can [do all the networks] but it’s getting harder, I’ll give you that. You have to adapt but it is possible.’

Dealers highlighted that the move by T-Mobile to cut its indirect partners, could be a high-risk strategy due to the inevitable reduction of its customer base.

One source wondered what would happen to the customer base of the struck-off dealers. He says: ‘Who is picking them up? It feels as if [T-Mobile] are saying we’ll play with the top 50 but we don’t want to play with the bottom 50. That may give them better quality but it also shrinks their [dealer] base.’

T-Mobile indirect could be at risk if it loses consumers because it is now reliant on a smaller volume of channel partners and the strategy rests heavily on customer retention. The chance of new connections is reduced by sheer probability.  

‘Statistically, however hard you try to keep them, you will always lose customers,’ says one dealer.

But, he says: ‘Because T-Mobile are a network, they have the direct side for new connections.’

There is speculation that the cut to the indirect base is part of a wider strategy by the network to button down the hatches as the year comes to a close.

One dealer says: ‘It’s not surprising in the current, financial climate that they are battening down the hatches.
‘The end of the year is coming, the networks usually slow down because they have to but with the recession it seems to be worse.’

Another dealer says: ‘It’s very bad financial management; they’ve run out of money three months before the end of the year.’

T-Mobile tightens its belt
T-Mobile is understood to be cutting costs by deferring customer upgrades. It is offering customers a £5 discount off their bills if they wait until January for their upgrade.

It is old news for those connected with T-Mobile, as the operator has seen its acquisition budget drained as it approaches the final three months of the financial quarter for the last three years.

More evidence that the network is cutting costs was reported earlier this month by Mobile: T-Mobile outsourced one third of its finance team earlier this month, cutting 100 of 300 UK-based finance jobs.

The changes at T-Mobile indirect seem to be laying the groundwork for a revenue share model. It has rewarded for upgrades as well as connections since May. Fannon says: ‘Commissions have been built to reflect retention not new connections.’

When asked about a revenue share, Fannon says: ‘It’s something we’re looking at and will come in next year.’ He pointed out that the network had been using the ongoing model on its business customers sinc

Written by Mobile Today
Mobile Today


Please wait...

Please write code to prove you're human