The impact of Carphone and Vodafone's renewed relationship

The impact of Carphone and Vodafone's renewed relationship

There was a victorious mood at Carphone Warehouse’s staff conference in Birmingham last Thursday (2 July).

Vodafone’s consumer chief, Ian Shepherd, attended, telling Carphone’s staff why the operator was returning to the retailer.

There was also news of Carphone scrapping commissions and the expansion of the larger format ‘Wireless Warehouse’ stores. Sales on the ground may be tough, and there have been countless anecdotal reports that Carphone has been far from immune to the pain on the high street. But make no mistake, this was morale boosting stuff.

Vodafone forced into u-turn
The appointment of Guy Laurence as Vodafone CEO for the UK in January, replacing Nick Read, widely believed to be the architect of the Vodafone withdrawal in October 2006, was seized upon by Carphone as an opportunity
for rapprochement.

It coincided with Vodafone trailing even further behind O2 in the leadership of the UK market for successive quarters.

Read took on a larger role covering Vodafone’s emerging Asia-Pacific territories, and while he presided over a successful time for the UK in his initial period at the helm, his final 12 months were marked by rapid
decline in profits.

Guy Laurence was brought in with the brief to arrest and then reverse the decline. Although there is no direct link between Vodafone’s exit from Carphone and the fall in profits, it was quickly on Laurence’s agenda.

He is understood to have sought answers from consumer chief Ian Shepherd (pictured, left), and the two began contact with Carphone in late April/early May 2009.

Swift and energetic negotiations with Carphone’s top brass – chairman Charles Dunstone, CEO Andrew Harrison (pictured, right), commercial chief Graham Stapleton and trading chief Mark Eastham – soon followed.

Vodafone’s sales chief, Tom Devine, and indirect boss Nick Birtwistle were brought into the negotiations.

Within two months, sales of new Vodafone contracts were available again in Carphone’s 800 stores this week, starting with the Nokia N86.

‘There was a possibility things could change’
The reality is, Vodafone has been forced to review its distribution strategy, even if it means implementing a rather public and embarrassing u-turn.

Shepherd says a lot has changed since 2006. ‘Our pricing has tightened and
we cut roaming for summer. We want to remind people that Vodafone is the top brand in the UK and are trying to increase sales.’

He adds: ‘We wanted long-term customers and we have got that. Clearly, there was also the possibility that things would change. Our churn is lower than it was. We have nearly doubled sales in our direct channels.’

Phones 4u sources say it has maintained the share/volume commitments it made to Vodafone, and it is inevitable that Vodafone’s own stores have doubled their sales given its investment in direct channels and specifically new shops. But Vodafone is still lagging behind the market leader, O2.

The intended wrestling of power away from Carphone appears to have failed.
O2 appeared to join Vodafone’s strategy to undermine the independent retail model by trying to exit Phones 4u, but sales are understood to have dipped immediately and failed to recover through its plan of own stores plus Carphone.

O2 restored its relationship with Phones 4u, while Vodafone dug its heels in.

Shepherd remains confident that some aspects of the plan have worked: ‘If you compare the distribution landscape [from three years ago], the norm was lots of short-term [sales and arrangements with retailers], and not building long-term relationships. Churn and complaint levels were high.

After 2006, long term got better, there were more upgrades and less churn.’

That may well be true, but it is unlikely that is purely – or even largely – due to Vodafone’s actions. And the operator could have achieved those
aims more efficiently without the damage to its sales and profitability
in recent years.

Validation for independent mobile retail?

The biggest outcome is that the whole process has restored the validity and credibility in independent mobile retail.

Carphone, Phones 4u and sources at the networks say there has been little change in market share for new connections since 2006, despite overall sales declining.

‘This just proves there will always be a large section of the public who don’t care about network and want independent advice and choice of handsets,’ said a senior source in the industry.

There are undoubtedly fewer opportunities for both Carphone and Phones 4u, as operators become more adept at retaining customers and running their direct channels.

Both retailers also appear to be taking a more collaborative approach with operators, showcasing what they can do, embodied by the tour of the Wireless Warehouse stores that Carphone’s senior management gave to their
peers at Vodafone.

What about the other networks?

Vodafone was not due to officially go live in Carphone stores until September. But the remarkable speed of it entering into Carphone has been possible because of the sudden and dramatic decision by T-Mobile to cut its appetite for new connections from the start of this month. It has left a hole Vodafone has been glad to fill.

There are unlikely to be many new customers at Carphone as a result of Vodafone’s return, it will simply give the operator a larger share of its total connections.

As well as taking up the slack left by T-Mobile, many believe Orange and O2, Carphone’s closest operator suppliers, will go to Phones 4u to bid for a bigger share of its total connections.

Others dispute this. Some analysts estimate that Carphone has paid £20m per year in lost profits as a result of Vodafone’s exit, arguing that it undermined Carphone’s ethos of independent advice, and left it without Vodafone exclusive handsets and its mobile broadband.

That is likely to all be restored. The rancour that existed between the two behemoths of the industry may still be simmering underneath the façade of co-operation, but both companies need each other more than ever for their respective strategies.

Why and how did Vodafone pull out?

News of Vodafone’s return to Carphone Warehouse could well have provoked a wry smile from Carphone’s former trading director, John Durkan, somewhere in Australia.

The fallout emerged as Vodafone grew irritated by Carphone’s posturing under Durkan, and by the guidance of Carphone chairman and former Tesco chief John Gildersleeve.

Durkan’s no nonsense, rigorous approach to supplier relations was in stark contrast to the friendlier, cosier style that had been the hallmark for the industry accustomed to relentless growth. Durkan sought to maximise Carphone’s scale and extract the best terms for the retailer, putting many suppliers’ noses out of joint.

Vodafone’s consumer chief, Ian Shepherd, and CEO Nick Read were irked by Carphone’s style and the potential threat of the retailer raising commissions as well as taking on the mantle of the powerhouse of the industry.

With Vodafone enjoying successive quarters of growth and being the number one operator at the time, Read plotted a sequence of events to cut Carphone.

Finance, marketing, operations, handset buyers and PR executives were called in to assess the ramifications of what would be a sensational exit.
Vodafone gradually exited The Link (the third largest independent retail chain at the time) and Dial-A-Phone (a major player in the contract market).

Vodafone then terminated Carphone’s in-house customer service management of Vodafone customers, who signed up through C
Written by Mobile Today
Mobile Today


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