5/8/2009 5:45:00 PM
A move towards revenue share was inevitable
Following various recent articles regarding revenue share and the impact on the dealer community, we would like to share our views from a distribution perspective and also state the HSC policy on ongoing payments.
After many years of customer acquisition and base-building, it was inevitable that the commercial model of mobile would eventually start to move from subsidy towards revenue share. A parallel can be drawn with the fixed-line channel, which is almost exclusively revenue-based. The winners in that channel are the businesses who bill the most customer revenue. And you’d do very well to get anywhere close to the 40% that we’re paying on O2!
The mobile channel needs to accept the changing model and ensure that our businesses can adapt. By all means, keep the dialogue going with the networks. Big changes often require slight modifications before they settle. We also need the operators to understand the inevitable volume impacts as the channel and the customers react to the changes.
We do expect there to be casualties of revenue share. Dealers with high fixed costs and low cash reserves may struggle to cope with the reduction in upfront commissions. Dealers whose average customer spend is well under £40 may not see sufficient revenue share coming through quickly enough. These businesses are at risk and need to take immediate corrective action.
To make sure that there is absolute clarity in channel, we would like to state that there is nothing in the HSC dealer agreement terms and conditions to stop paying out revenue due to a dealer if they are not actively trading with us. We would happily honour revenue payments to all dealers for connections made with HSC as long as the network is still paying us. We would always want to be able to look them in the eye and welcome them back in the future.
The only reason we withhold payments due to dealers are if outstanding invoices outweigh the credits, or we have good reason to believe that future clawbacks will occur. Even in this scenario, the revenue share credits will still be made to the dealers account and released once the account is in credit and/or a reasonable clawback period has passed. The same applies to customer management. An active customer on the HSC base will be managed in the normal way irrespective of current sales.
The mobile dealers who concentrate on building and maintaining a higher spending customer base will ultimately thrive in a revenue share world.