6/25/2009 6:57:00 PM
Operators see margin opportunity by taking out Phones 4u
A consistent bleating from operator executives has been heard over the last year: there are too many big competitors to warrant the riches of the UK market. And it is the operator balance sheets where you need to go to find the rationale behind buying Phones 4u.
The operators (guardians of the industry’s purse strings) feel there is too much competition in a saturated market, and are pushing for consolidation in all segments. The catalyst behind potentially taking out Phones 4u is
one clear reality: rapidly declining margins for every operator. Networks are attracted to buying Phones 4u and splitting the retail stores between them, piqued by the potential of reducing industry churn and cost in acquiring customers.
The belief is that Phones 4u’s alignment of Orange and Vodafone acts as an expensive method for those two networks to attract customers, while blocking out the others. Operators have said the most alarming data they see is the rate with which value and margins are falling in the industry. The perceived competitive nature of the industry has led to a willing party always emerging, which resorts to undercutting the prices on the shop floor.
Removing Phones 4u (it is hoped by operators) will stabilise the market and arrest that level of margin decline, as the smaller players (T-Mobile and 3) won’t have to resort to discounting to remain active. The main difficulty in buying Phones 4u is unsurprisingly, price. Networks have to find the money, justify it and then hope they can interest Phones 4u’s shareholders.