7/8/2009 12:09:00 PM
T-Mobile’s profit gamble
T-Mobile was waving journalists away from the news that it is not going to be selling new contracts through Carphone Warehouse and Phones 4u for the remaining six months of the year. If any operator can get away with saying ‘nothing to see here’, ‘business as usual’, it’s T-Mobile. For the last three years, T-Mobile has reduced or withdrawn activity in the final three months of the year as a matter of course. Turning away connections from the independent retail giants for six whole months should be sensational, but when T-Mobile does it, it doesn’t surprise.
What is different this year is that it is six months rather than three, and Carphone and Phones 4u sources are describing it as a complete withdrawal despite T-Mobile’s assurances that it is a reduction of appetite rather than a complete loss. And of course, there appears to be a ‘For Sale’ sign looming over the UK business. T-Mobile has been the worst performing network over the last two years, characterised by lack of investment and direction, and marked by inconsistency, declining revenue and falling profits.
If a sale is to be achieved, it makes sense for new UK MD Richard Moat to cut both capital and operating costs to jolt profits. Company valuations are traditionally made by taking the annual profit and multiplying it by a factor representing confidence in the sector. T-Mobile’s parent, Deutsche Telekom, may not be able to control the latter, but it certainly has sufficient scope to make the UK business as lean as possible.
Much of this is already underway, with out-sourcing of divisions such as customer service and finance. Moat must ensure that while he carries out essential cost cutting, the customer base doesn’t go too far in reverse. That is a very real risk amid a slowing market, and when rivals such as Vodafone, Orange and 3 are showing signs of recovery.