Tesco Mobile has thrown down the gauntlet to rivals, launching a renewed assault on the mobile market, after ditching its distribution partners to go direct to manufacturers.
The move, revealed by Mobile last week, sees Tesco turn its back on distribution partners Brightstar, Exertis UK and Tech Data Mobile in favour of direct trading relationships with Samsung, Sony, Microsoft Devices, Motorola, HTC and Doro. Termination of the multi-million pound distribution deals will come as a blow to the three distributors. Tesco Mobile is estimated to sell up to two million mobile phones a year.
Sources say savings from terminating the distribution contracts will be used by Tesco to fuel high-profile marketing campaigns across the media, in the retailer’s 250-plus Tesco Phone Shops and online.
The move will also support a major promotion of Tesco Mobile contracts, which follows Tesco Mobile’s decision to phase out sales of other network contracts in Tesco Phone Shops later this year, say sources.
They claim the retailer will use its direct relationship with manufacturers to negotiate exclusive, cut-price deals that will see flagship devices bundled with Tesco Mobile voice and data plans.
One industry source said: ‘Tesco Mobile is big enough to do what it wants. It’s a big animal that wants to get bigger, on its own terms.’
However, industry players predict that Tesco will find the complexity and unpredictability of the mobile market a challenge. One source said: ‘I’ll give them two years, then they’ll be back.’
Strategy Analytics director Neil Mawston echoed this view. He said: ‘Tesco is a value-based service and needs to ramp down its costs wherever possible and cut out the middleman. It’s a multi-billion logistics giant so it is capable of doing this. However, whether Tesco can sustain the complexity of mobile logistics remains open to question. If it was that easy every major network operator would be sourcing their own phones.’
IDC’s devices research manager Francisco Jeronimo said the move makes economic sense for Tesco but would be more of a challenge for manufacturers. He said: ‘I’m surprised Tesco’s taken so long to do this as it easily has the resources and the volume to go direct.
‘But for vendors it’s easier to commit a certain volume with distributors, also vendors will now have to dedicate extra resources to dealing directly with Tesco, so this arrangement is more in Tesco’s interest. Tesco is also well known for driving a hard bargain with suppliers and will probably look for better margins from vendors than it had with its distributors.’
However, Jeronimo said Tesco was unlikely to start a price war in the market. ‘That would be very unpopular with other retailers such as Carphone Warehouse. Manufacturers do not like price wars.’
Tesco, Brightstar, Exertis UK and Tech Data Mobile declined to comment.