6/23/2010 12:20:00 PM
State of play: distribution
The surprise news that Daisy has paid a £3.6m sum for Fone Logistics provides further proof that the mobile business is no stranger to mergers and acquisitions.
While the T-Mobile and Orange merger took place in one of the most visible parts of the market, behind the scenes the once unknown Daisy has been buying left, right and centre.
The distribution market is in a state of shake up, with fierce competition and increasing convergence starting to take their toll.
Over the past five years, the distribution market has changed significantly. Major names have disappeared from the landscape, while others have been snapped up by businesses looking to capitalise on a corner of the market that is not as stable as it once was.
Casualties of the distribution market include Advantage Cellular, European Telecom and Unique Distribution. Following their demise, only a core group of eight airtime distributors remained: HSC, Avenir, Mainline, Midland, Redstone, Fone Logistics, MoCo, and Yes Telecom.
But in just one year that number has shrunk to six, with Daisy bursting onto the scene after buying Anglia (formerly Redstone) last August and now Fone Logistics.
Initial reaction from industry veterans suggests that further consolidation was not a surprise – and that there may be more to come. One source says: ‘The Fone Logistics deal is just evidence of more consolidation in the distribution market because there are not that many dealers.’
And there is a general consensus that the number of dealers has reduced significantly from what it once was, making airtime distribution more competitive than ever before.
The new world order
A new distribution landscape is taking shape following the acquisitions and changes that have taken place over the last few years. Distributors are now defined by the network they connect.
HSC offers access to all the major networks apart from Vodafone, while Daisy, through Anglia, has now become O2’s biggest distributor, as well as offering Vodafone and Orange.
Avenir continues to be a strong partner of O2, as well as offering Orange and 3 airtime. However, Daisy will leapfrog Avenir to become number one in O2 connections following the Fone Logistics acquisition.
Shrinking dealer pool
When Daisy announced its purchase of Fone Logistics this month, Fone Logistics claimed to have 600 dealers on its books.
But some industry experts are sceptical, saying the decline in the number of dealers in the market means that some of these dealers might not be making a large number of connections.
Some industry sources believe there are around 900 dealers left – with only half of those providing regular business and high levels of connections to their distributors.
In practice, it often means distributors are relying on a very small number of dealers to hit the targets set by operators. One source says: ‘Most disties have their top 10 dealers, there is not a nice even spread of people doing the business. It is a sign of a very mature market.’
With a limited amount of dealers to target and sell products, distributors are looking to IT resellers as potential new partners. Distributors are being forced to be more creative and reposition themselves in the market.
Is the Fone Logistics purchase good for its competitors?
Despite the competition, distributors are optimistic about the ongoing changes in their corner of the market.
Just after the news of the Fone Logistics sale, HSC sales manager Carlos Pestana claimed: ‘We are really excited about Fone Logistics being bought. It leaves us as one of the few remaining distributors in the market with multiple network agreements and a big base.’
The Fone Logistics sale has also been seen as ‘an opportunity’ for distributors to attract new dealers.
However, others have taken a different view, saying the revenue share model would prevent other distributors from poaching Fone Logistics’ dealers.
One distribution source says: ‘Having revenue share now makes more sense. In the past, distribution meant that a dealer could work with you one month and move to someone else the next month. With revenue share dealers more loyal to the distie, it could have made the acquisition more likely now that the dealers are locked into Fone Logistics.’
There are also new players coming into the market. Micro-P offers the widest range of networks to its dealers, while GK Telecom provides T-Mobile and 3. And despite the sale of Fone Logistics, former MD Ian Gillespie and financial director Michael Fitzpatrick are about to set up a 3 solo distributor – a first for 3 and the industry.
The changes that have taken place over the last few years
have set the path for a few more firsts in the future, which airtime distributors have proven by bouncing back from pessimistic forecasts.
Most distributors are now owned by a big parent company, suggesting that the big shots still think they have a place in the market. Big company investment might change the shape and feel of distribution, but it continues to provide a boost to a corner that is often overlooked.