European Telecom chairman Nico Dervisaj held talks with Fone Logistics managing director Ian Gillespie about the possibility of a merger or joint venture of some kind 12 months ago. In the event, the timing wasnt right for either party.
Since then, however, the UK distribution channel and the mobile phone industry as a whole has changed dramatically. The timing is now absolutely right for a merger, reckons Dervisaj.
He says of the Fone Logistics talks now: We would definitely consider that option again in view of the market now.
Dervisaj is certainly not alone in his concern for the future of distribution. He is, however, more candid than most.
It is the toughest part of the industry, and I cant see which distributor isnt having headaches at the moment. In the next 12 months, there will only be five distributors left. It is very, very difficult, he says.
European Telecoms best chance of a happy ending in a consolidating market place, where the networks have pulled rank and giant US distributors have drawn up their lines of attack, is to combine with a rival UK business, according to Dervisaj.
He speaks in general terms, but he is not afraid to name names Data Select and Fone Logistics are top of his list of partners, even if he hasnt held formal talks with either.
At the same time, Dervisaj says he will talk with businesses of any size, from dealerships to international distribution companies, as long as they are mutually complementary.
We are looking to merge with other distributors, not to acquire them. We are looking at an exchange of shares and so forth. If a few medium-sized distributors combined, it would make a very sizeable player with very broad expertise. I want to talk to anyone that can bring value to our business, and to whose business we can bring value ourselves, he says.
As it stands, European Telecoms business profile is slanted towards airtime distribution. The handset trading business has been run down by a combination of the government s aggressive attack on the trading sector to wipe out VAT fraud and a scarcity of direct distribution deals with manufacturers in the UK.
The imminent arrivals in the UK of US handset distributors Brightstar and Brightpoint do not lift Dervisajs optimism.
He explains: Especially with the big US distributors coming to the market, we cant compete on SIM-free kit. The weakest part of our business now is SIM-free trading as we dont have any direct relationships with the UK manufacturers and dont buy from the open market because of the HM Revenue & Customs situation. Handset trading is really, really down.
But airtime distribution is stressful too, of course. The distribution climate is stormy because the networks have changed their focus at such short notice.
The networks drive distribution and they have all decided to focus on quality rather than volume. The thing is that quality will never pay as well as things stands, anyway. That has got to change, he says.
We are funding the networks because we are paying our dealers to make connections every week, and the networks are suddenly paying us differently it is going to take five months to change our business model.
All the risk is with the distributor. Half way through the month, the networks tell us they want fewer customers of this sort and more connections of that sort it throws our forecasts out of whack.
Only time will tell if Dervisaj can make the deal he clearly feels the sector needs.
On the market: Dervisaj talks friends and rivals
Data Select does certain things that European Telecom does not and vice-versa together, it could be a great business.
A merger with Data Select would enable us to fight against these new US super distributors. I want to chat with [Phones International CEO] Peter Jones about the possibility. I have met him on a few occasions and he has impressed me very much. I like the way he does business.
The right size would be if European Telecom combined with Fone Logistics, say, and another, smaller distributor. I have sat down with [Fone Logistics MD] Ian Gillespie before. I have known him for 12 or 13 years, and we sat down about 12 months ago to look at the possibility of a merger.
The timing wasnt right then, but we would definitely consider that option again now.
Of course I would be interested in doing a joint venture with 20:20 as well but the question is: what can we bring to it that it doesnt already have?
Obviously, I know what it could bring to us. And I have to be humble. But if [20:20 CEO] Mark Ryan phoned me tomorrow, of course I would be interested in what he has to say.
MoCo is a very good business that could possibly fit with European Telecom, but there is a fair amount of overlap as well. I have met [MoCo MD] Ian Robinson and liked him very much. And I know [MoCo founder] Maurice Whelan as well.
Avenir is a very good distributor. [Avenir MD] Tanny Price is doing a great job. She is very professional and I am amazed at the job she has done there. I cant see how a merger would work with Avenir because it is owned by the Avenir Group. But we would be very happy to collaborate with Avenir, of course.