Dangaard chief operating officer Michael Køehn has said it in these pages repeatedly: acquisition of facilities and good will is the only real method for entry.
The UK subscriber market is saturated, the channel is consolidating fast, and slick logistics and sizeable sales contracts are a prerequisite for distribution. Even Brightstar, the newest UK entrant, is riding the coat-tails of IT distribution centre Computer 2000 through its joint venture with Tech Data – and, by all accounts, it needs more time.
So why has Polish billionaire Roman Karkosik – the Warren Buffett of the Warsaw Stock Exchange, worth around €3 billion and ranked 557 in the world on the Forbes rich list – bankrolled Preston-based start-up distributor Advantage Cellular Communications? And why would 100-odd industry heavyweights, including potential distribution rivals Data Select and Fone Logistics, turn up to the opening of a Didcot warehouse that, last week, had not even ‘distributed’ a single handset?
Meeting business objectives
In simple terms, Advantage’s distribution business was set up in the first instance to serve its two chief protagonists’ original business objectives: Karkosik’s plan for a UK MVNO and Advantage chairman and chief executive Simon Earle’s plan for a new UK B2B connector.
Karkosik originally made his name in heavy industry – steel, copper and chemicals. He has since ventured into internet service provision through Polish telecoms company Centernet, wholly owned by Karkosik’s Midas investment fund.
Karkosik now wants a piece of the telecoms space: Centernet has tendered for Poland’s fifth national, and first 3G, network licence, and he has leased the Extreme youth brand for an MVNO across 26 territories, starting in the UK at the end of Q1 next year.
Earle, a veteran of US distribution giants Cellstar and Brightpoint and one-time candidate for the stewardship of Brightstar Europe, was put in touch with Karkosik in December last year. Earle saw B2B as the growth area in the UK market, and was looking for ways to reignite his old Advantage trading operation, which stopped activities in 2002 when Earle became ill, just as ‘grey’ market trading took root in the sector.
On meeting, and discussing the project with former Unique managing director John McFarnon, they thought it sensible to combine the B2B and MVNO businesses, and to underpin them with a new-look distribution business.
Outsourcing the fulfilment work to multiple third party distributors was considered an unsatisfactory logistics solution and acquisition of a UK business to carry out the work was ruled out on the grounds none were equipped to do it. Better to set up a brand new UK distribution business altogether, with a brand new approach, concluded Earle.
He said: “All the other distributors have issues of their own at the moment, such as the repercussions of VAT washing, or ‘grey’ market trading, or simply an old fashioned box-shifting approach to distribution. We don’t have any of that. We are clean, fresh and, at the same time, we have lots of experience.”
McFarnon added: “Pure distribution, as it used to be, doesn’t make sense anymore. There are still a lot of them out there and they do fine. But there are also businesses like Comment and Shebang, which have carved out a niche for themselves. They are different. They are not classic distribution. It is a new age. Most of them are small, low cost, controlled and they make money.”
Advantage is intended to be somewhere in the middle: a profit-making volume distributor with original value-added services.
McFarnon joined as group managing director in July. Since, a fierce recruitment drive has seen around 70 staff join its Preston office, which houses telesales, customer support and group accounting, and the new Didcot distribution centre, which has warehouse and sales functions.
McFarnon contacted Frank Masson, veteran of T-Mobile and European Telecom, to take the role of group sales director. Following its demise, Masson cherry-picked from his old B2B sales team at European Telecom and, ahead of its move to Hayes and his own exit, McFarnon took on a tranche of old colleagues from Unique, including former marketing director Graham Jelfs. Advantage has picked up about a dozen staffers from each.
The turnout in Didcot last week was a testament to the calibre of the management team Earle has put together at Advantage.
There are supply contracts in the bag too, and more to follow. As it stands, the airtime operations are the only sales units already running. Vodafone has signed Advantage up as a direct B2B dealer. A direct B2B deal with T-Mobile is understood to be in the offing too, although neither Earle nor McFarnon would comment last week. T-Mobile and Orange B2B connections go through third parties at present.
3 has also signed Advantage as a direct airtime distributor for consumer connections, put through Advantage’s new automated credit checking system, Advantage Plus.
On the devices side, Motorola is expected to confirm a direct handset distribution contract with Advantage in the next few weeks, although, again, there was no comment from Advantage. Negotiations with Samsung are also understood to have taken place. The handset arm starts trading this week, for the time being, through third party purchases.
Distribution plans in place
The distribution business is organised to run handset planning, ranging, provisioning, configuration nd network approval for the Extreme MVNO, which runs on Vodafone’s network. It is also set up to provision bespoke B2B services and applications.
Midas, Karkosik’s investment fund, purchased developer mLife in June. The master plan is for mLife engineers to develop software for the Centernet network and the Extreme MVNO in Poland, which will use Centernet as its host network provided Centernet secures the fifth Polish network licence, or else will lease airtime off another Polish operator.
And McFarnon, following discussions with consultant technicians to the networks, has recruited a team of in-house programmers to write software for the B2B unit and the MVNO. It has also deployed a programme, called Gamma, which enables software to be configured for different handsets. “No one else has that,” said McFarnon. “Everyone else is writing in Java.”
Both the UK Extreme MVNO and Advantage’s B2B arm can utilise mLife’s software expertise in Poland and the new engineering resource at home. With Extreme, McFarnon is looking at digital content provision for the youth market, which counts around 11 million between the ages of 10 and 24 in the UK.
McFarnon observes that Extreme cannot market to under-16s, and will only appeal to a “sizeable niche” within that demographic, but maintains it is a sector that goes largely untouched by the ‘vanilla’ services offered by incumbent networks.
The B2B division is also looking beyond straight mobile voice and text. Masson wants to secure supply contracts for broadband, IP office systems, web services and web design. Services like telematics and other location-based services will be deployed in both channels.
But Advantage’s business units are separately listed companies, sharing overheads and support, and the distribution business will go after sales contracts on its own terms.
“Distribution has changed significantly – and for the better. We are set up to serve the large supermarket MVNOs and non specialists. Huge volumes of business are generated through those channels today,” said Earle. “At the same time, we will service the dealer channel and look to trade with other distributors, which are both suppliers and customers, as well as competitors.”
High-volume fulfilment deals with the likes of Tesco are, clearly, the ultimate target, and McFarnon certainly has a good record with Tesco from his time at Unique. But the handset distribution arm will look to run direct fulfilment solutions for medium-sized business retailers too, and McFarnon is just now setting up its own direct SIM-free and airtime sales online and off the page, which will run under different brands.
McFarnon puts it in perspective: “The first thing is, we have to deliver to the end user. Today, launch day, doesn’t matter. It’s PR and a glass of champagne. Tomorrow and the day after is what counts.
“And it won’t be easy. There are some good operators out there, that know what they are doing and have been around for a long time. At the same time, we are not frightened of anything. We are looking forward to the challenge.”
In other words, let battle commence.