Speakers’ Corner: After the gunfight

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This industry has grown up like the Wild West, from frontier town to new industrial centre.

Mobile is one of the best industries to be in when there’s a recession. There is huge demand that will not go away. Okay, people may shop less and stay home more, but it is unthinkable they will forego mobile connectivity – voice, SMS, web on the move.

But there is a problem for the indirect sales channel, one traditional stronghold of the mobile market. Dominant companies are increasingly taking as direct a route to market as possible, in an attempt to reduce costs and survive.

In fact, they look set to buy each other out in order to get a grip on shrinking margins. The sense is the monopolies commission will view any such takeover as if it is a competitive move in a board game, and pass it without fuss, giving the green light to a kind of legal cartel.

Would this, the takeover of a UK network operator like T-Mobile, present the distribution channel with an opportunity? Well, what is the distribution channel now? It used to comprise independent dealers, in the large part.

Now it has a much wider definition, which takes in networks’ direct sales operations to consumers and businesses, via physical retail, online retail and all kinds of new third-party MVNOs with strong brands of their own.

These next 12 months are basically a time for survival for everyone, and it is important for the dealer channel to work out where it will be when the up-turn comes.

The networks cannot enjoy the cost of their retail estates at present, and I think there may well be a return to independent dealers (franchises) and volume retailers as the networks try to reduce costs.

The old adage was always it took 80 stores to claim to be a national chain and 250 to claim proper national coverage. What that gives the networks, each with 300-400, or Carphone, with over 800, is unclear.

But I think that measure is still relevant, and will become increasingly so as larger groups retreat from secondary locations and make room for independents again – by the end of next year, maybe.

Planning for the upturn, the dealer channel has to factor in the reduction in upfront commission from the new ongoing revenue share model too, of course.

Franchising – as I am proving with Fonehouse, and O2 is also proving with its own retail model – is one way to go here. It represents a serious strategy for  airtime suppliers, alongside their developing MVNO businesses.

This new age in mobile will also see an increase in the dominance of handset brands. Apple has proved this. Turmoil in network land has not gone unnoticed by brand manufacturers. We will see how much more power goes to manufacturers in the coming years.

Then of course we have the new laptop market. Carphone was again a pioneer here. Its desire to broaden its product range is based on a belief that mobile phones cannot continue to sustain a high-rent retail chain.

The worrying thing is I don’t know of anyone making money by selling laptops at present. And that is a risk.

Perhaps when Carphone splits its telecoms provision and retail businesses, it will make better sense to its bottom line.

But it is admirable Carphone/Best Buy reckons it can win where Dixons and others appear to be losing. It will depend on how much recurring revenue remains with the retail part and what goes to Carphone’s networks business.

Phones 4U, its main rival, may be gobbled up and split, so early congratulations to Charles Dunstone for winning his battle with the old John Caudwell empire. You have to admire the gumption and relentless determination.

So how will retail look next year? There will be consolidation, for sure, but the local dealer in secondary locations will re-emerge, selling a wider product range than before to both consumers and business customers.

There will also be lots of network brand choice through MVNOs, and a few empty stores on the high street. 

The economy will go through further upheaval (thanks to a psychosis of greed and blinkered stupidity) – I thought it would blow in 2006, so I was a year or two out.

Inflation, which is inevitable with higher interest rates and unemployment, will curtail disposable income severely so value will become even more important. The green revolution is growing – suddenly, a marketing man’s dream – so watch how retail continues to play it.

One of my ongoing gripes in this market has been the lack of clarity and shared foresight from network ‘partners’. Having to run a business that turns on a dime with just hours notice of change is always hard on the nerves. It’s also not practical.

Conversely, the current economic climate will make the networks more predictable and might just force the sensible out and the risk-takers forward.

Optimism and pioneering spirit is required – a leap of faith in one of the best consumer markets, ever. One of the most constructive outcomes of all of this will be the re-emergence of some lost values such as trust, confidence and keeping promises. We’re all going to have to know who and what we are dealing with in our future relationships.

The cowboy will have to leave town, the sheriff will be honest, the judge will be more balanced and the townsfolk will know they are being looked after fairly.

Wow….sounds like a revolution.

This article originally appeared in Mobile News issue 444 (July 27, 2009).

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