Surely next year can’t get any tougher for the independent dealer can it? Probably not but it is likely to remain tough but possibly slightly less of a struggle.

The wrongdoings of cashback have dealt a serious blow to the independent channel – customer confidence in their local mobile dealer is at an all time low and who can blame them? No doubt direct dealing from the networks will continue to be prominent, despite their insistence that the indirect channel remains of paramount importance to them. But all will not be lost for dealers.

Indications towards the end of this year have shown that regulatory bodies like Ofcom are showing a key interest in firmly clamping down on cashback. The meeting between it and dealers next month to discuss this will be a key turning point.

We will see more dealers try to form closer alliances with one or two networks in an attempt to stay afloat in the consumer market and they will finally pull together in a collective effort to combat these problems.

Dealers branching into B2B will be a more prominent feature next year. O2, Vodafone and Orange’s offerings will become stronger and with 3 entering the arena in Q1, there will be a lot more to offer. After the struggles of the consumer market this year, dealers will know it’s time to offer more.

The BlackBerry range will continue to expand and with HTC being successful in establishing itself as a major player in B2B handsets this year, the portfolio as a whole will explode, along with data speeds which will reach double figures very early on.

Bet on Nokia

Handset capabilities have exploded in 2007 and will continue to move forward next year, shown by the rise of 5-megapixel cameras, Wi-Fi and music capabilities. Mobile entertainment as a whole has taken off with the launches of MusicStation and the Nokia Music Store, and there will be more vendor/network partnerships to ensure they aren’t left behind.

Nokia will continue to head the UK handset market and the 8GB N95 will be a big seller into the early part of 2008. But Samsung and Sony Ericsson will continue to develop their portfolios and could close the gap.

Rumours have been rife that sales for the Apple iPhone have been slumping of late but we will see a small improvement here when it is released to the indirect channel in Q1. However, it won’t be until the rumoured 3G-version is released that we will see a real significant impact.

It is also likely that Vodafone will once again team up with The Carphone Warehouse to revive new connections. This will follow the recent re-alliance of Phones 4U and O2 because both will not be able to stand the thought of losing each others’ business.

Congestion charge

The distribution channel has become congested and even tougher and we could see some fall by the wayside.

It will be all about consolidation here and because dealers will branch more into B2B, there will be a bigger shift from consumer to business and distributors will ensure that they offer dealers more, such as broadband and fixed-line.

Smaller distributors will continue to experience a tough year and will have to find a niche in order to survive, but we will see a rise in the number of distributor/MVNO’s partnership as the market will threaten to explode.

For 18 months following its launch in 2004, Motorola could not sell enough RAZR phones. It came in volume, in colour variants, in various retail and network exclusives. It came thick and fast, and Motorola got fat on it – fat, and arrogant and lazy.

Customers, sold on its good looks in the first instance, churned to rival manufacturers on upgrade because of the awkward user interface. In Europe, a market that grew up with Nokia handsets, the interface was clunky and illogical.

No matter, Motorola dropped the price, gave it a facelift and a lick of paint, and made it available to the mass market; then the prepay sector. And, anyway, punters at home still bought Motorola.

A family of RAZR clones and derivatives was born, consumers shrugged, and Motorola started to haemorrhage money. The fact it is now embroiled in a tussle with LG Mobile for fourth spot in the UK, a crucial market, shows how far it has fallen.

But no one doubts Motorola. Its network, retail and distribution partners expect it back soon – well possibly late next year, and certainly by 2009. The arrival of Mike Fenger, and the new autonomy granted UK and Ireland boss Jim Michel, are the first tangible signs of Motorola’s rebirth.

Michel’s counterparts at Nokia, Samsung and Sony Ericsson have full control over their markets. Until now, Michel has been required to call up Chicago every time there has been a dispute or a deal. His job is the toughest of any UK manufacturer chief, but Fenger’s appointment and his expanded control make it simpler to get right, and perhaps to get wrong.

Michel is rightly excited. He compares Motorola in the UK to a “start-up with good backing”.

His point is network operators break the link, common to most other consumer electronics industries, between providers and customers. They control the content, services and applications consumers can access on their mobile phones. “They try to replace the market system and, like the real Soviet ministries, they are a lousy substitute,” said Mossberg.

In the UK especially, the Apple iPhone has come under fire for its restrictive network distribution deal, which fits Mossberg’s Soviet analogy for both its five-year exclusivity period and for the fact O2 has disallowed VoIP calls on the handset in order to protect its own voice revenues.

But despite these restrictions, the iPhone actually represents a watershed moment for the mobile industry. Behind the scenes, the traditional business model looks to be changing, away from unilateral network rule and restricted consumer choice.

The revenue share deal Apple has agreed with O2 in the UK – like the deals it has struck with AT&T in the US, T-Mobile in Germany and Orange in France – cedes ground to the manufacturer in the traditional network/vendor arrangement.

Of course, revenue share is not a new concept – networks like the idea in principal as a way to share the cost of handset subsidies; manufacturers, naturally, prefer the money up front. The difference with the O2/Apple deal is the iPhone is not subsidised. It is a couple of hundred quid to O2 and £270 to the punter, up front, and O2 is still obliged to hand a percentage of user revenues to Apple every month.

The industry knows the iPhone, whatever its sales, represents more than just a new handset release. You could tell last week just by the timing of the related press announcements, from both large and small industry players.

And, actually, part of the networks’ drive to force down handset costs has seen T-Mobile and O2 parent company Telefónica go running into the arms of Apple cohort Google, with whom Apple shares a board member.

Something like 30 per cent of networks’ overall costs go on original stock purchases. Google’s proposed open source Linux platform, called Android, sets out to create a slicker handset operating system, in the process reducing costs to vendors and networks by establishing a common programming code for content and application developers.

Other major networks, including Vodafone and Orange, are conspicuous by their absence from Google’s ‘Open Handset Alliance’, the merry band of technology companies it has assembled behind the Android concept. But then – further proof the networks are retreating from their old Soviet industrial model – Vodafone last week threw its weight behind Nokia’s ‘Ovi’ digital content service, set up in direct competition to its own media ambitions. Vodafone joins Telefónica in its support of Nokia.

Telefónica (O2), then, as Apple’s UK network partner, a founding member of Google’s handset alliance and a supporter of Nokia’s media-play, suddenly looks like the most forward-looking of all the networks, even if it is giving a big chunk of change to Apple for its iPhone exclusive.

The point is, the Cold War for consumers is ending.

Their old employer and current nemesis Mark Ryan has thrown in the towel, leaving 20:20 Mobile now lagging behind in top management expertise.

You can bet Rod Miller (Brightstar European president) and Rob Baxendale (UK MD) have been cracking open the Cristal.

Baxendale especially probably can’t believe his luck. Ryan was the instigator of next month’s court case to stop the former working for Brightstar, as he was allegedly in breach of his exit terms from 20:20.

Ironically, it is now Ryan who probably can’t work in the mobile industry for up to a year. Not that he would necessarily want to – the 20:20 CEO ‘done good’ during the Caudwell years and has amassed a fortune of some several million.

Doubtless he will spend some of his ‘gardening leave’ polishing his £500,000 collection of Italian motor exotica.

In fact, the only thing surprising about Mark Ryan’s departure from the 20:20 Group was the time it took him to escape the clutches of Doughty Hanson.

You didn’t have to be a Harvard Business School graduate to work out that the maverick entrepreneurs who flourished under John Caudwell’s regime were never going to cut it with the private equity culture which puts P/E ratios and City sentiment well above the ability to cut a quick deal to snare and ship 100,000 N95s in a day.

The question mark is not over Ryan’s decision to leave (it turns out he never really wanted to stay after the change in ownership anyway). No, the real mystery is what Doughty Hanson actually thought they were buying into.

At the time of the negotiation with John Caudwell, wise industry leaders scratched their heads trying to work out how Doughty was reaching its sky-high valuations.

Apart from the stock and goodwill value, what yardsticks was Doughty using to value the business? Had they been avid readers of Mobile News they would have realised 20:20’s success was down to a ruthlessly ambitious leadership which had the connections and trading brains to spot and exploit opportunities on an hourly basis.

The ability for managers and directors to leverage their local and international connections and do instant deals was paramount.

Private equity groups like Doughty Hanson are more concerned with the rate of return on their investment, with one eye on the inevitable initial public offering and eventual exit route.

One can only speculate on the frustration Ryan must have felt about having to justify his activities to the Men In Suits who had little understanding of the cut and thrust of handset distribution and fulfilment and the hoops that he had to jump through.

His departure will have caused considerable consternation at Doughty Hanson; a private equity partner really buys into an effective management team with relevant experience.

The cornerstone of Doughty’s strategy was the understanding that Ryan and his team would significantly increase its revenues and capabilities via expansion in the USA and other European markets.

So far, all that has materialised is the acquisition of Swedish distributor AxCom.
Ryan’s departure now throws into question the entire strategy of acquisition and expansion. Put simply, who is left to identify and conclude acquisition opportunities?

In fact, they’d have us believe, it’s quite the opposite. Networks love independent dealers and want them by their side for many years to come.

Phrases like “steady partner”, “pillar”, “power of the indirect channel” and “key to our strategy” have all been bandied about like colourful flags from the soapboxes of various network chiefs.

In fact, it seems they’ve been overdoing it. At the recent Dextra Airtime dealer forum, for example, delegates heard the reassurance of commitment to independent dealers more than twice from the same person and would have been forgiven for going on overkill alert.

At 3’s dealer conference recently, sales director Marc Allera, director of indirect sales Bernie O’Beirne and CEO Kevin Russell all made a motherly fuss over the high quality of its remaining dealers after massive cuts over the past year.

Dealers can also supposedly cash in big time on 3’s new Mix & Match tariffs, which offer not only an attractive value proposition for consumers, but also an attractive commission structure. On top of that is the promise that there will be no hidden deals that are only available direct, so it sounds pretty sweet.

It all sounds like a comforting message for dealers who have long complained about what they see as dubious network activity, such as pushing direct deals and poaching customers. But is it all just too good to be true?

Most dealers at the Dextra and 3 events seemed quite chuffed that the networks were making a statement about how valuable indirect business is, especially in connecting small business customers. But one wary dealer commented: “I wouldn’t trust any of them with my last 5p.”

Is he justified? It’s easy to draw the conclusion that networks pledge their loyalty to independent dealers when they launch their shiny new products, but, once these products have found their place in the market, independents are discarded like a jilted lover.

3 has openly said it will rely on independent dealers to roll out its new business propositions, and by next year other networks could have already gained enough traction with their business offers to rely less on the indirect channel.

And if you take a closer look, you’ll see that behind the soothing words, the networks are starting to look with a predator’s eyes on formerly safe dealer territory.

3 has suggested that it will tailor its retail structure to accommodate the growth it expects in business customers. Orange has already announced that it will open three business-oriented stores by the end of the year. This all encroaches on the last bastion of the mobile market for the independent channel.

Obviously it will take time for the networks to train their staff to be able to sell more complex business deals adequately, but once they do, the writing could be on the wall for B2B dealers.

So where does this leave independent dealers? They’ve already had to largely relinquish the consumer arena in the wake of declining consumer commissions and fierce network competition. Maybe the same will go for B2B before too long and the networks and big chains will rule the high street for ever more.

According to one network spokesman, “The indirect channel has a reach that we just don’t have.” That might be true for now, but the rollout of business stores will see the networks’ reach widen even further. Be afraid.

Finally, after two years of speculation and months of waiting, it’s on its way to the UK. The 8GB model will be available for £269 – a pretty hefty sum for one handset but, no doubt, most people won’t care less just because they’ve got possession of this much-anticipated gadget.

A lot has been missed in all the hype, and the new revenue share model on O2’s part. In fact, O2 should be heartily congratulated. Securing exclusive rights to the most anticipated and iconic handset is recent times is a coup. It has beaten strong competition in the UK for the contract.

And the revenue share model it has struck with Apple should be considered, not desperation, but far-sightedness. It recognises the influence of brand, for which the networks will never match the manufacturers, whatever O2’s own recent successes.

And all this talk of a 40 per cent revenue share. As one insider told Mobile News at the launch: “Forty per cent? Come on. Do they think we are stupid? We have had huge successes during the past five years. We are not about to give that away.”

The iPhone is the single product that could provide the tipping point for mobile data. O2 is right to take a risk. If the networks are really to make a success of consumer content provision, they have to break the mould.

Every other part of the industry is shaping up for change, and it is right that the manufacturer/network relationship is updated too.

O2 reckons it can lure 40 per cent of rival networks’ high-end users in the UK with the iPhone. It is not hard to see where this confidence comes from.

The hype and the Apple brand will contribute largely to iPhone sales and it will remain the hottest property in the market well into 2008.

Why? We checked the iPhone out when at the launch. It looks ultra cool. The touch-screen is a novelty that works, and works well. There are no clunky buttons. This is seriously slick and stylish engineering. It’s got 8GB memory too, which is enough for anyone except the achingly sad who carry every note of popular music recorded between Robert Johnson’s early blues and Britney’s latest pop outing.

Apple CEO Steve Jobs might have used the word “awesome” too much in his speech at the launch for Mobile News’ liking, but his argument about 3G was convincing: what’s the need for it if it’s only good for internet browsing, and Wi-Fi does it faster anyway.

There’ll need to be a cultural change if consumers across the country are going to hook up to Wi-Fi, but then the iPhone does that for them anyway.

O2, of all the networks, has played its brand the best. The relaunch of its brand a couple of years back, and the shedding of its stuffy old BT Cellnet clothes, was a masterstroke. The

O2, its updated version of the white elephant Dome, has proved a huge success. There were plenty of doubters for that too.

O2 chief executive Matthew Key said at the launch: “I’m very popular because of this. The number of people that have asked me for an iPhone is more than the number that have asked me for Led Zeppelin tickets.”

Just about everyone but the networks backed Nokia’s charge at the content space and interesting statistics were bandied around in making Nokia’s case.

“Average network churn rates are something like 30 per cent. Where’s the brand loyalty there? Customers choose networks on cost, not brand,” said one industry sage – a content provider himself, incidentally.

Content, hey? Everyone wants a piece of it. The networks, fearful of becoming utility pipes, have reinvented themselves as media companies, with limited success. They also claim they ‘own’ the customer relationship, in subsidised markets at least, and understand what, why and how the customer wants content.

“Yeah right, so what about all the complicated tariffs, the nightmare call centres and everything else,” retorts the Mobile News sub at such claims. He’s got a point. If that is understanding, the networks need to ‘over-stand’ their customers if they are going to make a success of content provision.

But what of Nokia throwing off its engineer’s lab coat to recast itself as a digital content provider?

The point about brand loyalty is fair and, despite the subsidy model in the UK, punters choose networks on cost and handsets on brand. And, among the big five manufacturers, Nokia’s brand and market reach is strongest. It has close to a billion users across the world; individual network subscriber figures don’t come close. It is worth noting Nokia’s market penetration dwarfs even the success of Apple’s portable music players.

The iPod has sold 100 million units in five years – a 10th of Nokia’s annual sales. Expected sales of the iPhone run to 8-10 million units worldwide, which again represents insignificant numbers compared with billion-selling Nokia.

And mobile phones, whatever the usability issues associated with engineers jamming multiple functions onto a handset, far outpace Apple’s portables for computing capacity.

As for brand, Apple’s devices are ‘must-haves’ in niche circles where there is plenty of disposable income, but Nokia is truly mass-market. It is like comparing LG’s Prada phone with the full global catalogue of Nokia handsets.

But does Nokia’s content push really threaten the network operators’ music revenues? Yes, probably, but the networks’ music revenues are miniscule anyway – even iTunes’s modernisation/crippling of the music industry is something of a misnomer. Excluding illegal stuff, 98 per cent of music on an iPod is ‘bought’ music – that is, uploaded from users’ CD collections. Just two per cent is purchased from iTunes.

If that is the case on Apple devices, carried by fashionistas and tech-heads, what percentage of music on the handsets of Vodafone subscribers is from the Vodafone portal? A content provider can expect four down- loads per month, per user. Not bad, but it hardly makes up the shortfall from declining voice revenues.

But there is another point: Nokia and Vodafone might ‘fight’ on, to the complete indifference of paying customers – because the real heavyweight content providers are elsewhere. Like Andrew Orlowski suggested last week in online tech publication The Register, it might end up like two bald men fighting over
a comb.

It might have taken cold calls to MPs and Orange VPs, plus pressure from Ofcom, for Orange to move on misleading sales practices, but this action appears decisive and measured.

The fact its dealer review covers a six-month performance window will irk some of its victims, on the grounds they may have been loyal to Orange before the assessment period. Some will be unfortunate to have been caught in such a wide-ranging net, which is hugely disappointing and should be addressed.

But, and this statement perhaps risks alienating some Mobile News readers, Orange should be applauded for cutting off dealers in a way that other networks, which have taken similar measures during the past 18 months, should not.

Liberal approach

Orange’s approach to the dealer channel is, by and large, undemonstrative. It is not set on taking ownership of its routes to market in the kind of bludgeoning ways Vodafone and O2 are. And it is not reactionary like T-Mobile and 3 – both inconsistent, and both suddenly ruthless in their retreat from the channel.

Orange’s move to issue ‘do-not-deal’ notices to third party churn machines and to stamp out sharp practice is neither bludgeoning nor reactionary. If anything, it comes late in the day.

Orange has cut dealers in swathes before, but it has resisted wholesale changes to its code of practice for third parties. Here, it has merely refined it, and done so in a consultative manner.

It has not blamed distribution, middle men in the tumult, for high churn rates – far too soft an option. It has simply requested distributors to raise their games.

Unlike rival networks, Orange’s philosophy is not to cherry-pick partners or to ‘request’ them to pick sides with strong-arm money tactics. It believes the market will decide for itself which distributors will survive. That, alone, is a hugely commendable approach to business. Natural selection; survival of the fittest and all that.

At the end of last year, Orange was widely expected to persuade high street multiple retail to take poorer connection payments for exclusivity on contract sales, in the way that Vodafone and O2 had.

Networks at fault

And, to an extent, you get the networks’ dilemma about commission payments to the independent channel.

Market saturation and churn rates mean acquisition and retention are, basically, the same thing in multiple retail – a significant expense for negligible net customer returns.

But the networks have fuelled the machine and, so, such a dictatorial approach wears pretty thin. Of course, the acquisition/retention headache could be remedied by hiking upgrade remuneration for independents to discourage churn, and inviting new customers on the strength of the deal alone.

Which makes the headline figure of 150 in Orange’s dealer action fairly unpalletable.

But Orange never went beyond the negotiating table with any threat to terminate airtime contracts at the end of last year, which is entirely consistent with its liberal ethos for distribution, also demonstrated here.

Ultimately, the long-term benefits of its new code of practice for the distribution channel outweigh the short term costs of another 150 dealers falling by the wayside – because the networks still haven’t fixed their upgrade commercials.