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Monday, June 19, 2006

Three’s a crowd…

If press rumours prove to be true, it looks as if the smallest of the High Street phone retailers, The Link, is about to be bought out by its’ minority shareholder, o2, from the Dixon Group. I would presume that o2’s strategy is to rebrand the stores in its own name. The Link has been struggling for quite a while and it is no surprise to me that o2 is going to re-brand the stores. I would think that a large part of the logic for o2 is to reduce the customer acquisition costs, by claiming a larger part of new customers & upgrades being provisioned by its’ own stores.

At the same time, it looks as if Caudwell is finally about to conclude the sale of his Phones4U empire to private equity. The purchasers must have a real plan and strategy is to improve profitability at the chain. I can only see this happening either via:

- market shares gains. Selling themselves as the only “pure” retailer and not competing against the MNOs. Carphone Warehouse currently competes with its’ broadband, voice & mvno products; or via

- new products. Selling broadband & home networking solutions on behalf of the various UK ISPs.

Although, I have no data to prove the point I suspect the supermarkets esp. Tesco’s are continuing to gain market share along with the specialists (e.g. Woolworths & Argos) who focus on prepay at key points in the calendar (e.g. Christmas & Easter).

Also, I suspect the independent retailer is continuing to shrink and probably is surviving by focussing on B2B sectors rather than the consumer sector.

The MNOs are continuing to expand their retail presence with both 3UK and T-Mobile planning major expansions this year.

I also think the direct mail specialists, Dial-a-phone, will struggle to compete with the online specialists. Dial-a-phone has heavy costs with daily ads in the major newspapers. Vodafone dropped them because of the cost of commissions and there is noise that Orange, T-Mobile and 3 are thinking of doing the same. This would be a blow for a retailer who alleged is competed with The Link for the 3rd largest connector with between 60k & 80k per month and annual turnover of £195m.The MD exited in April and the future is looking bleak.

In the future, I see the on-line world growing and this will provide a lot of the innovation for the “value conscious” contract customer shopping cross-network. I suspect the physical world will shrink as the online phenoma expands and the MNOs push more customers into their own stores. I still think there is a need for at least one “independent” retailer who push contracts with large commissions, however I see prepay being dominated by the specialists and supermarkets. I see no reason why the online world cannot provide prepay handsets at a much cheaper price than the retail world and I see electronics specialists expanding into the prepay and SIM-free segment (e.g. Expansys and Ebuyer)

Over, the next 12 months the interesting trend will be how Carphone Warehouse handles the politics of competing with the Mobile Networks and how the mobile networks executives will deal with effectively subsidizing the Carphone Warehouse push into broadband. Also, interesting will be how Phones4U reinvents itself with a new owner. Finally, BT’s approach to retail so far has been to buy a large online property with a reputation for consumer electronics and ignore the physical world, I wonder if this will remain the same especially considered Iain Livingstone is an ex-Dixons employee and probably knows more about retailing on the high street than any other telecoms executive, with the exception of Charles Dunstone.