Vodafone withdraws Contract sales from Carphone Warehouse
By stephendavis on Oct 13, 2006
Vodafone yesterday announced that it would be withdrawing its contract customer business from high street retailer Carphone Warehouse and switch to rival Phones 4u as the exclusive third-party sales channel on the high street. The change will take effect from the end of November and impact Carphone in the crucial sales period running up to Christmas.
On the news, shares in Carphone fell by almost 15 per cent in trading yesterday having been boosted the previous day by the news that Carphone would be buying the AOL UK business from Time Warner. It was interesting to note that CPW will pay for AOL UK in cash whereas YouTube accepted Google stock a few days earlier despite recent stock price falls and many analysts suggesting it still remains over valued.
For Vodafone, the decision to withdraw its higher margin contract customer business from Europe's largest mobile phone retailer is a calculated risk. Vodafone will hope to offset any lost market share by being able to pay Phones 4u a lower commission on new contract customers. The move by Vodafone yesterday may also prompt other network operators to reduce the number of third-party sales channels for their contract customers and concentrate on building direct customer relationships. Last year for example, O2 announced that it was reversing its decision to scale back on its own O2 branded shop and would be looking to develop new retail sites.
For an industry built around new technology, it seems strange that so much of its retail business has remained on the high street and has not transferred online. In the rush to sign-up new customers and build market share, the operators were willing to pay high commissions. This resulted in numerous new entrant retailers (some tied to a single network others being independent rather like the public house model) on the high street.
Most of these have now closed down leaving The Link (DRG), Phones 4u and Carphone Warehouse dominant. Like other retail businesses, the sales people in these stores were trained to sell a product, i.e. the (heavily subsidised) handset rather than a service, i.e. the network operator. Their legacy to the industry is that for most customers the network is simply not relevant.
Interestingly, the rollout of consumer broadband has not taken the same retail route. Partly perhaps because there is less to choose between different wireless routers at the point of purchase and most customers are upgrading from dial-up anyway, but it illustrates how the industry has moved on.