Global Insight Perspective | |
Significance | Free broadband offers have brought both increased revenues and higher losses to Carphone Warehouse. |
Implications | Despite cost overruns and complaints from customers, Carphone Warehouse's free broadband offer remains the most important consumer-oriented event in the UK telecoms market in 2006 so far. |
Outlook | As mobile operators step up sales online and at own-branded stores, Carphone Warehouse is sure to stand out positively among the pack of other mobile phone retailers, who are expected to struggle. |
Carphone Warehouse has posted a 40.2% rise in revenue for the half-year ending on 30 September 2006, thanks to strong growth in its broadband offers in the United Kingdom. Revenues for the half-year rose to £1.81 billion (US$3.45 billion) compared to £1.29 billion at the same time in 2005. Carphone Warehouse has witnessed an impressive surge in demand for its broadband service since launching in April 2006. By end-September, the company had 421,000 broadband customers with 60,000 using its unbundled local loop assets. That figure received a boost early in October when Carphone Warehouse paid £370 million for Time Warner's 2.1 million AOL UK internet customers. However, the surge in demand has translated into higher start-up expenses for the company leading to half year start-up losses of £45.1 million (see United Kingdom: 12 October 2006: Under the Spotlight—Carphone Warehouse's Broadband Revolution, United Kingdom: 27 July 2006: Carphone Warehouse Signs Up 476,000 Broadband Customers Since April and United Kingdom: 6 June 2006: Carphone Warehouse Free Broadband Service Achieves 340,000 Customers).
After the scare caused by the termination of its mobile retail deal with Vodafone, Carphone Warehouse has disclosed that it is in negotiation with Vodafone for a pan-European framework retail agreement. The company said it has opened 143 new stores and is making a clear recovery in underlying trends at its "The Phone" unit across Europe. Carphone Warehouse said its MVNO partnership with Virgin in France has enjoyed a good first six months of trading and that it has signed MVNO deals in Spain and Portugal with plans to agree a deal for other markets soon (see United Kingdom: 13 October 2006: Vodafone Drops Carphone Warehouse in Mobile Retail Deal, Spain: 14 September 2006: Carphone Warehouse the Latest Player in Spanish MVNO Race).
Outlook and Implications
The Good and Bad of Free Broadband: Carphone Warehouse's free broadband offer has stirred up the UK broadband market in an unprecedented way. Prior to the launch of the service in April 2006, the dominant UK broadband providers felt secure despite the miserly adjustments of their prices and the speeds of their broadband packages. But the emergence of Carphone Warehouse, with its heavily-subsidised broadband offer, inadvertently introduced the concept that broadband internet, as a commoditised service, is cheap; and maybe free. Since then, and despite reprimands from the United Kingdom's Advertising Standards Authority (ASA), others such as Orange and BSkyB have leapt on the bandwagon by offering heavily-subsidised broadband offers. Although complaints from customers have been mounting, and cost overruns have been causing a stir behind the scenes, Carphone Warehouse's free broadband offer remains the most important consumer-oriented event in the telecoms market in the UK in 2006 so far (see United Kingdom: 19 July 2006: Uncertain Future Awaits BSkyB Broadband Offer, World: 1 June 2006: France Telecom Adopts Orange Brand for Internet, TV and Mobile Services and United Kingdom:11 April 2006: Carphone Warehouse Unsettles Market with 'Free' Broadband Service).
From Mobile Retailer to Telecoms Provider: For Carphone Warehouse, the journey from being a mobile phone retailer to becoming a telecoms provider offers it greater scope for survival in the emerging telecoms marketplace. Sustained expectations for cost-cutting have led to growing uneasiness about the amount of commission paid to mobile retailers like Carphone Warehouse. In the ensuing debate, mobile operators are increasingly selling their high end post-paid subscriptions either online or through own-branded stores. In the United Kingdom, all mobile operators are boosting the number of their own-branded stores in a bid to establish and secure the relationship between them and the customer. O2 has bought the Link stores; selling the rump of it to Hutchison Whampoa's 3 UK unit. As the onslaught of own-branded stores and online sales intensifies, Carphone Warehouse is sure to stand out among the pack of mobile phone retailers, which are expected to struggle (see United Kingdom: 27 October 2006: 3 Acquires Link and O2 Stores to Boost UK Retailing).