AO squares up to Dixons Carphone with latest acquisition

Last week AO, the online electrical retailer, made a surprise announcement, firstly to update the market on slowing growth and secondly to confirm it was buying Mobile Phones Direct.

I’d call that shrewd. Bundle bad news with a definite plan to address the woes head on.

MPD generated £121.7m and EBITDA of £5.5m at the end of March 2018. It’s a solid business that certainly has the right network agreements in place.

Contrast that with Dixons Carphone, which has struggled lately, posting a 2% revenue increase in electricals versus the 9.9% AO shared last week. I realise it’s not exactly comparing apples with apples to compare an omnichannel business with an online only one, but I’ve no doubt there’s some devil in the detail of those numbers that will be making the team at Dixons Carphone consider what their next move will be in this retail game of chess. Dixon’s Carphone has been struggling to sign distribution agreements with the main network partners, and now AO has its hands on MPD the world has got a whole lot tougher.

AO is now in a position where is can sell connected handsets and claw away at the lucrative monthly revenues that Dixons Carphone has access to. But the deal brings so much more than service revenues. The real prize lies in IoT.

I fully expect AO to go on the offensive and start building relationships with the networks. It makes perfect sense for its connected home strategy, as much of its success will rely on some shape of mobile connectivity. If it wants to position itself as a leader then it will have to have propositions that are end to end – buy a device, plug it in and connect it all with one bill.

That said, Dixons Carphone still have an ace up its sleeve, namely its MVNO iD Mobile. Earlier this year, it reported customers in the region of 800,000 with plans to reach 1 million.

As an MVNO, Dixons Carphone can build propositions directly for its shoppers and that doesn’t just mean mobile phone tariffs. It can use its wholesale connectivity in all areas of IoT like wearables, tracking devices, remote security cameras and so much more. And as it’s already focused on the connected home, why wouldn’t it start cross selling into those million customers with a monthly bill?

But it will need to act fast to capitalise on this strategic advantage, as it’s highly likely AO could follow suit with MPD and launch its own MVNO. The white label model that was discussed at MVNO Europe last week would certainly have piqued my interest if I was at the helm.

In response and anticipation, Dixons Carphone must start analysing its base, understand the customer segments it has and identify where its strengths lie in serving these loyal customers in the future.

What is it that Dixons Carphone could do, product or service, that would make them stay loyal? What else would they buy? How far can the brand stretch? Delving into this data could unlock the propositions that will make the operators sit up and listen and want to partner.

But as I have said to those that have asked for my professional opinion over the last few days, CPW needs to be quick to act or it could find that it has much bigger things to worry about.

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James Gray

Managing Director at Graystone Strategy

James has over 20 years of experience working in the telecoms and retail industries. He is an expert in subscription-based business models, CRM, direct and indirect channel management and major proposition development and launches. He has held a number of Marketing Director and Consumer Director roles.