However, there’s another interesting story MVNOs should follow. For the first time in its history, the archipelago of Channel Islands is close to launching its first MVNO in the shape of Coop Mobile. Again, all subject to regulatory approval, the launch would be a remedial action in the wake of the likely completion of Sure’s purchase of Airtel-Vodafone.

Why should we care?

It’s all about the development of an MVNO market and the innovation that could come from it.

 It’s worth a few facts at this point. The islands of Jersey and Guernsey are home to 170,000 residents spread across an area of 70 square miles. Each island is independently governed and has its own regulator for telecoms.

Unsurprisingly, the proposed merger of Sure and Airtel-Vodafone has attracted regulatory attention. Principally, the merger would leave the islands with just two operators, limiting consumer choice. If you’ve watched other mergers around the world play out (think Ireland and Austria) then you’ll know that’s a bug bear for regulators. Stands to reason, a merger will be scrutinised, and why there will be reviews on competition and choice. We know from other examples that this leads to interesting proposals. That’s why Sure has put forward the launch of an MVNO as part of its remedial plan. Maintaining a buoyant competitive market isn’t about sticking with the status quo. Innovation – in the form of new licences – can steady the helm. 

Let’s look at the context.

The reasons for the purchase of Airtel are not dissimilar to those proposed by Three / Vodafone in the UK. Airtel-Vodafone is unable to sustain operating costs especially those associated to updating the mobile networks across the two islands. Its decision to exit the island will bring home the reality that it was making a loss. (I can’t imagine it was an easy brand decision to make with the ‘heart’, but I’m certain the ‘head for numbers’ had the final say.)

 Nevertheless, the sale, if approved, leaves a gap in the market. It might be considered a small gap at this stage in the game but closing it with a keen MVNO should turn that assumption around.

Is this really going to happen?

I would say, yes. There’s a good line of retailers that have taken the opportunity to join the MVNO community, setting the precedent for linking a value offer with mobile and combining the wealth of customer insight with targeted propositions.  

Having consulted the Coop team on the negotiations, I’m very excited about the prospect. By applying for an MVNO licence in both islands, Coop can leverage its considerable retail estate as a distribution channel and talk to its 120,000 members using its credentials as a trusted brand. I’m confident it can offer a compelling alternative to the remaining incumbents.

It’s not a done deal, I admit. In Jersey, the Jersey Competition and Regulatory Authority (JCRA) have launched a public consultation process giving consumers a voice on the proposed sale and launch of an MVNO. But it’s a significant step and I would hope it lands favourably. The authorities on Guernsey are also reviewing the proposed remedies from Sure.

As industry experts, we know that MVNOs have proven to be successful at driving competition. Currently in the UK, around a third of all customer acquisitions go to MVNOs or challenger operator sub brands and, historically, retail MVNOs have proven successful. Retailers are trusted, have a cost-effective route to market and the ability to innovate the proposition by aligning it with their core activities.

Tesco Mobile, the UKs biggest MVNO, has been particularly successful in this regard leveraging the Clubcard scheme and its “Super Market Mobile” credentials, similarly Asda Mobile, iD mobile (by Currys) Superdrug Mobile and even Your Coop Mobile offer are all available in the UK.

In Germany, Aldi and Lidl also operate MVNOs and we are seeing retail MVNOs as one of the more successful early entrants to the MVNO market in places like South Africa with brands like PNP (Pick and Pay) and Shop Rite Knect rated as ‘favourite’ brands these days. 

You could say that the outcome of the application for a licence is in the hands of the public. And I think that’s good. In my experience, the public will want choice and will favour the underdog to give them something the other operators can’t. Of course, the regulators need to review other aspects alongside, but I suspect gauging the public opinion will help sway the vote.

As the year unfolds, I think we should expect an historic outcome for the Channel Islands, and I’d recommend MVNOs watch to see how the move is executed. There’s a lot to learn from other markets, especially so in fledging ones.

If you’re thinking about launching an MVNO in a new market or need to drive competition with a differentiated offer, then call me. My team can help you appraise the market, negotiate the deal, and build the winning business model.

The post Airtel-Vodafone takeover is not a Sure thing yet, but MVNOs could help seal the deal appeared first on Graystone Strategy.

Now I’ve had time to pick over the judgement, alongside the news that the government has said the proposed merger passes the National Security and Investment Act (2021) tests, it’s time to consider what else could stand in the way.

My analysis leads me to think that there are some interesting observations for MVNOs to note, as they might be the next set of hurdles to derail the proposal.

Before I launch into them, it’s worth summarising the areas of concern for the CMA:

1. General reduction of competition and thus likelihood of increased pricing. This is particularly acute in terms of pricing. The regulator sees Three as the ‘price challenger’ so removing it from the market will drive up costs. In turn, the remaining operators will be incentivised to be less aggressive.

1. Wholesale competition. If MVNOs are the answer to the above scenarios, then this is negated by the fact that, in theory, wholesale competition is reduced. With fewer operators providing wholesale terms, and, knowing not all operators will bid for every MVNO out there, there’s less opportunity for MVNOs to provide the ‘competitive tension’ needed to drive down prices.

1. Access to commercial information. This one didn’t get much coverage in the press, but it’s not something to gloss over. The judgement infers that with a foot in both camps of Cornerstone and MBNL, the merged party will be able to see competitor network rollout plans.

At a high level, my expectation is that this will kill off network sharing as we know it today. One way or another, if the merger goes through, (or even to allow the merger to go through), BT and VMO2 will need to reconsider their options with regards to Network sharing.

There are a lot of options. One could be a new sharing agreement between BT and VMO2, with the merged entity managing on its own sites across its current footprint from previous agreements. It’s quite a complex challenge and potentially a big barrier that MNOs opposed to the merger might highlight as a significant risk to competition.

So, with all this in mind, will the merger bring imbalance to the MVNO market?

Let’s start with some facts. MVNOs are normally a driver of market competition. The UK has a very mature MVNO market, with roughly 15-20% of all subs (depending on how you do the segmentation). The UK launched the very first ever MVNO way back in the last century, so the wealth of heritage is strong.

Although MVNOs are still offering great value, the concern is that with just three host operators in the market, MVNO competition will diminish in the longer term. I think the crux of the regulator’s argument is that MVNOs may not benefit from the same levels of aggressive wholesale pricing as they do today.

What’s more, existing MVNOs may not have the competitive tension to drive either a move to another host or re-negotiate better deal terms when it’s time to re-sign wholesale contracts.

I think it is a legitimate concern. Although Vodafone has been a bit less consistent than Three in its execution of a wholesale strategy, both are active.

But there’s a flip side to the challenge.

The new entity will have a lot of network capacity to monetise. Certainly, they will want to compete hard, both at wholesale and retail, against BT/EE and VMO2. But the ultimate question is whether the three MNOs can continue to compete to grow share, or will they try to drive extra value by competing less and forcing the market up?

If they did decide on the latter strategy, then it could take some time to execute. Wholesale contracts (or at least those I have written or advised upon), tend to have clauses that reward growth with discounts and have specific protections against price rises. It’s going to be difficult to walk these back any time soon.

So, it’s not a case of whether this will happen or not, it’s more about what the CMA can do to legislate against that risk.

Around the world, MVNOs have been used to drive competition with varying degrees of success. In some markets, regulators have mandated that MNOs must offer wholesale deals. They have even defined the methodology, which is typically benchmarked against retail pricing using retail minus methodologies.

This ensures MVNOs can be competitive and make reasonable margins. However, consumer competition isn’t always commonplace simply because of the regulated approach to wholesale.

If we look at Georgia, a market which is only just starting its MVNO journey, the networks are mandated to put out reference offers, and, in some cases, there are regulatory requirements to do so linked to 5G spectrum.

But, in my opinion, it feels like the market operators are only really paying lip service to this. They have no real intention or motivation to bring in more competitors, and frankly mobile telecoms competition is the least of Georgia’s problems! So, unless the CMA and OFCOM ensure any legislation has real “teeth” the approach may not be effective here.

In other European markets like Austria and Ireland where there was a similar scenario of operators merging, the regulator mandated more MVNOs to create balance. They also mandated the technical set up (to give maximum growth potential) and stipulated capacity-based wholesale deals. Having launched MVNOs in Ireland that were born from this legislation, I can see the value of this.

Further afield in Mexico, a far more radical solution transpired – a network ONLY for MVNOs.

Where does this leave the UK? What are the CMA’s choices?

It could set wholesale pricing caps across the market to keep MVNO costs lower and to ensure MVNOs can compete on price. Or it could insist upon the JV launching extra MVNOs and the wholesale pricing methodology it uses.

But we shouldn’t forget the UK market isn’t full of MVNOs that are exclusively driven by providing the lowest price. There are others that differentiate on offering other forms of value to consumers e.g. calls abroad and family bundling, better service, different member benefits and so on.

And, even with fewer MNOs, consumers will still get a good deal. Our MVNO market is vibrant and diverse enough to ensure it.

For what it’s worth, based on my 30+years’ experience in telecoms, the overwhelming trend has always been that pricing and ARPUs have reduced in real terms and the value included (whether that’s minutes, texts or more recently data) has grown, not to mention your download speeds.

The recent inflation-linked price grab by the major operators has slowed this, but you still get far more minutes, texts, and data for your pound now than you did a few years back.

Let’s not forget that we have already seen several mergers in our history – BT/EE, Virgin Media and O2, Vodafone and Cable and Wireless, and, for the real veterans, Orange and T Mobile – and MVNOs continued to spring up.

You can see why it’s a difficult conundrum for the CMA, and why it’s prudent that it seeks evidence from all parties to reassure it that competition will be maintained both in wholesale and retail.

The next few months will ensure this analysis is done in detail. Every rock will be up turned. Though, I still hold my view, MVNOs can steady the market and, if we look at this factor alone, the merger has merit.

The trick will be to have a strategy regardless of which way it falls. There will be change. MVNOs need to be thinking about what they would want from an opportunity to renegotiate terms, what proposition development they’d want to do, and how they could turn the saga into an opportunity for growth.

If you’re running an MVNO and reading this thinking ‘we need to do this’, then drop me a line and we can set up a consultation and game-plan the options.

The post With the security clearance out the way, is there now an open door for the Three / Vodafone merger? appeared first on Graystone Strategy.

One question I’ll be posing is whether MVNOs are really thinking through how customers are acquired and managed when the operator model depends on the use of digital platforms? The answer may seem obvious: simply build the comms channel into the apps and service models you design and launch.

It’s true that traditionally, conversations with customers have been led by customer acquisition teams supported by a great app or online UX experience. But I worry that just because the mobile industry has always done it that way, there’s an assumption that MVNOs must follow the mould.

I’d go as far as to say that MVNOs have to take a step back to survive the war on customer marketing. Customers like to use WhatsApp, Facebook Messenger, video. Some still like email and SMS. Customers might use them all every day, some might use a few. It proves no two people are the same.

We can’t assume a postcode, or a demographic profile informs how people will behave, shop, buy and request help. Everyone will interact with a brand differently depending on how they run their day-to-day life, the demands on their time, their income and prospects, and their communication preferences. And given all the different ways of communicating today, it’s genuinely surprising that the incumbent operators are still using email and SMS – I know because I’m always so surprised to receive a text from my provider!

MVNOs need to take a different view if they are to win share. Service models need to be organised differently.

This thought process has been confirmed during my time working with a Communication Platform as a Service provider (CPaaS). Fundamentally, telcos are falling behind other sectors like retail and are ill-equipped for having conversations with customers in a way that fits in with their life.

Persisting with text messages is not only out of sync with how I want to do busines but prompts another thought: SMS is easy and cheap to send so is this company really investing in getting their comms right and do they ‘get’ me?

I use WhatsApp, I use video, sure I still use voice, but I am ‘old skool’ as they say. But I also know I’m not alone. Plenty of other people are using this mixture of communication tools too. In the UK, 70% of people are now using video weekly, the biggest growth being in older people. Around the world 3.8 billion messages are sent over internet messaging platforms each day.

You can’t ignore stats like that if you’re a MVNO, especially as for most MVNOs, the core proposition is always focused on highly targeted and segmented bases. MVNOs need to put themselves in other people’s shoes. How do their customers talk to friends? Using that as a starting point can be so powerful in terms of developing not just a communications strategy but an omni-channel one.

What do I mean by that? Take Rich Communications Services (RCS) as an example. It allows brands to send a message that’s interactive. So, you can send a rundown of the best new handsets that customers can swipe through on a carousel and buy instantly, include links to start a chat with a chatbot on pricing (with the option to pass the customer on to a person), or include video content with a phone review. In France, where retailers are using this technique in Christmas campaigns engagement can be as long as three minutes!

The beauty of CPaaS means that companies can use a blend of communication methods but still have a single view of the customer. Whether they use What’sApp, Facebook Messenger of RCS to send the message, they can also see in real-time the levels of engagement campaigns are generating and adjust the tactics and content accordingly. Plus, they have the insight to plan future offers and campaigns more precisely. In turn, engagement scores and conversion rates improve, and operational over heads reduce.

I’ve always been a big believer in taking a different approach to segmentation but immersing myself in the world of CPaaS has been a real eye opener. It’s helped me see there are new and exciting ways of using marketing tech while reminding me of my deep-rooted love for effective targeted marketing.

I hope it won’t be long before we see communication platforms being used by MVNOs and sub brands via an MVNE. I’ll certainly be recommending it to those I work with because I think if they did adopt the approach, they’d see a fast ROI.

Overall, my lasting impression of this world is that any brand that remembers customers are not a homogenous group will not just win market share but also hearts and minds.

If you fancy a chat about who is doing it well and why, or any of the other hot topics that the symposium will cover, why not drop me a message?

The post Are MVNOs missing the point on customer comms? appeared first on Graystone Strategy.

But adding more colour to this vibrant backdrop were these two bombshells – news that BT is undervalued and having to protect its business, and Three’s CEO openly stating that it would be open to consolidation – a huge statement to make at any time but especially now.

I’ve long speculated that the O2 / Virgin Media merger would put Three at a disadvantage and trigger a bold move from them. So what are Three’s options and those of its competitors?

1.Buy fixed to remain relevant. Straightforward enough as Three could very feasibly target TalkTalk who gave up its mobile ambitions a few years back. History tells us that the regulators have shown they are less concerned about fixed and broadband mergers (see Vodafone and C&W, EE & BT as well as Virgin / O2).

But it seems TalkTalk might resist. It has turned down offers relatively recently and from the outside it looks like it’s in a good position to command a premium. Three’s pockets will have to be deep to win this one, but it’s a good gamble if they want to quickly acquire the elements missing from its portfolio.

 2.How about Sky? Three, or rather its richer parent CKH, may consider an acquisition or a merger. It operates in a number of the same markets as Sky including Ireland, UK and Italy where it has merged with Wind.

My experience tells me that Sky is likely to be unhappy about the tabled O2 and Virgin deal as it poses strategic risk to its TV and broadband business. And it goes without saying that it may view continuing its wholesale relationship with O2 as a bit of a ‘limiting factor’, in the same way Virgin did when it initially announced a move from BT to Vodafone. Either way a takeover or merger brings elements to both parties. TV and broadband for Three, mobile network economics and 5G broadband from Three.

 3.Would Vodafone pitch in? Interesting one. Vodafone UK has been pretty quiet on the acquisition front but globally it bought the European assets of Liberty Global in 2019. This is quite some acquisition with operations in Germany, the Czech Republic, Hungary, and Romania (CEE). It has a total enterprise value of €18.4 billion. As such, Vodafone becomes Europe’s leading converged operator with 54 million cable and fibre households ‘on-net’ and a total next-generation network reach of 124 million homes and businesses.

It means that almost half of Vodafone’s consumer European service revenues now come from growing fixed and converged services.

I’m sure Vodafone would want to grow more but would snapping up Three be the right move? In the past, Vodafone grew significantly in the UK through acquisition of service providers but its last big play was Cable and Wireless in 2012. Is that a sign it’s not interested in deals? Maybe, but don’t forget Hutch and Vodafone merged in Australia in 2009 under the watchful eye of Vodafone’s Group CEO Nick Read when he was Vodafone’s Regional CEO of Asia Pac.

The Three and Vodafone UK customer bases are pretty complementary, so actually coming out of merger hibernation could be a real possibility. Vodafone UK has been actively seeking new growth, even coming back into the wholesale market and briefly winning Virgin until the merger with O2 was announced. As I’ve said before that will have left a huge hole in the budget, closing it will be a necessity.

4.Can we expect anything from BT? This is the longest of long shots for me despite the current share price, which bounced on takeover speculation. I think there is more chance of activity from private equity or from its other major shareholder Deutsche Telekom to increase its stake and control. But in telecoms you just never know, I have been surprised, nay, shocked before!

5.And finally, here’s one from left field – What about Amazon? I speculated a long time ago that it may be in the frame for getting into telecoms. I think it could start circling overhead with a view to making a tactical swoop.  Why? Well, it’s in discussions in India over a $2bn investment in telco. That’s not peanuts and it’s a market that has plenty to offer. That said the UK market now has a lot to offer too. So it’s certainly a possibility, and although I question whether Three has the scale to appeal to Amazon, it would be a pocket change acquisition for a company that regularly buys or invests in a range of different companies.

Five options then, and as you can see I can’t settle on just one to back. As ever the market is way too unpredictable for that. But I think the shorter odd bets will be on TalkTalk and Sky with a good outsider being Vodafone. Whatever happens it’s going to be exciting and there will be plenty more rolls of the dice.

Want to mull over your options with an expert? Talk to us – we’re here to help you consider how you can capitalise on it all.

The post Consolidation in the Telecoms UK Market is on the cards. Where do we place our bets? appeared first on Graystone Strategy.

Six main themes came from my thinking and, in short, if you are in mobile then there are some positives to grasp. Innovation, investment and income are very possible despite the backdrop.

1.Is mobile recession proof? Not entirely but telcos by their nature of being subscription businesses are insulated to an extent. The last few months have shown that resilience comes from continuous regular revenue. Without understating things, the majority of revenues have not dramatically changed by new acquisitions – at least not for the established players.

In terms of parallel industries, Disney+ hit the market just at the right time. It’s now got 57.5 million subscribers ‘far exceeding what was predicted’. That’s undoubtedly been helpful for Disney when other parts of its business have slowed or paused entirely this year. It made for a much better earnings call than anticipated.

But what’s interesting is that this stability in subscriptions from long established players has sparked other businesses to think subscriptions too, and without the need to become a full blown MVNO. Look at Argos. It now sells SIMs to online customers with the credit checking built in. It adopted clever plug-in APIs from CTech and Experian to do this and I think it’s a trend we’ll see continue. You no longer have to be an MVNO to get regular income – you can get a slice of the operator revenue and improve margin on the handset sale.

2. Are margins a worry then? Not really. We may see that margins decline slightly or flatten. This will largely be related to reductions in spend as companies furlough and/or cut back on marketing. Plus, operators don’t have the high acquisition costs right now as the shiny new smartphones are in shorter supply with many anticipated launches delayed. Overall, I wouldn’t expect a massive hit to mobile network margins unless they were over-reliant on enterprise revenues from industries hit by lockdown such as retail or hospitality.

3. What about the smaller outfits? My answer is get ready for acquisitions. Some smaller companies that don’t have large retained bases or were struggling pre-pandemic will have suffered and they may make good acquisition targets. The recent ruling in Europe on CKH and the O2 merger (and subsequent appeal) hints that the European regulators are worried about consolidation. But at a local level, governments are likely to support anything that saves jobs and supports the economy so I would expect to see acquisitions waved through.

4. Is there going to be any spending for growth? Yes, and my money is on a global upturn in innovation. If at the start of the year you had told a COO that they would have to move all of their call centre teams to work from home it would have been tabled as an 18 month transformation project. Yet everyone did it within a few weeks when the pandemic hit and service levels, after an initial blip, were largely maintained. It’s one example of the numerous projects companies undertook to stay operational. A huge amount of innovation and digital transformation happened so it’s now legitimate to ask the question ‘why wait?’ or ‘why can’t this be done in a fraction of the time?’.

New technology adoption is far more likely now too. There will be an appetite for making things easier, faster, more reliable and solve problems that we have to face up to for the short- to mid-term. IoT solutions a case in point. They will be adopted on much larger than anticipated scales for routine process, not just the future world stuff. We’re talking things like security gates that check your temperature. A prime example of where necessity is the mother of invention.

5. Is investment for a scale-up too optimistic? No. With this context VC funding is still going to happen and the prime candidates are those start-ups in the wider ecosystem that are leading the effort to solve world problems. With the right management teams in place they will be seen as a safer bet. VCs may even go so far as to step in and support businesses that have developed great IP but are struggling to grow, if they think the underlying economics can be fixed.

6. Should we look beyond the borders for opportunity? Yes. In less developed countries, where people had less opportunity to access the digital tools that smoothed the impact of the pandemic, I would expect to see targeted investment. The sort that focuses on extending digital networks to make the economy more resilient.

For instance, this is likely to be done using tower companies rather than through individual operator infrastructure investments. We have seen some interesting collaborations to increase coverage both at an operator and government level eg relaxing some regulations. Expect to see more of this ‘flexibility’ to help keep economies connected and on the world map. The same also goes for IoT innovations – smarter agriculture could really take off now that the precarious nature of supply chains has been exposed. If you’re in that market, or indeed smart cities, then there are definitely options.

If you need help to develop your business network and your pitch so you can speak to the right people about your innovations and ideas then get in touch.

This blog was inspired by comments provided to Capacity Magazine this week – you can read that piece here

The post We are officially in recession – will the mobile world now implode? Six opportunities to seek out appeared first on Graystone Strategy.

Consumer customer growth will slow further

We’ve seen Covid-19 effect major launches so 5G handset supply was always going to be tricky this year, but this is quite a spanner in the works for any operator with desires to grow their 5G base in 2020.

It’s not helped by the fact that 5G is quite a niche proposition for consumers and that’s even for the really early adopters. We’re talking about the ‘Tech trailblazers’ (30% of the market) wanting 5G to begin with. That said, it’s not an insignificant number so the operators will have planned to attract them early to help showcase the possibilities, and get the revenue in the door. Their initial growth strategy will be pinned on business applications (see final point below) and these Trailblazers. But like 3G and 4G, 5G will go mainstream as more handsets become available and, in particular, once Apple is able to supply a decent quantity of 5G iPhones.

Network complications

Handsets is one thing, using it on a working network is another. This week’s decision will undoubtedly impact the speed of the rollout of 5G coverage. Networks have built plans around the availability and supply of Huawei kit, and now need to see if the more likely suppliers of Ericsson and Nokia through to re-emerging brands like Fujitsu, NEC and Samsung can help fill the gap.

Will they be able to make up the deficit quickly enough? My guess is it will be a perfect collision of not enough kit from any of them quickly enough, and delays on taking out the existing kit. That all adds up to a slower than planned growth of 5G coverage, and, as networks will ultimately need to extract the kit they have already installed, there will be disruption to existing 5G service.

Overall it’s going to be an interesting race between operators to change quickly and with limited impact to customer experience. And it’s a race it will be difficult to judge as networks seldom publish their plans in any great detail, so we won’t really know how they are progressing against the initial plan they had.

Will Customers pay the new 5G bill ?

The cost implications of replacing kit are most likely to be felt by consumers. The availability (or lack of) alternative base station kit may drive up market prices and therefore costs to deploy networks. Plus reversing out already purchased Huawei kit has a double whammy effect, the original investment is wasted and you are effectively installing, de-installing and re-installing which all has associated costs. That has to be financed somehow and while I don’t expect data pricing to go up I do expect data pricing to stabilise and the steady decline we’ve seen over the last couple of years slow down.

It’s very likely this will cause some networks to re-evaluate their 5G pricing strategy. Consumers should therefore expect 5G to be at a premium in terms of handset costs and possible the available tariffs for 5G.

But as ever, it always pays to shop around. MVNOs like Sky Mobile (on the O2 network) already have access to 5G and with recent developments in the MVNO and MNO market, and the announced merger between O2 and Virgin we may see some good deals in the short term.

What do consumers think and what will they do?

The news has made every front page and it’s likely consumers will now be concerned about buying Huawei branded devices as a result. They are likely to think more about the trade-offs than they usually would when investing in a new phone.

Huawei is likely to extend its range of very cost effective 5G devices competing against the more expensive Samsung or Apple (once available). It remains to seen whether price over perceived security wins out.

My hunch is customers will take longer to adopt 5G anyway, simply because we have a shrinking economy and people will be keeping an eye on their discretionary expenditure.

MVNOs left in the cold?

All the complexity in the practicalities of delivering 5G and the added pressure on economics might have mid-term consequences for MVNOs. The big question is will operators offer market parity to their partners? A delay in parity would help ensure 5G is synonymous with the big networks. Yet, MVNOs exist for the very reason that there are sets of customers operators will never reach. Extending 5G to MVNOs early (as some Operators have already done) could boost market traction.

It would not be a huge surprise if Operators take this opportunity to review the 5G MVNO strategy and whether they can delay MVNO access. Their cost base has changed significantly so the question is, do they drive for volume and include MVNOs or pursue a premium strategy for their direct customers only?

I imagine wholesale and finance teams are working intensely on business case calculations now.

Private networks may stall

Finally, we can’t look at the ramifications without talking about the impact on enterprise. This is where the real 5G business case lies, helping companies become more efficient and innovate. Any delay to 5G means a delay to some aspects of digital transformation, which is a strategic imperative at the moment.

The development of private networks, which is probably one of the most interesting use cases, will also take a hit. Private networks are not covered by the legislation but as Huawei has targeted this market and built some innovative RAN solutions I can see another potential problem.

All businesses are very concerned about security and data protection in line with legislation, and as a matter of reputational necessity, so I imagine any business in need of a private network, will be intently reviewing the perceived risk, seeking alternative suppliers and again increasing demand on more expensive alternatives to Huawei. The question is will that blow the business case?

As you can see there’s a lot at stake and as the points above show the strategic choices operators face are complex. From performing technical change through which propositions to define and price first, to whether to launch with MVNOs.

Few will have predicted the scenario five years ago, but real it is and it won’t be reversed. Navigating the short-term upheaval for long-term gain is now the name of the game.

If you need help working through your strategy in response to these changes then get in touch.

The post Six consequences of the Huawei ruling appeared first on Graystone Strategy.

Recent months have been about survival of the fittest. And while change is an accepted part of doing business, plans really have been turned upside down as the economy tanked, uncertainty dug in, and an ever changing set of rules came from the government.

This kind of change means that today’s issues, (which could quite literally have become very different to yesterday’s and are likely to be different again to tomorrow’s), become the talking point at the boardroom table. The long-term plan gets shoved aside.

It’s a really common behaviour at the moment. The ‘Covid effect’ boils down to obsessing on the here and now and not adjusting at the detriment of the long term strategic plans. Decisions are deferred, expenditure is questioned, cuts are made.

But as history can tell us, fortune favours the brave.

So, it’s no surprise then that despite the question mark over 5G’s relevance, Vodafone is still forecasting a big upside to 5G. True enough the cynical can say Vodafone has a vested interest in making 5G happen, but its whole approach to the pandemic has been one of accepting its role as a critical service provider and stepping up. It’s seen and helped demonstrate the bigger picture and provided the technology solutions and support to boot.

The alternative approach, which we’ve also seen in the industry, is to entrench. Reduce marketing expenditure. Furlough staff. Reduce service levels.

Setting aside the retail hardships, in an industry like telecoms such an approach can only lead to more misery – ultimately you lose momentum and catching up becomes much more challenging.

It’s a two-fold approach that’s needed: 1. Now, 2: next year. There’s an immediate need to look at the services 5G can help companies innovate and deliver tomorrow and react to what customers want now. As Peter Scott illustrates in this piece in The Daily Telegraph, understanding your service model and how people want to shop and buy a product can differentiate a brand.

If you can put someone in touch with an expert in a store by video you are helping them make better use of their time and feel secure about the choices they make and the brands they gravitate to. Your assistants are less exposed to risk and can do what they do best: explain and demonstrate the latest washing machine or smart speaker and close a sale.

But for me it’s not just about the technology, it’s about the attitude towards longer term planning. Now is the time for boards in retail, travel and utilities in particular to review their five year plan, use the intel they have gathered over the last few months, think about their customer segments again and, if necessary, alter course, make new investments and keep moving forward towards the vision.

We are still very much in the throes of a marathon when it comes to managing the pandemic. I’d therefore argue that 5G and the assorted technologies it supports, like AI, AR and VR, and M2M IoT, can help long-term recovery in so many ways. It shouldn’t be dismissed.

There’s much to gain from investing in this vision – more accurate billing, more varied and personalised entertainment and subscription services, smarter city living and travel options. The operators are starting to bring to life the possibilities and show how investment can deliver ROI quickly. Investing in collaborative trials and pilots is a definite option for the execs who are brave.

Yes, there are definite use cases to deliver today – there’s the urgent use case for temperature monitoring at tickets turnstiles and access gates for instance. But there’s also the longer-term vision for using 5G to enable IoT that can help with things that have hit the public’s conscience since lockdown, such as managing food security and supply chains, to greener living and everything in between. It’s a perfect PR opportunity to strike now.

To sum up, I would see it as an opportunity that only 5% of companies think 5G is more important and relevant in a CV-19 world. Those 5% are the brands that can see its potential and are the ones to watch. They are already rethinking their strategy and making the link between innovation and recovery. And I believe that it’s those companies that will become even more relevant to people and help them live better connected lives. And what’s more they will be the businesses that swerve becoming another casualty in the long-run.

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1. The customer mindset has changed and that brings opportunity. Put simply, if you weren’t able to trade online you will have suffered greatly in the last few months. Many consumers discovered online shopping for the first time in lockdown. In particular, an older demographic started to buy their weekly shop online. Food shifted from 20% of supermarket sales to 50%.

 And while people have become more open to buying in a different way they’ve also considered buying things they would only ever go to a shop for such as bedding plants from garden centres. There has also been a surge in ‘indoor activity’. Sales of books, craft kits and puzzles have leapt up. Many of the businesses providing these items have seen sales more than double compared to last year.

2. Customer data and segmentation need a rethink. The traditional methods for segmentation were starting to become irrelevant, but now they really need a rethink. Life has fundamentally changed for some people you’d have expected to behave in a certain way. They perhaps don’t have the income, have decided they want a simpler life, or are going green.

So, you can’t assume one postcode will buy in the same way. Or that a 50 year old has nothing in common with a 25 year old. Lockdown has shone a light on this segmentation bias. Now it’s about attitude and retailers need to turn their use of data on its head and seek out the new opportunities. For instance, fashion retailers could take stock of their values and become a more sustainable business in line with new attitudes.

3. Digital has to take centre stage. The factors above have presented two challenges for retailers. Firstly, for the physical retailers they’ve realised they need to get into digital and fast, if they weren’t already doing it, or do it properly i.e. go beyond just having a website.

Victoria’s Secret is a sorry example of what happens when you don’t have a local website and ship from the US. A local supply chain and localised website are imperative. As is having very distinct product lines and a way to find them, not to mention a short check out process. Above all, retailers now need a joined up digital strategy by which I mean they have to be able to sell, support and inspire customers.

And for the digital retailers, the challenge is how they retain the new customers they have gained during Covid-19. This is especially true if the physical retailers catch up and take advantage of a clean slate from which to build an online store.

4. Loyalty schemes need a makeover. Retailers have to rethink loyalty programmes to reflect how people have moved on from where they were in March. Just giving money off and other benefits from like-minded brands will not be enough in the new world.

Some retailers have been brilliant at communicating with customers throughout the pandemic and have done some really innovative things, which customers will remember. Made.com refurbished hospital staff rooms throughout the pandemic and Zara recognised that the beach photography it had for Spring/Summer campaigns wasn’t relevant so quickly shipped clothes to models so they could photograph themselves wearing them in their homes.

That quick thinking inspires purchases and breeds loyalty so the focus has to be on how to harness that loyalty in the future.

5. New technology now has a place. You can’t use a changing room to try on a top so how do you still give people an experience? We’re likely to see much earlier adoption of virtual and augmented reality to answer this question. Visualising yourself in an item of clothing, seeing how a sofa can fit into your room and in different colours will be of great interest now. And consumers have shown they are ready to change their ways if the experience is good. It’s not just about fun it’s also about ease. So, expect to see the development of apps to support this experience.

6. Theatrical experiences are a must. Selfridges showed us how it’s done when it gave the first shoppers bouquets of flowers and put on side shows to entertain people returning to shop. It openly said it would make shopping ‘joyful’.

But this is a much harder challenge for most physical retailers not used to thinking this way. But it’s a mindset that’s needed. Shopping will be full of restriction so moments of fun will make a difference to how people fell about your brand.

In many cases, store layouts are prohibitive to social distancing and the general atmosphere on the high street also pose problems. If you are surrounded by empty stores as a consequence of chains and independents going out of business, you not only have to make your shop attractive but the high street a destination too. It’s going to take time to understand your product line up, service options and processes to overcome the obstacles. But it has to be done with urgency, which is why it’s so important to ensure you understand your customers to you get it right first time.

7. Subscription models are more important than ever. A busy lifestyle has been the driving force for subscriptions – a convenient way to change your habits such as to cook and eat healthy food or buy more sustainable products. These models have used online to their advantage to bring continuous revenue, and early adopters appreciated the convenience, service and speed, as well as the access to things they couldn’t get on the high street.

Lockdown has sparked more innovations. Independent shops had to shift the way they sold to find their customers. Now things like weekly, carefully curated craft beer deliveries are normal. We’ll start to see bigger brands follow, not just with subscription deliveries but also hiring models.

Why buy a hedge trimmer to cut the hedge a few times a year, or buy a new wardrobe when you don’t have many places to wear it when could borrow one? Hirestreet is leading on this in fashion but H&M is now jumping on the trend. I think we’ll see more of this across all sectors.

Making all this happen is hard. For some retailers they will need to reinvent their brand, their supply chain and the entire fabric of their company culture and brand purpose. That needs bravery and leadership. But if you know your customers well, identify the new opportunities, and select products and services that will drive loyalty then you have a real chance to succeed.

If you need help with this then please get in touch, we would be happy to help you work through your new strategy.

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It was going to change the market. Of that there was no doubt, and moreover, it was a very interesting way to forge a partnership that brought mutual benefits, and still swerve the regulatory and CMA review.

But Friday’s news about a potential merger between Virgin and O2 completely changes the game and the market dynamics. Let’s look at the players:

O2 – a problem child

We know that Telefonica has been trying to work out what to do with O2 after the regulator and CMA blocked the merger with Three.

As a by stander, I found it all rather perplexing because previously the regulator had waived through a deal between BT and EE creating a huge telecoms market leader. How was this different? One can only assume, that at the time, the regulator did not grasp the fact that fixed, mobile and media were all rapidly converging.

So, O2’s needed to change tack, and as a result it’s been making some bold strategic moves. Only a month ago it pulled out of its partnership with the indirect reseller Carphone Warehouse, who, by the way, still sell all of Virgin’s products.

You can read more about my full analysis of that decision here, but what’s important to know is that the move opened up a gap – and Virgin is well placed to fill it.

A perfect match for retail, business and the channel

O2 has no broadband customers, nor a TV offer (if you don’t include Netflix and Disney et al) to offer retail consumers, so in partnering with Virgin it can move hook, line and sinker into multi-play.

In business, both organisations have established business sales channels and again the offering is largely complementary. I’d assume O2 takes the lead on mobile and private networks, and Virgin drives the fixed connectivity. This will be good news to the dealer channel too.

A more detailed look at the segments and why the deal makes sense

If we use the Graystone Strategy segmentation to look at the consumer profiles they both attract, then an interesting story pans out, namely they both over index in different segments.

Virgin Mobile has more than its fair share of ‘Service Seekers’, ‘Budget Balancers’ and ‘Settled Seniors’. Whereas O2 over indexes on ‘Digital Devotees’ and ‘Technology Trail Blazers’. It’s clear that there’s an opportunity for both parties to gain access to different segments and hence acquire incremental customers.

In broadband and TV there is opportunity too. O2 has more than its fair share of ‘Digital Devotees’ in its base and currently no TV or broadband offer to sell them.

Looking at the market at large, Sky over-indexes on ‘Digital Devotees’ too, for both TV and broadband. This means that a multi-play O2 / Virgin deal could win over Sky customers pretty swiftly. It also suggests that the O2 / Sky deal may have been cannibalising the O2 base moving O2 customers with a Sky account to Sky Mobile.

Virgin can take advantage of the network economies

In a merger, Virgin would benefit from full network economics – something that the Vodafone wholesale deal is unlikely to have unlocked, unless it was viewed as a highly strategic partnership and had some type of quid pro quo commercials in place.

Vodafone left in the cold

So, what of the wholesale partnership with Vodafone? If the O2 / Virgin deal goes ahead then obviously the Voda partnership will be voided. But I would be surprised if there would not be a pretty punitive cost to Virgin in tearing up the contract.

In some respects, the timing of this may be because Virgin needs to resolve this one way or another before it goes too far down the integration path. And of course, they won’t want to move their wholesale supplier from BT to Vodafone and then to O2. That would be far too much change and impact on customers.

Who will be the winners and losers?

We are many months off a competition review, but already we can make some assumptions about who are going to be the winners and losers in the market.

Losers:

1. Net loser – Vodafone, as it sees Virgin deal unravel…

Vodafone is likely to be a net loser. It had won a significant wholesale contract with Virgin, but as it unravels, even if there are clauses that allow them to recoup some of the margin, it will be worse off than they could have been. And I’d wager that’s even if the resultant impact on other MVNOs allows Vodafone to pick up some new customers.

2. …BT remains a loser

BT continues to be a long-term net loser. The biggest wholesale contract it had has walked away, and now, Virgin, as one of its biggest competitors has the potential to get access to MNO economics.

It also has the potential to give O2 / Virgin the number one spot in terms of mobile subscribers. O2 has always had a strong wholesale business, and a very effective wholesale strategy, and, in terms of wholesale and retail SIMs combined, they have been market leader. This would allow O2 to challenge the number one spot for retail customers as the Virgin and O2 customer bases would likely merge.

There may a short-term upside for BT. If the deal goes ahead, then migrating Virgin customers away from BT to O2 may take longer than it was going to take to migrate them to Vodafone. This gives some upsides in terms of wholesale revenues, and possibly a chance to take a premium! But it is really just sugar coating on the bitter merger pill.

3. … Three lagging their competitors with no fixed infrastructure

There’s no understating that Three will come out of this a loser. It’s the smallest mobile operator and only operates meaningfully in consumer, although it does have business and consumer MVNOs in their portfolio.

If the deal goes ahead then it further highlights Three’s biggest challenge: it does not have any fixed infrastructure and no major play for the home. Yes, the 5G mobile broadband offer mitigates this a bit, but it is far from mass market right now.

4. Sky probably a loser. Could it sell up?

It’s likely Sky will have clauses in its contract with O2 to safeguard change of ownership and potentially ‘exclusivity of category’. If true, it means they might seriously consider moving away from O2 pronto. That will not have been in its plans and will absolutely be a significant upset to its long-term strategy that will impact customer numbers.

Knocking on the door will be Vodafone, BT and Three, all keen to engage and encourage a move to their networks. This of course, could drive more favourable terms and bring an edge to the competition in the longer term, but it will also require a big change project.

Alternatively, and it’s a real longshot, but it’s not unthinkable that Sky might even sell its mobile base to O2. It’s not hard linked to broadband or TV but a move like that comes with some real risk specifically that any Virgin / O2 venture would seek to convert those acquired customers to Virgin TV and broadband.

Neutral:

5. TalkTalk could come looking for a deal

TalkTalk, is probably neutral at the moment. It walked away from mobile a while back, but it may be time to put on its best bib and tucker and see if there’s a partnership or acquisition option for it too. Definitely a space to watch.

Winners:

6. O2 and the consumer

O2 is very clearly a winner. It moves from being a mobile only operator in the market to join BT, which offers mobile, fixed and TV, and Vodafone with its mobile and fixed offer.

Consumers really luck out in the short term. There’s more choice for multi-play for sure. And with fewer organisations in general to buy mobile from, I suspect retention and acquisition offers will be good. But long term, I think it will shift to a more neutral position for consumers.

Virgin brand in flux

Let’s not forget this has ramifications for the Virgin brand full stop. With sell offs happening all over the place, it screams for another piece of analysis on the future of the brand, so look out for that soon.

How should the market respond?

In the meantime, bearing in mind the regulatory hurdles, I’d be advising all operators to be taking a good hard look at their segments, and analysing how well their propositions attract the bullseye and compete as the dynamics shift. We now know O2 is up to something so if this doesn’t pass, you can expect it won’t be dissuaded from trying another strategy. Either way change is coming and preparation will be everything.

If you want to talk the implications through further, specifically for your business, or re-evaluate your segmentation then get in touch. I’m not going anywhere for the foreseeable!

The post Virgin and O2 are in detailed discussions. Here’s my 360 view on things. appeared first on Graystone Strategy.

The first thought anyone in the industry will be having is that there could be a catastrophic domino effect. Phones4U went into administration after networks pulled out, and it happened in weeks!

But you have to remember Dixons Carphone is a more diverse business and it has been here before. Firstly, Three hasn’t sold through Dixons Carphone since 2013, and that’s despite using Three to run its MVNO iD, which boasts 1 million customers. Secondly, Vodafone pulled out of Carphone Warehouse in 2006, only to return again a few years later. One can only assume this is because they lost customers as a result of leaving.

Understanding the decision through customer segmentation

I can only assume that O2 is confident it can address customer segments that would normally buy from Dixons Carphone through other channels. Time will tell as to whether O2 can achieve its goals without Dixons Carphone.

I have my doubts. Research Graystone Strategy has conducted as part of our Customer Market Segmentation shows that 27% of consumers buy from a mobile specialist (stores, online or telesales) whereas buying directly from the mobile networks accounts for 35%.

Of those buying from a specialist, around half will buy from Dixons Carphone or one of its online brands, which accounts for a substantial part of the market.

But when you look at the channel preferences of the different customer segments you really uncover some interesting insight. Our segmentation shows that THREE of the SIX segments over index on a preference to buy from a specialist mobile phone store, rather than a network store. Those segments are Digital Devotees, Technology Trail Blazers and Budget Balancers.

It’s important to bear in mind that the segments we’ve developed are based on customers’ attitudes so they are powerful indicators of behaviour. They provide a far more accurate view of what people do, want and aspire to. They are not assuming anyone with the same postcode will shop and do the same things – as I’m sure you’ll know from looking up and down your street, that’s not how society works.

That’s why we’ve developed a more accurate model and successfully used it help MVNOs and retailers better understand the customers they have access to and in turn make more strategic decisions about how to develop their propositions.

The O2 customer base over-indexes on Digital Devotees and Technology Trail Blazers suggesting that Carphone Warehouse is a good channel fit for them. However, O2 can still acquire a “fair share” through its own stores, it’s just that those segments above have a preference for independent specialists.

And delving a little deeper, I think there could be something else at play here – by coming away from the high street and moving its stores into the Curry’s and PC World retail park stores, Dixons Carphone may have scored an unwitting own goal driving more customers into the high street stores of the mobile operators.

It’s possible the customer wants to shop around and as there is no ‘one-stop-independent-shop’ on the high street then the path of least resistance for the consumer may be to visit four operator stores on the high street rather than driving to the retail park. It’s a theory but my experience supports it.

So, what is actually going to happen?

Well, I would expect O2 to invest in online to drive more direct business through that channel. Let’s face it, we are all having to shop online right now, and it is going to have a lasting impact on all high street stores. I’d also expect O2 to put more focus on other independent channels like AO Mobile and even independent local retailers.

On the other hand, I would expect Dixons Carphone to try and recover the situation and shift the available “category” onto its MVNO iD mobile or offer a greater category share to other MVNOs and Operators that they range.

In terms of other operators, I think we can expect EE to benefit from an increased share. The research shows that  Digital Devotees, who traditionally visited a CPW store, also have a high consideration for EE, an adept salesman could easily switch them out of O2 and into EE.

What will be interesting is the reaction of other operators. As long as they don’t use this as an opportunity to change their distribution strategy, and therefore pull out of CPW, then I think Dixons Carphone will weather the storm. Although, I hasten to add, they will lose overall market share of that I am sure.

The big question that remains for me in all this is whether the shoppers in Curry’s and PC World are made up of different segments and if so, does this offer them a strategic advantage – can they offer the networks access to customer segments not readily available in a standalone Carphone Warehouse store.

I’ll have to run more research and segmentation to see if that’s the case but it’s certainly something to think about. Indeed, if you’d be interested in testing the hypothesis with me then give me a call. I’m sure there is much to learn.

For now though, it remains a watching brief for all MNOs and MVNOs, especially as we move through uncertainty and plan for recovery. There’s no doubt that understanding your customer is more relevant now than ever before.

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