Why is Phones 4u entering the mobile operator market?

We look at why mobile retailer Phones 4u wants to offer its own contracts and what that means for the industry and consumers

Phones 4u has entered the mobile operator market, announcing the launch of its Life Mobile virtual network.

It will run as a mobile virtual network operator (MVNO), using EE’s infrastructure to provide its services, and intends to focus on smartphone tariffs to provide more flexible data plans to its customers.  

But why is Phones 4u investing in entering an already crowded marketplace?

Carrie Pawsey, senior analyst at Ovum specialising in communications and broadband, suggested the company might need to look for a new revenue stream.

“Phones 4u’s business is based on the high street, and we all know the high street is in trouble,” she said. “Any company entrenched in the retail business needs to look at intensifying its other revenue avenues.”

Phones 4u is not the first to take this route. Carphone Warehouse teamed up with Vodafone in 2011 to launch its own MVNO called Talkmobile, and Tesco uses its position in the high street to attract customers to Tesco Mobile.

Can Phones 4u still offer an independent service?

The question is, can a retailer that prides itself on offering all of the operators alongside one another remain independent if its own offering is on the shelves?

“I think it can still remain independent, just like Carphone Warehouse is still selling other operators,” said Pawsey. “It can be difficult to find the balance, but it depends on how it incentivises its own staff.”

A spokeswoman from Phones 4u said the company used net promoter scores (NPS) to reward staff performance and these focus solely on how satisfied a customer is in the long run, rather than how many of a particular handset or tariff is sold.

“It’s about loyalty and feeling towards the brand. Staff are being trained to offer the best deals, so Life Mobile won’t change that,” she said.

Philip Kendall, director of wireless operator strategies for analyst firm Strategy Analytics, said it would depend on Phones 4u’s approach to the market and how aggressively it pushes its own network. 

“These types of MVNOs tend to be cheaper than the mainstream mobile operators on the basics, but when you get into add-ons, such as international roaming, they can sometimes be lacking," he said.

Any company entrenched in the retail business needs to look at intensifying its other revenue avenues

Carrie Pawsey, Ovum

“It is obviously not strictly independent advice, but ‘we have our own mobile service which uses the country’s biggest network and is cheaper than the operators’ could be an accurate statement at point of sale,” added Kendall.

He said Carphone Warehouse managed to keep impartiality despite its own offering, adding: “If Phones 4u strong-arms every customer coming into its stores to take out a Phones 4u contract, that will damage its reputation, but if it is just one extra option, it should be okay.”

Creative thinking essential in competitive mobile market

Rob Bamforth, principal analyst at Quocirca, said it was up to Phones 4u to differentiate itself from the competition to make an impact.  

“Simply presenting itself as a low-cost operation over the EE network wouldn't be enough,” he said. “Phones 4u would need to get creative with tariffs, bundles and targeting.”

However, Bamforth had more doubts than Ovum's Pawsey and Strategy Analytics' Kendall about how well it would work in store.

“The reason I think it might not do more is because it seems to have a very direct in-store salesforce,” he said. “There is nothing wrong with target-driven selling, but it can easily lead to repetitive, simpler sales and a pile 'em high, sell 'em cheap attitude, rather than a longer customer engagement.” 

A lucrative deal for EE

So the benefits to Phones 4u may be clearer, but why does EE want to wholesale its network to a firm that could take custom away?

The UK operator market has been involved in MVNOs since the late 1990s, and Pawsey claimed there was a big revenue stream attached to wholesaling infrastructure, so much so that “there is a fight between network operators to bring those MVNOs in”.

Kendall said the wholesale terms EE has with Phones 4u should be fairly lucrative, so EE will make a healthy profit on the traffic Phones 4u generates. "EE will also save money on not having to directly acquire those customers through subsidies or provide customer care, so these wholesale channels can be good ones for operators.”

Reasons for wholesaling a previously exclusive 4G network

But the most interesting fact, according to Pawsey, is the willingness of EE to wholesale its exclusive 4G network, although it will come later in the year rather than at launch.

EE’s 4G pricing has been premium compared with Orange and T-Mobile, and we still don’t know take-up as it hasn’t released any figures,” she said. “EE didn’t even allow the Orange and T-Mobile brands to use it, keeping it exclusively EE, and now it is talking about wholesaling it.”

“My feeling is take-up has not been as good as expected or anticipated, so it is now looking at wholesaling 4G rather than just retaining it for its own customers, which has been its strategy all along.”

Virgin and Tesco have helped drive down prices or improve service options, so one more player trying to do this feels like a good thing

Philip Kendall, Strategy Analytics

How customers will benefit

That is Phones 4u and the wholesaler, EE, covered, but how will consumers benefit from yet another operator entering the market?  

Details of the tariffs, services and handsets available are still unknown, and it is uncertain when they will be announced, but Phones 4u has said it will focus on data tariffs to meet the demands of the modern smartphone user.

A busy market also means more choices and stiffer competition between the operators.

“The more successful UK MVNOs, such as Virgin and Tesco, have shaken up the market at one point or another and helped to drive down prices or improve service options for consumers, so one more player trying to do this feels like a good thing,” concluded Kendall.

“At the very worst, it will be another Easyjet Mobile and disappear having made no mark, and none of us will be worse off, but as a retailer with a strong high street presence and pretty aggressive marketing strategy, Phones 4u certainly has the potential to have an impact on the market.”

We will have to wait until Life Mobile launches in March to see what that impact might be, but just three weeks in, it seems 2013 will be a busy year for the UK mobile operator industry.

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