Mobile distributors need to grow or get out
| The market for distribution of mobile handsets is facing massive structural change. |
| Changes that are driven by a new reality, which started in Scandinavia, spread to the Netherlands and has now hit Germany. This reality will show its face in the UK and the rest of Europe very soon. Historically the UK has had a number of national distributors with a healthy business, due to a large home market and operators that have generously subsidised prepaid as well as post-paid products.A mass of independent retailers have been able to choose from a wide choice of distributors, who either had direct agreements to the terminal manufacturers or who bought terminals on the free market. Success was driven by an ability to either deliver the handsets that were in high demand or just have good prices. Across Europe we have seen a massive drop in voice and SMS prices, a drop driven by the operators or MVNO’s focussing on Sim-only sales, using the concept ‘Bring your own phone – and get cheap calls’. This concept has been so successful that Tele2 forced Vodafone out of Sweden, and Telmore pushed Orange out of Denmark with large financial losses. In Germany E-Plus has had the same success, and O2, Vodafone and T-Mobile are all not afraid of admitting that the German market faces is facing massive change. A lot of people will ask, what does this mean to distributors? The answer is very simple, sales of handsets will fall significantly for a period, as they did in Sweden, where sales fell 25% in 2005. Furthermore, customers will demand new and more complex services from their suppliers. This has major implications for distributors. In future distributors will fall into two groups. One kind will focus solely on keenly-priced handsets and the other group will be value-added distributors with a pan-European footprint. They will be able to deliver a number of services on top of the traditional terminal distribution. To act as a value added distributor in the future mobile market, you will have to be able to offer customers a ‘one stop shop’ across all handset brands, have an advanced accessories range combined with the ability to configure handsets to order. All this needs to be backed by great systems that ensure high quality service throughout the entire logistics chain. Because these businesses are both low margin and capital-intensive it can only mean that a number of existing distributors will have to merge or disappear. Around Europe, we see several examples of distributors who are in pain, and a number of them have already consolidated in one way or another. One of the main drivers in this is Dangaard Telecom, which was sold to a private equity fund this month. The buyers have a simple goal: making this European player the global number one. If the rumours about Dangaard Telecom’s sale price are true it is equivalent to between four or five times their profits last year. For many UK distributors this will come as an unpleasant surprise, as it suggests many businesses are worth significantly less than their present owners feel. To survive distributors need to have high earnings and offer their clients advanced services, not just shift boxes. In the UK as in most of Europe, there are some larger and smaller distributors who in their present form do not stand a chance in the future market. We believe that to make it they need to learn from companies like CPW and Dangaard to create a volume business through acquisitions and mergers, and to develop a number of VAS offerings, that will make the operators see an advantage in outsourcing their handset distribution. They also need to forget about just being a UK player and focus on creating business that can operator across the region. To put it very simply: grow fast or disappear. As previously mentioned, the distributors will be part of a more complex value chain which is just one of many significant trends that are moving the mobile industry in a new direction. Strand Consult has identified a total of 10 Mega-trends that are all analysed in depth in a new report “Mega trends in the mobile industry – a question of life and death”. Due to these 10 Mega-trends, the market for mobile telephony is facing an upheaval in the whole value chain, which will lead to the launching of new business procedures and revenue sharing models. The report analyses the effect that the 10 Mega-trends will have on handset manufacturers, content providers, mobile operators and dealers and the report puts forward suggestions on which considerations and initiatives each market player must examine to prepare themselves for the effect that the 10 Mega-trends will have on the mobile market. |
Mega trends in the mobile industry – a question of life and death |
