Global Economics

Carphone Could Lose Orange Business


After Vodafone's departure, the British retailer hears concerns about high costs from another mobile operator, this time the France Telecom unit

Mobile operator Orange has hinted it may drop its retail deal with Carphone Warehouse, just one day after Vodafone made the same decision.

Should France Telecom-owned Orange shun Carphone, the retail chain will be deprived of two of the largest mobile phone operators in Europe. In a statement issued today, Orange said it is "reviewing our independent strategy for 2007".

While the operator maintained its relationship with both Carphone Warehouse and Phones4u remains "unchanged", it added, "our indirect distribution costs have gone up significantly over the last few years". Carphone Warehouse did not respond to a request for comment.

The statement echoes rival Vodafone's rationale for ditching Carphone. Vodafone yesterday said it is severing its contract ties with Carphone as a cost-cutting measure.

The mobile operator has now signed up with Phones4u and is thought to have shaved 20 per cent off its commission costs as a result. The deal between the pair guarantees Phones4u will arrange 30,000 new subscriptions per month for Vodafone.

Analysts, however, have been querying the wisdom of the move on Vodafone's part.

Ovum analyst Jonathan Arber said in a research note: "We have to question if the savings are really worth shutting out the current high-street leader, Carphone Warehouse, and thus greatly reducing potential contract sale opportunities."

He continued: "Vodafone must be pretty confident in Phones4u's potential as a sales channel if it's willing to turn its back on the rest of the high street. It will be interesting to see what happens with Vodafone's prepaid business - if all goes well could we see a Phones4u exclusive here too in a few months time."

Carphone's share price was hit hard by news of the two possible defections plus the announcement on Wednesday that the mobile phone retailer will buy AOL UK for £370m. Shares fell 14 per cent during trading yesterday and remain volatile today.

Carphone has recently moved into the service providing business - the usual stamping ground of Orange and Vodafone. Back in April it became the first to launch so-called 'free' broadband. Orange followed shortly after with its 'free' proposition while Vodafone announced it too will be moving into the broadband supply market.

At the same time some mobile operators have been moving into Carphone's territory by shoring up their retail strategies and moving away from resellers by opening more 'own brand' shops. O2, for example, recently bought the Link to augment its high street presence.

Links:

The Weekly Round-Up: 13.10.06

Peter Cochrane's Blog: Finding wi-fi in the unlikeliest of places

Leader: Of tipping points and SaaS

Peter Cochrane's Blog: What are the risks?

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