Thursday 21 February 2019

30m shades of Gray: how to set up a new mobile operator

This summer, The Carphone Warehouse will launch a new mobile operator in Ireland. Our technology editor talks to James Gray, the industry veteran who is setting it up.

James Gray sees scope for a new name in an ever-thinning market.
James Gray sees scope for a new name in an ever-thinning market.
Adrian Weckler

Adrian Weckler

Two years ago, it was losing €10m a year. But today, The Carphone Warehouse's Irish operation is back in the black. And the retailer, which has almost 100 outlets here, is about to spend €30m on the launch of a new mobile operator for Ireland.

The new mobile network, as yet unnamed, is being headed up by one of Europe's most experienced 'virtual' operator specialists. Having put a sim card in Amazon's Kindle in 2007, James Gray has been responsible for 14 virtual operator launches, including major UK virtual operators Talk Talk, Asda and Mobile By Sainsburys.

So what will be different about this operator? Will it offer more data? Will it be cheaper?

Maybe, says the 45-year-old Englishman. But its main weapon will be to fix things that annoy people most, such as being denied upgrades when new phones come out.

"Two years is too long to be locked," he says. "We know that there are people who want to upgrade far earlier than 24 months. It irritates consumers that there's no flexibility."

This is a common problem for people buying iPhones or Samsung Galaxy handsets. The latest, greatest model is often unavailable because of a long contract.

"The model for buying a mobile phone hasn't changed in 20 years and the subsidy model we have is last century stuff. So we're going to construct it so that you won't be locked into a tariff forever."

This might also go for issues such as data allowances and calling minutes, he says.

"People get annoyed by rigid allowances," he says. "If they sign a contract there are still so many things that could happen in their lives that could change their needs, yet they're inflexibly bound."

Despite its throwback trading name, The Carphone Warehouse packs a hell of a retail punch in Ireland. It has 95 outlets around the country, including 77 standalone stores and 12 concessions in Harvey Norman superstores.

With a stated 'footfall' of over 6m per annum in Ireland, it also recently merged with Dixons, giving it stronger hand when it comes to negotiating with top tier brands such as Apple.

In 2013, the Irish operation posted a loss of almost €10m. Last year, this was reversed into a €2m profit. So why not stick with what's working? Why launch a mobile operator, especially with margins in that sector becoming ever-thinner?

"This market is a great one to go into because there aren't that many operators here," says Gray. "Look at the UK. You've got over 100 mobile virtual operators over there. Ireland is a small market but there's an opportunity to make a difference here and to be profitable. This is a strategic investment for The Carphone Warehouse with €30m being put in initially."

The number of operators here, compared to the UK or other European countries, is indeed small. There are three main networks: Vodafone, 3 (incorporating O2) and Meteor. There are also four significant virtual operators: Tesco Mobile, Lyca Mobile, PostFon and 48. (Eircom's eMobile is generally counted as part of Meteor by analysts.)

If Carphone is to succeed, it must take customers from one or more of these seven operators. Who is most vulnerable?

"The most likely acquisitions will be from the big players [Vodafone, 3 and Meteor] because they have the most customers," says Gray. "And because they're the biggest, they probably have the least flexible organisations too. So the biggest slice, I think, will be from the main network operators. But we'll take from anyone, including Tesco or the other MVNOs."

The other reason that Carphone is launching here is because of the relatively generous terms of the deal with 3, hich were mandated by the European Commission in exchange for 3 getting permission to buy O2 Ireland.

Under the deal's terms, Carphone has a large guaranteed tranche of 3's network capacity, with which it can do whatever it wants. That allows it to offer aggressive customer deals on issues such as data allowances and to plan years in advance without worrying too much about 3 changing its conditions.

Carphone is not the only new mobile operator to launch this year. UPC also jumped to take advantage of the 3/O2 acquisition deal and will debut its own new mobile operator sometime in the coming months.

In UPC's case, the appeal will be simple: throw an extra few euro onto your TV or broadband bill and you'll get a mobile service too. This 'bundling' strategy is touted by some market analysts as a killer feature for keeping telecoms customers and is working for both Eircom and Sky for broadband.

Despite its retail footprint, won't Carphone Warehouse struggle without the 'bundling' bonus?

"It's a tough one," says Gray. "But a mobile phone is very much a personal purchase. While a head of household is often the one to choose utilities or TV and broadband providers, choosing a mobile network is a more personal decision. Kids, for example, will want to be on the same network as their friends and not on the same one as their Dad. I think the bundling issue hasn't been proven in mobile yet."

Gray won't say whether new plans will include 4G by default, indicating that the operator may charge extra for it. He is also tight-lipped on the company's plans for data allowances. Both issues are increasingly seen as the crunch commercial topics for operators and customers.

But one tricky concern that the new operator will have to overcome will be the fear among other mobile networks that Carphone Warehouse retail staff are pushing the in-house brand over rival operators.

Gray says that this shouldn't happen.

"We certainly hope that there will be a customer bias," he says. "And we'll be advertising hard. But the Carphone Warehouse retail promise is to give customers the phone that's right for them. And our product won't be right for absolutely everyone. So the sales guys, even though they'll be enthused about it, will also be selling the customer what's right for them."

While the new operator already has 25 people working for it, it plans to fill that number out to 50 by launch.

Gray says that he will not be leading the new operator for long after it is launched. He has a wife, a family and an old Ferrari he loves back in England. Both he and overall Carphone Warehouse Ireland boss Peter Scott are currently looking for a replacement chief to run the new operator when he goes.

But why does he do what he does? Why choose telecoms for a career over, say, a glamourous dot com startup?

"I genuinely enjoy it," says Gray. "And I'm not even a tech guy. I get my wife to set up the laptop. But there are people like me who enjoy massively what tech delivers for them and this is going to make a difference. I like being able to say that I was part of a shift. I felt the same way when I worked for Vodafone and we put sim cards into Amazon's Kindle. It was remarkable, a real wow moment."

Launching an operator, he says, can be a lot harder than it looks.

"Telecoms is a difficult and a complex market. Things like getting your pricing right when it comes to interconnection rates are critical. Also, things like simplicity for consumers are vital.

"In 14 MVNOs I've made many mistakes and have the scars to prove it. But I won't make those mistakes here, so it's all about the learning process."

Six things: Gray on...

On what the new mobile operator will offer

"Flexibility. Two years is too long to be locked out of a phone upgrade."

On who the new operator will take business from

"The big players [Vodafone, 3 and Meteor] because they have the most customers and are probably the least flexible."

On the rationale behind starting a new mobile operator

"Ireland is a great market to go into because there aren't that many operators here. The UK has over 100."

On not having a 'bundle' to offer

"Bundling hasn't been proven in mobile yet. Choosing an operator is a personal thing."

On making mistakes

In 14 MVNOs I've made many mistakes. But I won't make those mistakes here. It's a learning process.

On fears of an in-store bias

"Sales guys, even though they'll be enthused about it, will be selling the customer what's right for them. Our product won't be right for absolutely everyone."

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