Friday 23 March 2018

Tesco Mobile's quiet march forward for bigger share

Tesco Mobile general manager Elaine Russell
Tesco Mobile general manager Elaine Russell

EARLIER this year, Tesco Mobile general manager Elaine Russell handed her 70-year-old aunt, who is a nun, an Alcatel smartphone. "It changed her life," she says. "She tells me she's always on it now, looking things up on the internet."

If a 70-year-old nun were to get a smartphone, it's more than possible that it might be from Tesco Mobile. The profitable 'virtual operator', which uses O2's network, has quietly built up serious traction in the Irish mobile market. According to the most recent industry figures, it has almost 5pc of Irish mobile phone users and is growing by 15pc a year. That may not sound like much until you compare it to 3 Ireland, which has spent almost €1bn getting to 9pc of the market here without ever making a profit.

And Tesco is not stopping at 5pc, says Russell, a former O2 Ireland executive.

"In the UK, Tesco has over three million customers and that is a much bigger, ultra-competitive market," she says.

"We now have momentum in Ireland. Whereas we were adding a couple of thousand customers per quarter up to last year, we added 15,000 new customers in the first three months of this year."

Russell, pictured, says that she has already "begun working" with 3 Ireland, which will take over O2 Ireland's network relationship with Tesco Mobile after the European Commission gave it permission to buy the Telefonica unit in a €780m deal. She says that the working relationship between the Tesco Mobile and 3 Ireland so far is "very positive".

Tesco's formidable retail distribution network is the engine behind its mobile phone growth. According to Russell, the chain records 2.5m transactions each week, made up of "several hundred thousand" different customers. It also has 800,000 "active" loyalty 'Clubcard' holders, according to Russell.

"When you look at that existing customer business, you can see big opportunities for us," says Russell. "So we've opened 18 dedicated mobile shops within our Irish stores, with another two to come."

Tesco competes largely on price. In some instances, the operator is far cheaper than some of its main rivals. For example, it gives "unlimited" data plans for a lot less than either Vodafone or even O2, the network it uses.

It has added up to a lucrative exercise for the operator, with a paper loss last year masking an underlying profitable trading situation (see panel, right). Nevertheless, its earning potential as a unit is limited, even when kept lean with just 18 people (plus a further 16 people in Tesco's in-store mobile). By itself, it is not major money for a company like Tesco. This leads to questions as to whether the retailer is committed to the mobile business in the long run.

In Ireland, revenue prospects for the sector aren't great, with the latest industry statistics showing that the average Irish prepay phone bill – the segment Tesco mainly operates in – is now just €16 and falling. On top of this, a couple of very aggressive competitors – UPC and Carphone Warehouse – are about to enter the Irish market. So is Tesco in it for the long haul?

"Absolutely," says Russell. "We have our plans locked and loaded. Tesco is building an international telecoms team for Europe. It really wants to be in this space given the growth in mobile. Look, this market has been very competitive for some time, especially the segment we compete most strongly in. Competition isn't anything new for us. I think it brings innovation, too."

Besides, it's not just the revenue from the phone service that Tesco is after, she says.

"Tesco knows that there's a lot of valuable data we can analyse from people's use of their mobile phones," said Russell. "The mobile business needs to be seen as part of the overall range of services and products that Tesco offers. And a lot of it revolves around the Clubcard."

In this context, Tesco may be taking a leaf out of the playbook of Amazon, which uses its Fire tablets and phones to push its own shopping services.

Tesco's own budget tablet, the Hudl, has been the company's biggest foray into this space, with its £99 (€120) pricetag used as an 'at cost' product to try and increase Tesco's other areas of business (such as e-shopping). The company has seen some measure of success with the tablet, selling 550,000 of the machines.

The operator's next moves, she says, include an effort to try and increase its postpaid business in Ireland, currently about one in 17 of its customers. The retailer is also likely to bring the budget 'Hudl' tablet to Ireland before next Christmas, while the development of an own-brand Tesco mobile phone was announced by Tesco UK in April.


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