March 14, 2005
Two pints of milk and a mobile, please
The great thing about having your parents come and stay is that you can wander around the supermarket without concern about one’s wayward offspring. Yesterday we were in Tesco — the UK’s largest supermarket chain — and I couldn’t help but start to dissect their Tesco Mobile MVNO offering.
Here’s the display:
It’s a fuzzy phonecam shot, but that’s a good thing because it makes the message stand out. Which bits can you read clearly?
See the prices of the phones? Just about. Their brand names? Nope. The fact you get Tesco Clubcard points and a top-up bonus gets more room. Their features? Hope you didn’t leave your reading glasses at home.
The price and the promotion are what matter at Tesco.
There is a short blurb on each phone listing the key features, and some pictographs of them. But I think they could still do a lot better. Why not just label the phone “Great basic phone”, “Best for kids: games, ‘tones and MP3s”, etc? Why make the customer do all the work?
Also, you don’t buy a word processor because it was written in C++. You don’t choose which airline to fly because of the Rolls Royce engines that power the plane. So why are we marketing phones as being “With JAVA Gaming”? Most people don’t know what it means, and those that do probably don’t care. Why not emphasise the features that make the phone different, rather than make them standard?
Over to the right of this Tesco Mobile display was another rack, this time branded to the network operators. Out of interest I picked up the Vodafone box. “Calls from 2p/minute!”. Turn the box over, read the small print — you know that “from” hides a world of evil. At the bottom are lines and lines of legal verbosity referring to various price plans encoded in terms only a Vodafreak would know.
So Tesco’s customers don’t care if there’s a possible cheaper price elsewhere — they have confidence that the price they see is the price they pay. No wonder the discount MVNO operators are cleaning up — Vodafone don’t know how to position themselves in non-premium markets. They’re too used to fat corporate monthly spending accounts. They don’t know how to run a low-cost operation, and unlike the airlines there’s no real connectivity equivalent of the business class seat.
I wouldn’t be surprised to see some of the network operators being driven out of the pre-pay market … on their own networks! After all, one of the biggest issues with pre-pay is topping up, and Tesco have much more regular contact and lower transaction/agency costs than the mobile operators. They can spead the cost of their loyalty scheme across a much broader base. Their amazing data-collection capability means they know your household spending patterns in great detail, and can pitch very accurate offers.
In fact, Vodafone et al are trapped in a catch-22 situation: he inflexible voice network inhibits the introduction of premium features; but a stupid network wouldn’t let them capture the value of the new features, because people would turn to 3rd party apps like Skype which would get baked into the handsets.
I’ve had many discussions about the wisdom of MVNOs from the network operator’s perspective. You’re outsourcing the customer relationship, which is very dangerous. When the time for contract re-negotiation come round, who will be wearing the brown underwear — Tesco or O2? I think you know the answer.
It is instructive to see the ease with which Qwest abandoned its own network, flogged off its spectrum, and rolled its customers into a Sprint MVNO. If it was that easy, then the journey onto a competing operator isn’t likely to be too taxing.
On the other hand, the first operator into the MVNO market might have a fighting chance if they get plenty of scale. They can offer a “soup to nuts” MVNO platform including billing, care, ops reporting, handset logistics, content vending, etc. They can drive down their own bloated internal costs as long as they’re not be too attached to their legacy “own brand” customers and the high margins they generate. The outcome is more like a land management and leasing company than a telco; acquire spectrum, hire contractors like Nortel to build the network, and just worry about a modest horizontal slice of co-ordinating capacity and the operational platform. Get out of the application layer and let someone else worry about it.
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