Carphone Warehouse: Telco 1.0 thinking?

There has been much excellent reporting on the troubles of Carphone Warehouse (CPW), the UK's leading independent retailer of mobile phones and services. Their current crisis is that Vodafone have punished them by selecting a rival for an exclusive distribution contract, and other operators are thinking of following the same track. The result has been carnage of the CPW stock price.

This has been precipitated by CPW trying to become more of a vertically integrated business. Their MVNO, Fresh, was a relative flop, and the operators have been willing to ignore the fiasco. However, their suicidal leap into offering rock-bottom broadband and telephony service -- just as the network operators were feeling the squeeze to enter the same multiplay markets -- is harder to fathom.

In short, you simply have to look at the Telco 2.0 basics: get horizontal, unless you've got a good excuse otherwise. CPW have swum against the Telco 2.0 tide, and have found the currents away from their home beach not to their liking. If they had absolute power in retail distribution, then their strategy would make sense. They don't, and it now looks foolish.

Post-paid mobile plans and up-market mobile phones are relatively complex sales that supermarkets can't follow, and their business is in extending that knowledge to new domains, not bundling loss-leading network distribution which their core business doesn't benefit from. Even media companies are running away from distribution ownership!

So what should they have done? Go for the kill within that horizontal segment. They should have either a bought out rival distributors, or devised a distribution plan for a wider range of "digital lifestyle" goods and services that competitors couldn't have matched quickly enough. They could then use this hardware/software-driven strategy with operators to show that they are helping pull through operator services...but the trojan horse is that they are actually freeing customer from operator control and managing customer relationship and attention.