September 14, 2010
Experture
/RFG
…experts on demand
EXECUTIVE TECHNOLOGY STRATEGIES
ETS 10-09-08
Retailers Move Mobile Goalposts with New Brands and
Tariffs
Lead Analyst: Caroline Gabriel, Rethink Associates
When supermarket chains got into the mobile game, they were mainly offering the most basic
form of MVNO, competing on price with low-end handsets or SIM-only deals. However, just as
they have expanded the range of food and home products they sell across nearly all
demographics, so they want to become the number one channel to market for wireless and
broadband services too, leveraging their huge reach, economies and consumer brands.
The US epitomizes the trend. Best Buy has rolled out over 100 specialized Best Buy
Mobile stores or concessions and has also ventured into broadband services via a
wholesale deal with Clearwire. Wholesale focused networks with open IP roots, such as
Clearwire’s WiMAX system, are ideal for partnerships with retailers. In Japan, for
example, the UQ WiMAX venture launched a year ago with electronics retail majors
such as Bic, offering its Bic Wireless services and a growing range of gadgets with
embedded broadband wireless. Best Buy is taking a similar approach with its expanded
Best Buy Connect offering. This will move rapidly from conventional broadband plans to
a whole family of devices and/or content subscriptions with the WiMAX engine
included, said sources.
Jed Stillman, VP of Best Buy Connect, said: "This agreement paves the way to providing
one-stop shopping and support for mobile broadband as more people become more
connected across all kinds of devices." One approach might be to brand WiMAX
hotspots and hotzones, especially to attract visiting or on-the-move users – or even for
Best Buy to set up WiMAX base stations in its own outlets to create access hotspots.
WalMart is believed to be working on a similar strategy and even to have been in its own
talks with Clearwire. For now, though, it resells a range of mobile and broadband deals,
but its main own-branded developments are on the cellphone side. As it aims to become a
premier brand and channel for mobile services, it has launched its first offering under its
own name, in addition to the Straight Talk prepaid service it already sells (along with
numerous other retail cellular options).
WalMart’s Mobile Strategy
The new plan is powered by T-Mobile, which means WalMart could soon be selling
MVNO services running on four different networks, no doubt increasing its already
legendary ability to get good deals from carriers, like other suppliers. Straight Talk, the
low cost service from America Movil unit TracFone, which is a WalMart exclusive, runs
on Verizon Wireless‟ network and will soon also run a GSM version on AT&T. WalMart
has also been trialing one of Sprint’s five prepaid brands, Common Cents.
WalMart is important because it removes the cost of acquiring and supporting relatively
low value customers from the carrier, and should not impinge too much on higher value
brands. Its WalMart Family Mobile service will offer unlimited calling and text for $45 a
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September 14, 2010
EXECUTIVE TECHNOLOGY STRATEGIES
ETS 10-09-08
month for the first line and $25 for each additional line for the family. The service will be
offered starting next week in most of its stores across the country.
Although retailers generally target fairly low end user profiles with prepaid tariffs,
Family Mobile is actually postpaid, with the family bill paid at the end of the month.
However, in most ways it works like a prepaid service, with no credit checks, and no
contract requirement beyond month-by-month, or early termination fees.
The WalMart deal could be important in helping T-Mobile keep up with rivals in the
prepaid and wholesale segments, both highly competitive and the source of a large
proportion of customer – though not profit – growth at most US cellcos. Sprint, TMo,
MetroPCS, Leap and various MVNOs have been fighting it out, and even the big two
have been making concessions to the prepaid model.
Greg Hall, VP of merchandising at WalMart, said the kind of postpaid/prepaid hybrid the
firm is offering gets round the perception that prepaid means inferior phones and network
quality. The new plan will come initially with a choice of five handsets, one of them a
full smartphone, the Motorola Cliq XT, which will cost $249. T-Mobile sells it for $329
without a contract, or free with a two-year data contract. The cheapest WalMart device
will be a basic Nokia featurephone for $35. Despite the lack of contract, these phones
will be locked to the Family Mobile service and will not be usable on other networks, or
other T-Mobile plans.
Straight Talk also costs $45 per month for unlimited calls and texting, but with no
discount for additional lines. It also offers unlimited free data, but does not have a
smartphone option. By contrast, Family Mobile includes only a small amount of free data
(100Mb per line per month). Extra charges for data and international calls will come from
a prepaid account, pooled for the whole family, with 1Gb of data costing $40, a sum that
does not expire. By comparison, AT&T's contract customers pay $25 per month for 2Gb
but the allowance does not carry over from month to month. Sprint’s Common Cents is a
basic pay-by-the-minute service.
Tesco Mobile
It might be hard for any other retailer to match WalMart’s reach in the US, but in several
European countries, intense price wars are erupting. Tesco, the UK’s largest supermarket
chain, claimed the country’s cheapest mobile tariff in August, when it announced a SIMonly offering with 100 minutes of calls and unlimited text messages for a monthly fee of
£6 ($10). Tesco Mobile is one of the UK's most successful MVNOs and piggybacks on
the O2 network. Its hugely profitable parent likely gives it massive bulk purchasing
capability for network voice minutes and SMS volumes. Combined with one of the UK's
largest retail footprints and an enormous customer base, Tesco Mobile has all the
ingredients for a strong MVNO business.
Recent research conducted by Tesco showed that just under one-third of 16-24 year-olds
are spending more than £30 a month on their mobile phone bills. It is this demographic
which the MVNO is chasing with its new tariff. But other retailers are joining the game,
Copyright © 2004-2010 Experture and Robert Frances Group, all rights reserved
20 Crooked Mile Road, Westport, CT. 06880; (203) 557-0856;
http://www.experture.com/; Contact: [email protected]
September 14, 2010
EXECUTIVE TECHNOLOGY STRATEGIES
ETS 10-09-08
and over time it is likely that such low SIM-only deals will place considerable downward
pricing pressure on all mobile service providers. The problem for these carriers is that so
much has now been invested in their networks that voice and SMS are essentially
commodity items. While we don't know what pricing terms Tesco has negotiated with
O2, it is likely that Tesco is the one negotiating from a position of strength. With four
competing operators in the UK market (recently down from five operators), all with lots
of voice and SMS capacity, an MVNO with deep pockets can play carriers off against
each other.
Challenging Tesco Mobile in the price war is another MVNO, Asda Mobile, owned by
WalMart’s UK arm. Asda does not have an equivalent of the £6 deal, but it undercuts
Tesco by £5 on unlimited calls and texts, which it offers for £25 a month.
According to a report from Strand Consults: "A price war of this kind will have an impact
on retailers' commissions and subsidies, as it could lead to much more focus on SIM-only
and not as much on devices. It will also force operators to lower their tariff prices as
well." He added: "A £25 tariff is cheap, particularly from a UK perspective. What you
will see now in the UK is a price war where you have the operators on one side and the
MVNOs on another and this will lead to a price war. We have already seen this
happening in Holland, Germany and Denmark."
Strand has also been examining the US MVNOs, and concluded the market is “one long
series of catastrophes”. Its report says most US virtual operators are hamstrung by
working with CDMA carriers, which do not support SIM cards and so do not offer the
option to adopt the simple, low capex SIM-only model. “Some of the American MVNOs
have not yet passed the point that their European counterparts passed between six and
eight years ago and are still simply copying a traditional MNO's strategy regarding
distribution and subsidizing mobile phones. The margins on the MVNO market are
simply not high enough to justify that strategy in practice.”
Editor’s Note: This note highlights how the trend of retailers to expand their food and home
product lines is now impacting consumer technology. It remains to be seen how the increasing
sophistication of the handhelds will impact the product as well as the service offerings of the
retailers.
It is one thing to offer pre-paid phones where there are low continued service expectations. It is
another to offer high-end smart devices and tablets where there is a high expectation and need
for onsite service (like the Apple Stores).
Copyright © 2004-2010 Experture and Robert Frances Group, all rights reserved
20 Crooked Mile Road, Westport, CT. 06880; (203) 557-0856;
http://www.experture.com/; Contact: [email protected]