Carphone Warehouse, the dominant mobile retailer, is launching a &£60m broadband push. Can it become the alternative to BT? asks Robert Lester
Carphone Warehouse has come a long way since it was founded in a London flat in 1989 with Charles Dunstone’s &£6,000 life savings. Today, the company has 1,400 retail stores and 12,000 staff in ten countries, and is Europe’s largest independent mobile phone retailer.
Last week, Carphone Warehouse announced plans to invest &£60m in an aggressive push into the broadband market as it reported a 25 per cent jump in revenue. The company says it will invest the money over the next three years, putting its own equipment into up to 1,000 BT exchanges – a process known as local loop unbundling (LLU). It claims the move will help it achieve its aim of becoming the main alternative telecoms service provider to BT in the UK.
The announcement came as Carphone Warehouse reported a 36 per cent jump in profits, to &£37m, on revenues of &£1.3bn for the six months to the end of September. Dunstone said last week: “Our aim is to be the number one residential alternative to BT. With our stores, we have the distribution network that others need. You would be brave to bet against us.”
He also said LLU would allow Carphone Warehouse to save &£9 a month per customer in costs, which would be passed on to customers. He added that the company could even save up to &£2 for each user who only took Carphone’s TalkTalk landline service without the broadband package.
Analysts appear to share Dunstone’s confidence. Alice Enders of independent media and telecoms research company Enders Analysis says: “The thinking behind the move is very astute. Carphone Warehouse has very powerful channels to market. Principally, this is a telephony strategy. The company is not doing it so much for broadband reasons as for telephony reasons, offering a replacement-for-BT package.”
Dunstone, now worth &£625m, got the taste for making money during his “gap year”, when he began selling computers for Japanese electronics group NEC. He decided against taking up a place at Liverpool University and was transferred to NEC’s fledgling mobile and carphone unit. It was there that he identified a niche in the market and left to set up in business from a friend’s flat in Marylebone.
While others concentrated on selling mobile phones to large corporate clients, Dunstone opted for an alternative route and began by targeting small businesses. He set up his first shop within a year and soon afterwards was joined by Guy Johnson and a school friend, David Ross. By 1994, falling prices meant mobile phones were starting to show signs of becoming mass market. That Christmas, Carphone Warehouse sold 1,000 phones a month. Since then, the market has exploded: the company says it will sell 5 million mobiles in the UK alone this year.
A Carphone Warehouse spokeswoman puts its phenomenal growth down to “offering simple, impartial advice” in a market where most distributors or service providers are tied to one network operator, or a limited number of them.
However, Ovum analyst Angel Dobardziev sounds a note of caution. He says: “It is so far so good for this highly agile player, but we are not convinced Carphone Warehouse will be able to sustain its progress in the medium term, as the CPS (carrier pre-select) business is coming under combined attack from incumbent flat-rate tariffs, fixed-to-mobile substitution and voice over internet protocol (VOIP) services.”
Carphone Warehouse’s main high street rival, Phones4U, is up for sale, after founder John Caudwell put his business empire – of which the 350-strong chain is a part – on the market for more than &£1bn. Carphone Warehouse has been linked with a bid for at least part of the business, but Dunstone is also understood to be eyeing up Centrica’s One.Tel, as well as Tele2.
Enders adds: “Both Carphone Warehouse and Phones4U are very strong businesses. One of the reasons for that is that mobile phones are now fashion accessories. The phone replacement cycle is becoming shorter, driven by the handset manufacturers. Carphone Warehouse just happens to have come up with a customer proposition that works.”
Carphone’s foray into LLU mirrors that of other big players in the sector, such as BSkyB – which recently bought EasyNet – Wanadoo, Cable & Wireless’s Bulldog, Tiscali and AOL. The competition will certainly be fierce but, if Carphone Warehouse’s meteoric rise is anything to go by, you certainly would be brave to bet against Dunstone and co. â¢
â¢ Carphone Warehouse was founded in 1989 by Charles Dunstone in a London flat.
â¢ Within a year, the company opened its first shop nearby, and Dunstone was joined by Guy Johnson and old school friend David Ross.
â¢ By 1994, mobile phones were taking off. Carphone Warehouse sold 1,000 phones a month during the Christmas period that year.
â¢ The company floated on the stock market in 2000, with a market value of &£1.7bn.
â¢ Johnson retired in 2001, at 37, to “take life easier”.
â¢ It bought telecoms carrier Opal for &£80m in 2002, using it to launch fixed-line service TalkTalk a year later.
â¢ The company has 1,400 shops and 12,000 staff in ten countries. It is Europe’s largest independent mobile phone retailer.
â¢ It has announced a three-year, &£60m investment in broadband in an effort to become the main alternative residential service to BT.