Why 3 needs to grow up

Mobile phone operator 3 has admitted what was perhaps the worst-kept secret in telecoms and announced that UK chief executive Bob Fuller is stepping down to be replaced by his deputy Kevin Russell, as revealed in Marketing Week at the end of last year (December 14, 2006).

The news was swiftly followed by the appointment of a new advertising agency when the UK’s fifth-biggest network handed its £39m account to Euro RSCG last Friday (May 4). Industry observers are in no doubt about the size of the task facing Russell, new marketing director John Penberthy-Smith and the Havas-owned agency.

Former Orange chief operating officer Fuller joined 3 as chief executive four years ago shortly after its launch. The company got off to a rocky start in the UK, recording early sales well below expectations.

But Fuller and Gareth Jones – another Orange launch veteran who was brought in as chief operating officer at 3 – steadied the ship and, despite Jones’ sudden departure at the end of 2005, 3 began to gain a foothold in the UK and the company now has almost 4 million subscribers, which equates to about 6% of the UK market.

However, many industry experts point out that 3 has bought its customer base with hugely discounted tariffs and the company has struggled with churn – the rate at which subscribers leave the network – as the service problems have continued.

One source close to the company says: “It has to acquire in huge numbers just to stand still and in order to do that it has to behave like a bargain basement mobile phone network. That flies in the face of its aim of becoming a media owner, retailer and content provider. The sort of people signing up to these cheap tariffs are not interested in downloads and premium services.” 

3 moved its advertising account from TBWA to WCRS in 2004 and set about building a quirky brand that would resonate with young consumers who would be more interested in premium services such as music and videos. A series of off-the-wall ads featuring dancing jellyfish and singing cherries followed. But major management changes, including Penberthy-Smith replacing Graeme Oxby as marketing director in January this year, led to the company calling a review of the advertising business in February.

New pair of eyes
Penberthy-Smith says he thought 3 needed a “fresh pair of eyes” and adds: “We’ve got a really exciting brand but maybe in the past it has had more style than substance. WCRS produced some stunning creative work but when you look at some of the advertising it doesn’t fully connect with what the brand is about.” 

Penberthy-Smith admits 3 struggled at first but says the “fundamentals” – such as the handset range and network coverage – are now on a par with its competitors and adds that its churn rate has been brought in line with targets.

Fuller and 3 have had their critics but the company is now at least a credible player in the UK. Russell’s main task will be to make 3 UK profitable for the first time in its history and marketing will have a key role to play in this.

The source close to 3 adds: “The brand needs to grow up and come out of its puberty phase. It needs to be much more credible and define what 3 is.” 

If those targets are met, many analysts believe the company will be sold. Vodafone is thought to be interested. But Penberthy-Smith insists the new management team is focused on taking 3 to the next level: “We don’t talk about selling the company – we’re here to build something.” 

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