Has Carphone drawn a line under bad times, or are things about to get worse??

News that Carphone Warehouse’s UK marketing director Dominic Rowell is leaving after less than a year (MW last week) came on the same day the company announced its second-quarter results, revealing a steep fall in broadband subscriber growth.

The mobile phone retailer, which launched its “free” broadband service 18 months ago, added 89,000 subscribers in its second quarter, compared with 126,000 in the previous quarter – a fall of almost 30%.

The stuttering performance comes at a challenging time for Carphone. Customers who signed up for broadband last year are near the end of their contracts and experts are predicting that the poor customer service many have received could spark an exodus.

Rowell’s resignation has surprised the industry because he only joined Carphone at the start of the year. He came from McDonald’s, where he was head of marketing, with a big reputation and an impressive CV. Prior to McDonald’s, Rowell worked on the Walkers brand at Pepsico and spent seven years at Sainsbury’s, during which time he oversaw the high-profile advertising pitch when Abbott Mead Vickers.BBDO took the supermarket’s £47m advertising account.

At Carphone, he is responsible for retail and product marketing, as well as brand development. It is thought he will leave the business at the end of the year.

Carphone constraints
Sources say Rowell felt constrained at Carphone because of the power of the senior management team around founder and chief executive Charles Dunstone, which includes Clarke. One insider adds: “There is a bit of a club mentality and if you’re ambitious, as Dominic is, progress is limited when you don’t break into that group. There is a lot of stick at Carphone but not a lot of carrot.” 

But the source says of the senior team: “They are very good at what they do. The market conditions are tough but they intuitively get it right.” 

Carphone revolutionised the industry last year when it launched “free” broadband for customers of its TalkTalk fixed-line service. But it underestimated the popularity of the offer and was hugely oversubscribed, leading Dunstone to admit that the launch had been a “bruising” and “painful” experience (MW September 7, 2006).

Enders Analysis senior analyst Ian Watt says: “It has re-established momentum and fixed a lot of the customer service problems, but that momentum is relatively fragile.” 

Watt believes the most significant progress Carphone has made is in moving more customers onto its own network rather than having to use BT’s. Carphone makes losses on customers who obtain internet access via a BT wholesale product. They only become profitable when they switch to Carphone’s network. Of Carphone’s 2.5 million broadband customers, 1.4 million were on its own network by September 29.

Profits or customers?
Carphone has set itself a target of 3.5 million broadband customers by 2010 but Watt says: “If it has a choice between making the 3.5 million target and making itself profitable I think it’ll choose the latter. It makes more sense.” Carphone, which celebrated a significant landmark in its 18-year history last month when it joined the FTSE 100, is looking forward to an “iPhone Christmas” after winning the rights to sell this year’s must-have gadget from the start of next month.

Rowell’s successor will be joining Carphone at a critical time for the company but he or she will also have to master the political game in order to get ahead.

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