T-Mobile challenges the dwindling market by boosting its spend

Following a drop in profits and revenues in the third quarter of last year, mobile operator T-Mobile is taking a bullish approach to its marketing, announcing a 15% increase in its 100m marketing budget this year (MW last week).

The move comes as experts warn that the Deutsche Telekom-owned brand must do more to raise its performance. As the fourth player in the global market, T-Mobile, with its 16% share, will have to move aggressively to acquire new customers and regain service revenue growth.

It lags behind O2, which in September held 25.5% of the subscriber market, Vodafone with 25% and Orange with 21.1%. And it suffered a year-on-year service revenue fall of 6.3% in the third quarter last year, even as market leader O2 grew by 9.6% and Vodafone recorded a fall of just 1.7%.

T-Mobile is expected to expand its marketing from its traditional value-led positioning to include communications around its Google Android-powered smart phone, SIM-only products and its products in the fast-growing mobile broadband arena.

Downward trend
Enders Analysis telecoms director Will Harris says T-Mobile service revenue growth has been steadily worsening over the past few quarters. “T-Mobile is growing much more slowly in revenue terms than all of the other network operators, and 15 percentage points lower than the market leader O2,” he says. “Slow subscriber growth has been a key driver, with T-Mobile taking only a 5% share of contract net additions in the first nine months of 2008.”

Its performance contrasts with the growth of just a few years ago, buoyed by the successful launch of the Flext range of “flexible” tariffs in early 2006.

This, he says, drove its share of contract net additions up to over 30% during the year, and also helped drive service revenue, which peaked at 17% by the first quarter in 2007, before dropping back to about 7-8%.

Ovum senior analyst Steven Hartley says changing its marketing strategy could give T-Mobile a much needed boost. “The industry is like a game of poker, with all the players not really doing anything until the other blinks, so it’s good that T-Mobile is actually trying to shake things up.”

Hartley adds that the mobile operator will need to spend money to educate people that it does not just stand for value, but can “do high end as well”.

T-Mobile director of sales and customer service Gordon Ballantyne brushes aside any criticism that it is playing catch-up to its rivals. “T-Mobile’s differentiation is that we’re the one to catch,” he says.

Last year it launched the G1, the Google Android-powered smartphone, and it is expected to push netbooks and more data-centric services alongside its mobile broadband products.

The company argues that it has recently made considerable investment in new tariffs and propositions. In the second quarter of last year it launched a pay-monthly portfolio, as well as the industry’s first minutes guarantee, “whereby we committed to providing the best value at the 30 price point”, says a T-Mobile spokesman. The strategy was part of a major advertising push, spanning TV, press, posters and online. This year, Ballantyne says the focus will be on even more integrated marketing and messages.

Wise move
FutureBrand managing director Jasmine Montgomery says T-Mobile already enjoys strong brand recall among consumers. She adds that, as a challenger brand, T-Mobile is wise to increase spending while others are reigning in budgets. “I applaud its strategy in the current economic climate,” she says. “It’s done a good job creating a very distinct brand proposition.”

Montgomery says the operator understands that it is in “the business of long-term brand building”. It must hope an increase in investment will also lead to a boost in business.

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