Carphone Warehouse 2003 Annual Report Download - page 5

We launched talktalk™, our residential fixed line
service, within three months of the acquisition of Opal.
We are very excited about the market opportunity for
talktalk™and intend to pursue it vigorously.
growing business in its own right, offering low fixed line
calling costs and value-added services to its SME customer
base. It is able to offer highly competitive prices thanks to
the efficient way in which its network has been developed.
By owning switches and building its own interconnects into
the BT network, but leasing its trunk fibre, the network has
relatively low capital and operating expenditure requirements.
At the same time a software layer has been integrated into
the network, allowing Opal to provide a number of bespoke
services to its customers on a variable cost basis.
Successful launch of talktalk™
In addition to a valuable core business, we identified two
attractive opportunities for additional growth through the
acquisition of Opal: the launch of a residential fixed line
service to compete with BT and other providers; and a
corporate mobile offering combining The Carphone
Warehouse’s mobile expertise and retail asset with the
corporate customer base and focus of Opal.
We launched our residential fixed line service, talktalk™,
in February 2003, and the initial response has been very
encouraging. By our year end we had attracted over 32,000
applications. Providing this service is a natural extension
of our existing proposition, offering value and a high quality
service in personal communications, and in particular
demystifying the confusion of tariffs available in the market
by offering a £500 guarantee to be cheaper than BT.
We are very excited about the market opportunity for
talktalk™. Recent changes in the regulatory environment
make it much easier to switch from BT to an alternative
provider and we intend to pursue this opportunity vigorously.
The efficiency of the Opal network allows us to be highly
competitive while still generating attractive margins. Our
cost of customer acquisition is low given our existing retail
presence, and the residential business also incurs very
little marginal capital expenditure: the Opal network is busy
during weekdays serving business traffic, but idle in the
evenings and at weekends when the majority of residential
calls are made.
Outlook
We are encouraged by the outlook for the coming year. We
expect to see retail capacity continue to contract throughout
Europe, with the networks developing a more segmented
approach to their distribution channels. Our continuing ability
to deliver high volumes of high quality customers means that
we are benefiting from better commercial terms than many
of our competitors, allowing us to price competitively while
maintaining our margins.
Additionally the launch of MVNOs and new 3G networks
is increasing the competitive tension between our suppliers.
We are now seeing a concerted effort by both the incumbent
and new networks to drive the adoption of valuable data
services. This year we expect to see picture messaging
services pick up in earnest now that network interoperability
is in place. We also anticipate a growing interest in the
mobile gaming market and an ongoing convergence of
mobile phone and PDA products as mobile e-mail becomes
an increasingly important application.
These developments are likely to be supported by an
impressive new product pipeline. We continue to see high
levels of innovation from all of our handset suppliers and the
desire to own the latest handset continues to be the major
driver of replacement demand. The manufacturers, too, are
becoming more adept at segmenting their market and we
expect to see a widening range of handsets targeting more
specific subsectors of the market.
Our continued success is thanks to the dedication and
expertise of all our employees. We will continue to invest
in recruitment, training and development to strengthen and
extend our customer service proposition. Our business
is also indebted to our strong management team and our
supportive investors, suppliers and business partners.
I would like to take this opportunity to thank Des Wilson
for his strong contribution to the Board over the last three
years, and welcome Martin Dawes with his many years
of experience in the mobile industry that should prove
invaluable to the Group as it evolves. Over the next year, we
intend to build on our position as the leading independent
retailer of mobile phones and services in Europe and deliver
further profitable growth through our existing business and
new opportunities.
Charles Dunstone, Chief Executive Officer
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The Carphone Warehouse Group PLC Annual Report 2003
20.3 38.4 57.7 77.1
02 030100
Contribution from
recurring revenues
(£m)
27.5 33.7 44.7 49.7
02 030100
Contribution from
recurring revenues
(%)