Carphone Warehouse 2014 Annual Report Download - page 17

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Carphone Warehouse Group plc
Annual Report 2014 15
STRATEGIC REPORT
ADAPTING TO AN
MARKET
EVOLVING
DEVICE INNOVATION
Mobile devices have been transformed in recent years by the
development of smartphone technology, evolving rapidly from simple
devices used to make and receive calls, to sophisticated hardware with
advanced computing functionality. The market has seen continuous
innovation, with ever-improving processing speeds and ever-evolving
functionality, and increasing choice of screen sizes. Alongside competition
between manufacturers of devices, competition has also developed
between operating systems, providing broader choice for customers and
making CPW’s expert and impartial proposition particularly relevant.
NETWORK EVOLUTION
In recent years, Western European MNOs have been subject
tosignificant regulatory intervention, particularly on charges to
terminate calls from other network operators and on international
roaming charges, causing downward pressure on MNO ARPUs.
Mobile termination rate cuts have caused MNOs to reduce subsidies
on prepay phones, making them increasingly more expensive for
consumers, causing a shift towards postpay in some markets.
MNOs across Western Europe have been investing significantly in
inthe development of their G network infrastructures. G technology
facilitates much faster downloads, providing comparable levels of
performance to many Wi-Fi networks, and providing a much better
platform for streaming than G infrastructure. As G services have been
rolled out, MNOs have seen significantly increased levels of data usage,
a trend which is expected to increase as network quality continues to
improve, and more and more devices become capable of communicating
with one another. In most of the markets in which CPW operates, MNOs
are still in the process of rolling out their G networks, with nationwide
coverage expected in the UK by the end of . After several years of
downward pressure on ARPUs, caused by weak consumer confidence,
regulatory intervention and competition, increased data usage provides
opportunities for MNOs to increase customer ARPU.
REPLACEMENT CYCLE
Fixed minimum term mobile phone contracts (typically  months)
help to drive the replacement cycle of connected devices, supported
by the device innovation noted above.
To benefit from G services, customers need G-enabled devices
and as G network coverage improves in Western Europe, there
isan incentive for customers to upgrade their services, providing
astimulus to the replacement cycle.
ECONOMIC GROWTH
Mobile phones have become an integral part of customers’ lives and
are considered to be less discretionary than other consumer electronics.
However, the economic backdrop and a challenging consumer
environment can determine the rate at which consumers are willing
toupgrade their handsets and their average monthly spend.
ONLINE
As with most markets, the internet plays an increasingly important part
of customers' purchasing journey. The majority of customers research
online before making a purchase. However, unlike many multi-channel
retailers, for whom online channels now represent a significant
portion of sales, online sales continue to represent between %
and % of total retail sales for CPW. Customers continue to value
the advice available within stores, given the complexity of the
technology available, the nature of entering into mobile contracts,
and the opportunity to obtain technical support through the
business' Geek Squad service.
INTERNET OF THINGS
Developments in mobile broadband technology such as G will
continue totransform lives and current industry developments
suggest thateveryday objects will increasingly be connected to the
internet, described as the ‘Internet of Things’. The 'Internet of Things'
means that people can manage home security or heating, or domestic
electronics such as TVs, fridges, home entertainment systems and
washing machines, through their smartphones. This phenomenon
will not only drive mobile data growth, but also machine-to-machine
data growth. With smartphones at the heart of this evolution of
consumer electronic devices, we believe that CPW is well placed
totake advantage of this evolution.
Marketplace
5-10X
faster data speeds,
compared to 3G
3-5X
increase in data
usage by 4G users
98%
coverage in the UK
during 2015
Source: Company estimates