Carphone Warehouse 2006 Annual Report Download - page 9

Key targets
More recently, as telecoms markets have become
liberalised, we have recognised the potential for selling
fixed line services over the counter. In the UK, within
three years we have built a business in TalkTalk that
has a realistic opportunity to be the number one
alternative home telecoms provider in the UK, as
I highlight below. But we are also now adding value
in six other markets through selling fixed line services
in store to enhance our recurring revenue platform.
One of our strategic challenges over the next two
years is to respond to the changes in market structure
that regulation is stimulating in each of these markets,
to ensure that we have the most appropriate business
model in place. For example, in some markets
customer spend is sufficiently high that we can
continue to be a pure reseller (with none of our own
network infrastructure) and still make an attractive
return. In other markets we may be better off simply
taking a commission from selling another provider’s
service than packaging our own. Either way, we
are generating an incremental income stream from
a predominantly fixed cost base.
Over the last 12 months we have brought a renewed
focus to our mobile virtual network operations (MVNOs),
where we buy wholesale capacity from mobile network
operators and repackage it under our own brand
and tariffs. The UK launch of Mobile World, a service
providing market-beating rates for calls to international
destinations from a mobile handset, was very successful,
and we intend to roll out a similar service in a number
of other countries this year. We relaunched Fresh,
our no-frills proposition, in October 2005, and again
demand exceeded our expectations. Although both
businesses are currently running at a loss, the lifetime
value of customers is greater than the profit on third
party pre-pay sales, making it an area of strategic
importance in the medium term.
Our biggest new initiative in the MVNO business is
the launch of Virgin Mobile in France, a joint venture
between Carphone Warehouse and the Virgin Group.
We believe that the French market offers us a
significant opportunity to build a valuable business,
combining the strength of the Virgin brand with
our own store network and market expertise. The
venture will make losses in the short term as we
invest aggressively in growing scale, but we expect
it to generate material incremental profits in the
longer term.
43.0% over the last three years. The Online channel
remains a significant opportunity in other markets,
which as yet we have not succeeded in grasping.
The franchise platform now extends to 140 stores
out of the total portfolio of 1,778.
Both of these channels complement the core Retail
chain by increasing our overall scale. As our market
share grows in each territory we carry greater weight
with the network operators and our terms improve,
allowing us to stimulate volume growth through
investment in the customer proposition. At the same
time, our handset purchasing power continues to
increase. Importantly, we are increasingly seeking
to differentiate our proposition through a focus on
handset range and availability. While price is clearly a
valuable benefit of scale, our ability to source exclusive
handsets or work in partnership with vendors to
develop new products will, we believe, be a more
significant driver of the business going forward. Our
ground-breaking deal with Motorola on the pink V3
over Christmas 2005 was a clear example of this
power and innovation.
Looking forward, we plan to open a further 250 stores
this year. Even in the UK, where we now have 669
stores, we continue to generate an excellent return on
our investment in new space. This gives us confidence
in our ability to grow our Retail presence and market
share across all our markets.
Maximising customer lifetime value
There are two core factors behind our focus on
customer lifetime value. Firstly, the consultative
nature of our interaction with customers allows us
to introduce additional products and services into the
sales mix, generating a significantly enhanced overall
return on our store investment. Secondly, the recurring
nature of these additional services improves the quality
and visibility of Group earnings.
Historically the main avenue for additional profits
beyond the point of sale has been through our
Insurance service. Ten years since its inception, we
have built it up into a business with nearly two million
customers, revenues of £116.1m and contribution
of £45.5m. This service owes much to our stores and
our relationship with customers, and is the most
tangible evidence of our ability to leverage our retail
asset to deliver additional value to customers
and shareholders alike.
Chief Executive’s Review continued www.cpwplc.com 5
Highlights and Strategy
10%
MARKET SHARE OF
MOBILE PHONE MARKET
3.5m
TALKTALK UK CUSTOMERS
BY MARCH 2009
1m
VIRGIN MOBILE FRANCE
CUSTOMERS BY MARCH 2009