Everything Everywhere, the UK-based joint venture (JV) of parents France Telecom and Deutsche Telekom, provided the market with a strategic update at its investor day in London yesterday.
In our view, the real story in terms of the benefits of the JV remains integration at the network layer. But the sticking point may well lie with the customer, in particular with the current branding strategy that appears to be a short-term stop-gap. The degree to which Orange’s services featured in the presentations indicates to us who the driving force behind the JV is.
Two retail brands + one network brand = no clear brand
One of the key questions since the announcement of the JV back in September 2009 has been how the combined entity would manage the T-Mobile and Orange brands. The leadership team attempted to provide some guidance on this front with its concept of "smart compete". T-Mobile will target value-focused users, and Orange premium users.
However, finding and implementing clear differentiation between each brand’s customers will be difficult in practice – and that’s without factoring in 3 and the variety of MVNOs which will also be served by the shared network. As a caveat that will only serve to add further uncertainty to the future role of each brand, the team indicated that it will instigate a brand strategy review in September 2011, only a year from now.
When asked about the costs of a potential rebrand of T-Mobile/Orange following the review, CEO Tom Alexander hinted that they could be minimized, which might suggest that one brand may eventually be preferred to the other.
Transformation is the critical success factor
Fundamental to Everything Everywhere’s synergy targets has been the integration and rationalization of T-Mobile’s and Orange’s networks.
To date Everything Everywhere has been busy aligning its network assets and identifying overlapping sites for decommissioning. However, the final target number of sites has jumped from initial estimates of 14,000–16,000, to more than 18,000, and therefore an additional £40 million in annual opex, required to provide extra capacity.
It was clear throughout the presentations that the JV is being kept on a tight financial rein. Any increase in spending detailed in the presentation was exactly offset by cuts elsewhere.
For example, the increase in opex for 18,000+ cell sites was offset by increased savings targets for managed network services and outsourcing. The increased projected spend on distribution and marketing was offset by greater savings from the JV’s IT spend – through a reduction in the number of platforms. This approach could potentially limit the JV’s flexibility should it need to vary its spending outside these limits.
Customer channel strategy a cornerstone of strategy
Following the headline story of network integration, the rationalization of the JV’s other assets threw up a surprise. On the one hand, an in-depth review of IT costs over the last year highlighted further opportunities for synergies (including a proposal to implement a single CRM and billing platform).
However, in addition to increasing its online capabilities through an upgrade of its self-service platform, the team announced plans to expand its retail presence.
Currently, 45% of sales take place through its indirect partners and the JV plans to reduce this percentage to less than 40% by 2014, as its direct channels offer more service wrap and better upsell opportunities. Managing its relationship with its indirect partners during this process will be a key challenge for Everything Everywhere.
While the JV plans to retain separate stores in some locations, it is also piloting integrated stores in less populous areas. Again, to us this indicates a degree of uncertainty over future branding, and perhaps a desire not to instigate mass closures of stores. The problem with this approach is that should it begin to fall short of its synergy targets, then the rationalization of its retail stores may prove too easy a target to resist.
Enterprise mobility and fixed cross-sell are opportunities
A number of services have been targeted by the JV for future growth, with Orange prominent in most of these. In the enterprise space, a key selling point for the JV lies in the fact that multinational corporations will be able to leverage both France Telecom’s and Deutsche Telekom’s international footprints.
Conversely, the UK parts of MNC contracts of either parent will present business for Everything Everywhere. On the consumer side of the equation, the as-yet untapped base of T-Mobile customers should provide fertile ground for cross-sell opportunities.