[3GScottishUser]

3's improved formula

Marc Allera resembles a man who has spent the summer in the garage fixing and polishing a fancy new car and is now ready to lift its shiny cover and unleash it on the streets.

It may not be a car or a garage, but 3's sales chief talks excitedly about the operator's return to prepay, a new mobile broadband proposition, the rollout of HSDPA, greater price parity in the market between 2G and 3G handsets, the improvements to 3's direct sales business and even a more welcoming attitude towards independent retailers.

The last few months have been spent under the bonnet, monitoring, assessing, fixing and tweaking. Some of the problems haven't gone away – 3's handset range is still the thinnest by far, it doesn't have any kind of relationship with Samsung, it still misses out on popular 2G handsets and is virtually non-existent at Carphone Warehouse and Phones 4u. There is also the problem of 3 being a fraction of the size of its rivals and the nagging suspicion that Hutchison Whampoa is fruitlessly looking for an exit where it can make a profit on its investment. However, changes are on their way to make 3 look and feel like a different company for consumers and perhaps potential buyers.

Back with prepay
The last time 3 was a significant player in prepay, it got its fingers burned so badly that it ran for the hills. The operator is poised to make a return to prepay in October, along with a new contract promotion. And the new, grown-up 3 says the groundwork has been done on both to ensure they are successful, and this time, fraud-free.

The scars from the monumental levels of box breaking of Christmas 2004 may have healed, but having around one million handsets bought by box breakers left the company in a state of shock.

There is also the increasingly surprising belief among all the operators that prepay is a lot more lucrative than has been traditionally believed. At the moment, 3's prepay revenue only accounts for 10% of its total – miles behind the competition.

The prepay example is characteristic of many of 3's other projects. The operator has spent the last year correcting the mistakes it made in its gusto to catch up with the major networks and is now a far more stable entity.

The planned sale or float of 3 UK became a distant proposition amid every minor crisis – from prepay problems, the tide of complaining contract customers and what seemed a lawless independent channel.

3's experience in the contract market has been turbulent. Much has been made of the change in gear from the cashback-fuelled numbers game when it was pushing independents for volume at all costs, to suddenly taking a tough line on cashback and mis-selling. It then switched its attention to its direct business.

Sharpening direct
As much as 60% of 3's connections now come from its own stores, website and call centre. It now has 200 stores and is aiming for between 260 and 270 by the end of the year.

Last month, 3 opened a phenomenal 31 stores in 31 days. Allera says the direct business is now moving into a second phase. 3 is investing hugely in IT, so store staff will have access to the same customer information available to call centres. He says this will enable store staff to make billing changes, amend tariffs, and be more involved in retention, such as negotiating upgrade deals, traditionally the domain of call centres.

Allera admits that not all direct stores are profitable from the start, but as they develop, there is a trend to break even, and then move into solid profits.

The company is trying to recruit more women to reflect its customer base. More attention will be put into the concessions in Superdrug to get the most out of the retailer's footfall. There has been talk of this for some time, but the impact is yet to be seen. 3 has also set up four concessions in HMV stores, with another six planned for the remainder of the year.

More from indies
Allera says the company now wants to revive its connections through its indirect channels. 'We're now comfortable with our dealer base and the quality they're bringing. We now want more business.' He clarifies: 'We don't want more dealers, just more from the same [dealers].'

He says it is unlikely 3 will turn back to the dealers it terminated ('unless they can demonstrate they've changed their businesses') and, he emphasises: 'There's no more commission up for grabs.'

The results speak for themselves. Losing independents was a key factor in the drop in new contracts. Only 139,000 customers were added between March and August this year, compared with 226,000 for the same period in 2006, down 38%. But the reduction in customer acquisition costs was much greater, down by 43%, from £160m to £212m for the six-month period between January and June this year compared with the same period last year.

So how does Allera attempt to fire up those disenchanted dealers: 'You look at what Orange did [terminating over 100 dealers] and it represents a sizeable shift in the dealer landscape. And I think there will be more movement from them.'

Allera makes no apologies for being opportunistic in the dealer market: 'It's going to be difficult for dealers, but we've been boring, predictable and consistent with our commissions.'

He describes the lack of activity towards dealers as a period fixing the back office and credit systems of its business so it wouldn't be exposed to the fraud and bad quality business that caused so much pain last year, while devoting its efforts to get its direct business up and running.

'We've built the foundations and spent a lot of time getting things stable. We want to go back to independents now.'

Many independents, distributors – even major retail chains – feel 3 may have burnt its bridges and will have its work cut out to win back independents.

Mobile broadband
3 is looking at other areas, including mobile broadband and having another stab at business. Business is becoming something of a Holy Grail, with two launches already that both failed to win backing from business dealers and consumers.

Mobile broadband looks more compelling. In typical 3 style, it is up to its usual disruptive tricks with its mobile broadband rates. A USB dongle plugs into a laptop and offers broadband for £10 per month for the 1GB version, £15 for 3GB and £25 for 7GB. It appears much cheaper than the competition – Vodafone's 3GB dongle costs £25 and T-Mobile's is 3GB.

Allera says the potential is just starting: 'We'll have 85% population coverage on HSDPA by the end of next year.'

3 will also start bundling laptops into its deals as Orange and Carphone have done with their fixed-line broadband propositions. 3 is already talking to the likes of PC World, Curry's and laptop distributors.

Allera reckons there is a captive market for broadband on the move. It is clearly a compelling deal, but like 3's X-Series, will it just be successful within a small niche?

X-Series is considered by many to be a minor success story, albeit in the limited world of the geeks.

Will 3 ever be acquired?
The underlying question is how will 3 grow with a smaller acquisition and marketing budget, smaller number of its own stores and more limited handset range?

One analyst suggests the only option is to stabilise and find a buyer. 'They spent £4.2bn on the licence and another £4.5bn capital expenditure. There is no way they will get a profit on that now, but it's just a matter of the loss of face for Hutch,' he says.

The analyst estimates that 3 UK is now worth around £4bn. He says removing 3 from the UK market would be hugely welcomed by the other four big networks. 'It would create less churn, less customer acquisition costs and have less downward pressure on pricing.'

Every network would have a rationale behind an acquisition, but T-Mobile would be the most likely, given that it too lags behind Vodafone, Orange and O2. Deutsche Telekom chief René Obermann called for networks to bring the number of operators in the UK down to four last month.

'Regulators should accept there is a need to make more efficient use of capital-intense resources for both economic and ecological reasons.' He added: 'If you think how fragmented the European market is, compared with the US, which has four networks, there are about 25 to 30 operators in Europe and 70 or so individual networks.'

3 has succeeded in becoming more stable, but its stability will also mean that it is more attractive to potential buyers.

http://www.mobiletoday.co.uk/content/16817.asp?men=0&sub=1

[Hands0n]

Last month, 3 opened a phenomenal 31 stores in 31 days. Allera says the direct business is now moving into a second phase. 3 is investing hugely in IT, so store staff will have access to the same customer information available to call centres. He says this will enable store staff to make billing changes, amend tariffs, and be more involved in retention, such as negotiating upgrade deals, traditionally the domain of call centres.


This is indeed very interesting news. Sign that 3 [perhaps] have finally recognised the liability of the Mumbai Call Centre and is doing something about it at long last. They'd be fools not to. Its not perfect, but it is massively a step in the right direction. And in doing so, they might just persuade me back into the fold - at least for Data. I cannot trust them with my business/personal use - I value it too highly to subject myself to their useless CS.

The fourth quarter of this year should prove to be interesting to watch 3. They've got my attention again - but they're going to have to do more to convince this three-times-bitten ex-Victim of theirs that they are worthy of my business.

I suspect that I am not alone :)

[hecatae]

they lost my other half's contract to Orange, due to not offering enough minutes and texts, and I dont see T-mobile buying.

Orange would be a more likely candidate in a merger deal, as Orange has the Fixed Coverage, and 3 has the 3G Mobile Coverage to make an ideal FMC business.

If 3 decided to buy Orange the possibilities would be endless, but they would probably sell the Broadband UMA side to Tiscali or CPW as it's a niche market, but would benefit the Triple and Quadruple play offering these companies are trying to make. Plus, force everyone to migrate to a 3g handset and slowly remove the 2G element of the network from Towns and Cities, remote regions of the UK having Edge enabled masts where 3G is not cost effective.

[3g-g]

This is indeed very interesting news. Sign that 3 [perhaps] have finally recognised the liability of the Mumbai Call Centre and is doing something about it at long last.

Yeah that's a fair point, but can you imagine the queues out the door? I bet the 3 sales staff didn't sign up to be glorified CSRs!


Orange would be a more likely candidate in a merger deal, as Orange has the Fixed Coverage, and 3 has the 3G Mobile Coverage to make an ideal FMC business.

If 3 decided to buy Orange the possibilities would be endless, but they would probably sell the Broadband UMA side to Tiscali or CPW as it's a niche market, but would benefit the Triple and Quadruple play offering these companies are trying to make.

I very much doubt 3 will buy Orange, nor the other way round. Three have forked out the cast constantly for the last 4 years, think they've the money to purchase Orange? The Orange brand in the jewel in the FT crown now, there's no way they're giving that up! WRT the broadband offerings, Orange stands to become a quad play operator at the end of this year, fixed, mobile, broadband and IPTV. They're concentrating too much effort on that to think about flogging the BB business arm off to someone else, especially after the cost of rebranding Wanadoo to Orange

[3GScottishUser]

One has to admire the resiliance of Hutchison after the disasterous losses they have sufferered in the UK with 3. If the figures are accurate their loss must rank as the biggest ever in UK history (for a UK operating company).

I suppose with no buyer in prospect Hutchison will just have to plod on with 3 UK in the hope they can carve a niche. Commercial pressures appear to have forced them to completely change strategy. Who would have thought when the walled garden was around that it would be 3 who would be promoting mobile braodband!

I think 3 will get some new business but probably not enough to make sense of the mountains of cash they have spent establishing themselves. The products and services are most welcome but my guess is that they will be too little, too late to make much of a long term difference for HWL. Sooner or later they are going to have to bite the bullet and part with 3 UK at a massive financial loss, meanwhile customers might get some benefit from the company's efforts to make themselves more attractive to a potential suiter.

[Ben]

One of the biggest problems with the management of Three, particularly in the UK but possibly throughout the group, is that every strategy has been short term. The notion that a new mobile network could be established, cover the length and breadth of the country and surge into profit in just a few short years was wholly unrealistic. Had Three have been looked at as a long term project from the start then potential buyers may at least be able to see the future prospects of the company, placing a greater value on it.

Mobile broadband does appear to be another quick fix that Three are rushing head first into. The business seems to be tragically single-minded, putting all its eggs in one basket with each new hair brained scheme. Of all the schemes, though, mobile broadband is finally one that I think we can all see having some widespread appeal.

The long-term strategist in me would have seen Three announce laptop manufacturer partners who would be integrating their cheap mobile broadband into their products. After all, that's how the other networks have been building up valuable customers. Instead, Three are coming down the mountain offering big subsidies on the hardware and the lowest data tariffs in the UK. Happy will be the day that Three sells something where it doesn't have to differentiate itself on price.

But mobile broadband does have the potential to explode. If Three can sustain it while coming up with a successful prepay product then they'll at least be on the road to somewhere.

[Hands0n]

I'm sorry to seem to keep banging on about this but 3's main cause of woe has been in how they have handled the Customer. What they have plainly ignored/forgotten/never knew in the first place is that these Customers, whilst individuals, can sometimes be in influential positions in Businesses. There can be noone in the UK that breathes air that does not know of 3's lamentable performance in this respect. 3 have achieved that rather dubious reputation of having stung someone you know. A terrible reputation to have achieved in such a short period.

With that reputation, and their credibility in tatters, they can only appeal to the average punter in the street on price alone. They actually need these "wrong type of" Customer, and PAYG is probably the only way of achieving this in the short term. But back comes the spectre of their Customer Service proposition - which stinks! And when there is so much choice in the market who in their right mind would buy into that?

Returning to Businesses - 3 have been seriously weak in that respect. They have made nothing more than a token gesture at gaining the interest of Businesses. It won't work. There is no Business that is going to risk its very lifeline to the likes of 3. Reputation, support and integrity count big - that is why Businesses pay over the odds to use solid rocks like Vodafone who know what a Customer is, particularly a Business one. And again, those in Business are likely to be the very same Customers who were made to feel very unwelcome (I'm being extremely polite here) by the way they were treated by 3's Mumbai Customer Services.

So what is 3's solution to their UK reputation problem. Its easy really, the answer is staring them in the face. They need to look at the likes of Abbey National which brought its Customer Services back to the UK from India. They realised the damage that was being done to their brand. They also need to look at companies that simply will not use Indian Customer Services precisely to protect their brand. That is precisely why the likes of Vodafone didn't act like lemmings and shift their CS over to India.

But then look at the companies that did move their CS to India - complaints abound. For instance O2 and Orange took this route and their reputation slid and continues to do so. Wherever you look, if there is an Indian Call Centre in support there is a huge wave of Customer dissatisfaction.

3 cannot afford to keep going on like this. All and every effort they make to stabilise and rebuild the brand will be ruined by their own CS operation. Perhaps, then, in tacit recognition of this liklihood (finally) 3 are taking direct action. But action so designed to save corporate face - where's the shame in saying "We screwed up, we're sorry, we've done something and we want you back". Such brutal honesty (as displayed by Abbey) is likely to be more respected than all of this ducking and diving, which will be seen for what it is.

I truly wish 3 well - but not at any price. They have to get this CS situation of theirs fixed, even if that does mean turning their shopfront staff into surrogate CSRs.