Marketing and Advertising

Submit Link | Latest Links | Top Hits |   

Low Cost Conference Calls » Marketing and Advertising

Latest News

Carphone Warehouse is planning to introduce an emergency TalkTalk broadband tariff to help customers struggling to pay their monthly bills as the economic recession bites across the UK.

Thousands of job losses have been announced in recent weeks and many of those who lose their jobs are white collar workers for whom the internet has become a crucial resource in the search for work.

"I think we have an obligation to customers because broadband is an essential part of life for many people," said chief executive Charles Dunstone.
"I got an email from a customer, who we were cutting off, who was going through a redundancy and having everything repossessed and I suddenly thought we should not be doing that to people."

Last week he instructed the TalkTalk team to come up with ways in which Carphone Warehouse can help consumers who find it hard to pay their broadband bills, rather than merely cutting them off.

Dunstone described the plan as a "parachute". Details are sketchy, but it could allow customers to take a payment holiday or reduce payments in return for a downgraded service, such as slower broadband or a bar on free international calls.

"I do not know when or exactly what the proposition will be but we ought to be thinking about our customers at this time," said Dunstone.

The hope is that the emergency tariff could be introduced early in the new year, when many people will be counting the cost of the festive season.

Carphone Warehouse is not immune to the economic downturn. Shares in the company plunged earlier today after Dunstone said its high street stores face their toughest ever Christmas, but refused to give details about how bad it might get. The company's shares closed down 12.25p at 118p.

"Clearly the retail market is incredibly difficult, predicting Christmas is incredibly hard," he said.

The second half of the year accounts for 60% of Carphone Warehouse's retail sales - and slightly more of its profits - while Christmas is dominated by sales of pre-pay phones given as gifts. Pre-pay sales, however, have been down year on year in the past few weeks, having been stable for much of the first half of the year.

They suddenly shot up last week as Nokia launched a multi-million pound advertising campaign for its 5310 handset, a pre-pay music phone that comes with unlimited track downloads.

"You just cannot put what is happening on the high street right now into an Excel spreadsheet, it is so complicated," said Dunstone. "Normally when there is a crisis the people who know the least are the most frightened and the people who know the most are the least frightened, because they understand what is going on. At the moment, the people that I know who know the most are the most frightened and the people who know the least are the least frightened. That is quite a bad dynamic."

Economists estimate the recession will last through next year and the economy will start to recover in 2010.

Some in industry, however, are not convinced. Ian Livingston, boss of rival BT, said recently the recession was likely to last at least two years. Dunstone said he had no idea how long the downturn would last but, with its strong balance sheet - following its deal in the summer with US-based Best Buy - Carphone Warehouse was well positioned.

"For a lot of retailers now, it is about staying alive and the people that are standing at the end of this are the people that will prosper in the future," he said. "If anyone can survive it should be us"

Carphone Warehouse is to consider demerging its TalkTalk broadband business from its retail operation.

The group's chief executive, Charles Dunstone, will use tomorrow's interim results to update the City on the group's strategic direction. He is likely to float the possibility of splitting the group into two, although the company is unlikely to rush into a demerger, given the turbulent state of financial markets.

Many analysts believe Carphone could release value for shareholders by splitting its two standalone operations.

The different character of the two arms of Carphone's business was underlined this year when the retail division entered a joint venture with the US electronics retailer Best Buy.

Since then, amid the worsening economic climate, the shares have headed rapidly downhill, knocking it out of the FTSE 100 in September. At the close of trading on Friday night the business was worth £1.3bn.

Analysts have suggested a demerged TalkTalk may be worth up to £1bn and there have been rumours that the business would be sold to Vodafone.

Dunstone hinted at a demerger himself in an interview last month. "I'll do what's right for the business," he said. "There is, however, less and less reason for the telecoms and the retail business to be together."

He added that he and the company's major shareholders thought a separation of the businesses could work.

Dunstone co-founded Carphone Warehouse in 1989 with only £6,000 of savings, running a small shop on London's Marylebone Road, and grew it into Europe's largest independent retailer of mobile phones. He launched TalkTalk in February 2003.

TalkTalk revolutionised the broadband market two years ago with the launch of "free" access tied into phone contracts and has become the third-largest broadband player after BT and cable company Virgin Media.

Speculation about a demerger was sparked in May when Carphone announced that Best Buy would take a half share in its European retailing business for £1.1bn. The deal - struck before the economic downturn really began to bite - allowed Carphone to reduce debt.

The companies plan to open electronics stores on British retail parks to challenge the likes of Currys, Comet and PC World. The first outlet is due to open in the first quarter of 2009 with plans for 100 stores across Europe within five years.

But the speed of the launch could be affected by the recession, after Best Buy warned last week of the toughest trading conditions in its 42-year history.

Carphone has been affected by the downturn in consumer spending, in common with all retail businesses. In its most recent trading update, last month, it warned that the immediate consumer outlook was "very uncertain" but said it will work to increase its share of spending in the run-up to Christmas. The group said it was "well placed to ride out the downturn and emerge in an even stronger position on the other side".

The group's interim results this week are expected to show a decline in first-half pre-tax profit. A spokesman for Carphone Warehouse declined to comment.

In part, British consumers are to blame for the thousands of job losses announced this week in the communications industry. Our clamour for ever lower telephony, mobile and TV bills has created a price war among some of the country's biggest brands.

According to Ofcom's 2008 Communications Market report, the average monthly household spend on communications - which includes TV, mobile and broadband - has dropped from £97.94 in 2004 to £93.63 in 2007. That may not seem like much of a decline, but in the same period the number of homes with broadband has grown from 5 million to more than 14 million while mobile phone penetration has gone from 99.5% of the population to 122.6% - as many people have more than one SIM card - while the number of minutes we spend chatting on a mobile has ballooned from 64bn in 2004 to 99bn last year.

The British consumer is getting a lot more services for less money and that has led the likes of Vodafone, Virgin Media and BT to rein in costs.

Fixed-line telephony pricing has been hardest hit, which is why BT has been so desperate to move into new areas such as TV and corporate IT. This has paid off, but calling still accounts for more than 10% of its business. The price of BT's all-you-can-call phone package - which used to be called BT Together Option 3 and is now BT Anytime - has dropped from £17, plus line rental, a month in 2003 to £4.95 today. And the decline is accelerating - the package cost £14.50 plus line rental in June 2006 - as people switch the bulk of their calls to their mobile phone. Calls in the evening and at weekends on BT are now free, something that would have been unheard of a decade ago. Even two years ago that call plan was £6 plus line rental.

Shareholders obviously want to see a return from BT, which is why it is wielding the axe, but the consumer is by no means an innocent bystander in these jobs cuts.

Vodafone is to cut costs by £1bn, it said yesterday, after it dropped its annual sales forecast for the second time in four months. It blamed tough trading in Europe and slowing growth in emerging markets such as India.

The company, which employs 47,000 staff across Europe, refused to say how many jobs would be lost but analysts estimated it could be several thousand as the group integrates "back-end" functions such as IT, testing, logistics and distribution across the continent.

Vittorio Colao, the chief executive who took over from Arun Sarin in the summer, said the plans were designed to focus on improving profitability, rather than chasing revenues and continuing to increase its geographic footprint through major acquisitions.

"I truly believe that if we rebalance the back-end structure of the business and leave commercial decisions close to the customer with a very thin layer of coordination [between them] ... we will have a very lean, fast, simple and hopefully winning company," he said.

His plan came as Vodafone dropped its forecast for annual group revenues to between £38.8bn and £39.7bn. In July it said revenues would be at the bottom end of its earlier forecast of between £39.8bn and £40.7bn.

Colao said his focus would be more on profitability than sales. He faces an uphill struggle: for the six months to the end of September, profits before financial charges were in effect flat. The reported rise of 10.5%, to £5.8bn, was due solely to foreign exchange benefits as the company makes the vast majority of its money outside the UK.

Pre-tax profits of £3.3bn were down from £4.56bn as the company wrote down the value of its Turkish business by £1.7bn. The company bought into the Turkish market about three years ago and Colao admitted yesterday its turnaround plan had been hampered by the poor state of the company's mobile phone and distribution network in the country.

The performance of the European operations suffered from the tough economic climate with margins decreasing from 38.2% to 36.2% on revenues down 1.1% - stripping out currency effects.

Operating profits in the UK almost halved to £134m. Colao admitted the company had taken recent strong growth "for granted" and failed to keep up with the market. He said the company should not be afraid to cut prices to regain its position, while reducing costs by improving customer retention through better deals for more loyal customers or people who bring family members to the network.

Revenue growth in emerging markets was up 25.7%, to £5.4bn, but that was driven mostly by its Indian business, acquired last year. Even there, growth had slowed and prices dropped by roughly 50% over the past few months amid intense competition. Stripping out India, organic growth in emerging markets was 8.8%.

Yell

The owner of Yellow Pages classified business directories is to cut about 1,300 jobs over the next 18 months. The company has operations in the US and Spain as well as Britain, and has already reduced its workforce from 15,200 to 13,900 over the past year.

The chief executive, John Condron, said the group would make cuts of a "similar order" by March 2010 to help save a total of £250m by the end of the next financial year. He said the job cuts involved some redundancies but were also the result of not filling vacancies and revising growth plans it had made before the recession.

"People involved in new projects, IT support and growth programmes - these have gone. But the majority of sales front-end jobs have stayed," he said. "We're not cutting off arms and legs. We're taking out of the business the growth we had built in to take advantage of a climate we are not seeing now."

He said Yell had to make sure it was in a position to take immediate advantage of a recovery. The company hopes it will prove resilient in the recession by retaining companies' loyalty as they trim their advertising budgets. But he warned of a "fear factor" among businesses.

"People's behaviour is reverting back to a kind of commercial hibernation," he said. "People seem to see a huge freeze in the economy and are cutting where they can - but they are not cutting out."

Yell's cost reductions would offset falling revenues and should allow full-year earnings to come in "broadly flat" for the full year, the company said. Interim pre-tax profits were down 2.7% to £118.3m.

Virgin Media

The cable TV, phone and broadband operator Virgin Media said yesterday it would shed 2,200 employees, about 15% of its workforce, by the end of 2012. The job cuts are expected to fall heavily among call-centre staff as the company tries to integrate its component parts.

The business was created more than two years ago by the merger of cable operators NTL and Telewest with Virgin Mobile. The company now operates at 76 locations across the UK with 11 major call centres from Glenrothes in Scotland to Teesside, Manchester and Trowbridge, in Wiltshire.

"These changes are critical to ensuring Virgin Media is positioned to compete effectively and deliver on our customers' changing expectations," said Virgin Media chief executive, Neil Berkett.

"Over the coming weeks and months, we will be developing more detailed proposals ... We recognise this brings with it significant uncertainty for our people and the communities where they work."

Andy Kerr, deputy general secretary of the Communication Workers Union, said the news came "as a complete shock".

"We are extremely disappointed at the way Virgin Media has made this surprise announcement, which will be very damaging for staff morale," he said.