Tesco’s New Telecoms Centres May Herald Shift into Mobile Broadband

On 21 April 2009, UK supermarket chain Tesco confirmed it would increase its Telecoms Centre outlets from 41 to 100 by January 2010. The centres are stand-alone departments within larger Tesco stores. They provide advice for the mobile buyer and process mobile contract subscriptions.

The decision to create about 60 more outlets is noteworthy, although the roll-out is modest and is unlikely to disrupt phone retailing in the short term. In my view, the new centres may be the first step in a strategy to capture a larger part of the market for mobile broadband and connected laptops.

Tesco dominates grocery retailing the UK. Its 2,184 stores captured about 40 percent of the country’s spending on groceries in 2008. It has a further 1,772 stores in China, Europe, South-East Asia and the US. Like most other UK supermarkets it sells prepaid mobile phones and accessories, but has a limited presence in the contract market. We estimate its current 41 centres process fewer than 2,000 new contracts a month.

The chain created a mobile virtual network operator (MVNO) as a 50/50 joint venture with O2 in June 2003. The MVNO, Tesco Mobile, has over 2 million customers, most of them on prepaid tariffs. Tesco also offers fixed-line communications and broadband services, but has yet to produce a mobile broadband offering. According the company’s Web site, mobile data over GPRS costs £4 a megabyte on all tariffs.

Although the company has over 2,000 sites in the UK, about two-thirds of them are too small to support a dedicated Telecom Centre, limiting the scope of expansion within existing sites. Even if Tesco rolls out the concept to all its larger stores, it will have a smaller presence than Carphone Warehouse, which has about 900 stores.

Selling contract phones will present challenges for Tesco, which is more used to selling prepaid devices “off the shelf”. It will have to train staff and manage the complexities of signing shoppers up to contracts on a greater scale than at present. It’s unclear whether Tesco will focus on selling its own services, or use Telecom Centres to resell connections to other mobile networks.

I think there’s still a substantial demand in the UK for entry-level mobile devices of the kind that characterise Tesco’s offerings. The closure of Woolworth’s 800-plus stores has left a hole in the market that Tesco may be hoping to fill. It may be looking to attract family buyers and those purchasing their first phone. It may also be eyeing up opportunities in the mobile broadband market. It currently sells laptops in its larger stores, so expansion into dongles and connected devices would be a logical step. A foothold in the mobile broadband market may also help its fixed-line business, which, like most providers, is coming under greater pressure.

Tesco could use its loyalty card scheme, which has about 15 million members, as part of its mobile offerings. The scheme collects data about members’ purchases, enabling the company to build profiles of its customers’ spending habits. This data could prove to a valuable marketing tool as the company expands its presence in the mobile market.

If the retailer decides to broaden its offerings into mobile broadband, it will have to compete with the likes of Carphone Warehouse, which forged a deal with US chain Best Buy in May 2008. The agreement established a European joint venture to sell consumer electronics and mobile technology. I believe Carphone Warehouse is aligning its business to take advantage of growth opportunities in mobile broadband and connected laptops, although the roll-out of Best Buy stores has been delayed until 2010, when the joint venture hopes to open in four locations.

The UK has thousands of retail outlets offering mobile devices, and the addition of 60 new Telecom Centres to the Tesco chain is unlikely to disrupt more-established players. If the new centres herald a shift into mobile broadband, the retailer will reflect a larger trend to marry laptops sales with connectivity options. Tesco has rarely faltered in its rise to become the UK’s largest grocer. It will be interesting to watch how it handles the expansion of its mobile activities.