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MARKET COMMENT
By
Carburton Street, London -- The continuing success of Carphone Warehouse (LSE: CPW) relies on its ability to adequately differentiate its service from its rivals. The company must prove that it is able to add value and successfully target those high quality customers prepared to opt for a subscription-based mobile telecom service. Only then can a valuation of 20 times forward earnings be adequately justified. The mobile phone retailer today posted interim numbers at the lower end of market expectations. Turnover rose 20% to £539.6m and pre-tax profit edged up from £8.0m to £9.6m. The company has benefited from network operators shifting away from a market penetration strategy towards one focused on customer retention. As a result, Carphone's customer mix has improved by 10% to 58% in favour of the subscription-based services. This is also likely to boost the company's recurring income generated from customer billing and insurance. And as the mobile phone market matures, there will be greater emphasis on existing customers buying replacement handsets. This is further expected to boost Carphone's market share because of its ability to provide independent advice. The eventual rollout of third generation (3G) mobile telephony could further enhance Carphone's stature in the market place as a specialist adviser on a customer's telecom requirements. The choice of products and services that are likely to accompany 3G will be mind-bogglingly complex. 3G's initial target audience will most probably not be the mass market. But then again, nor are Carphone's customers. More on the Carphone Warehouse discussion board