Branding.pdf · Getting serious about mobile brands – 10 July 2001 3 It is not getting easier to retain customers. Growth requires attracting the best from competitors

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Hold on to Your Customers! – 10 July 2001

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Investment Thesis: Brand Watching ...................................................................................................... 6

Brands: a Tool for Subscriber Management........................................................................................... 11

Managing Churn and Retention ............................................................................................................. 14

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Valuing Brands ...................................................................................................................................... 28

Measuring Brand Effectiveness ............................................................................................................. 31

Who Does What? Who Has the Best Brand? ......................................................................................... 44

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Brand Equity and Building Image.......................................................................................................... 52

Advertising: a TIM Example ................................................................................................................. 61

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Getting serious about mobile brands – 10 July 2001

3

It is not getting easier to retain customers. Growth requiresattracting the best from competitors. This note concentrates on animportant element of the marketing mix: brands. We believebrands will affect market share, churn, revenues and costs. Brandswill be big differentiators whose holders could justify a 15% to 20%equity premium over competitors. Our list of brand leadersfocuses on Vodafone and Orange. Our cautious sector stance andpicks remain unchanged: Orange, Libertel and CosmOTE.

� !��# ��&��'� �� (�� )�� (��!�� !��!�'��It is critical to build brand power now that subscriber growth is slowing sharplyand the most valuable customers are usually connected to rival networks. Brandis a big tool for attracting and retaining customers in both mass-market andbusiness segments. We dispute the consensus that retention will be significantlycheaper than acquisition, although certain distribution costs will fade. Japaneseoperators like NTT DoCoMo have found that as data services grow, customersbecome more discerning, more handset-centric, and retention costs inflate. Thismeans that customers with strong brands will have lower churn: these are theones we should own.

� !��# �� *�� "��'�� )��!��!��!��!�&!�!'# ��Brands are not just marketing gimmicks or advertising slogans, but requirecontinuous, often expensive investment and support from the operator’s people.This is particularly hard when companies operate cross-border. However,most countries can only accommodate two dominant brands (eg TIM andOmnitel in Italy) and it is critical to maximise brand awareness and depth.

Positioning to grab target customers is difficult and expensive. As companiesrollout their brands across Europe, there are costs (up to 5%-8% of sales) andrisks. Orange will replace an excellent French brand in Itineris. Vodafone’span-European brand rollout runs the risk of diluting very strong local identitiesat D2, Omnitel, Airtel, Telecel and Libertel.

+��,�� !'��# ��!�� !��# ��(�� !�!��!��! �Since there are no existing pan-European brands, those that create them mayhave a new tool in consolidation. The obvious candidates are Orange andVodafone. Traditionally, many mobile companies have had to develop brandswith a limited role: defeat an incumbent. Incumbent operators such as DT, FT,BT have developed brands which sound distinct from parents: Cellnet, Itineris.This means that smaller strong brand companies are not consolidation plays:the brands get replaced. Better to own larger names than marginal assets.


4

$�-,�.-' ��/��"��"! �!'# ��"�� )�� (�!&� �� Valuations appear to be converging in Europe. The mobile sector now trades on9.0x 2002E EV/EBITDA, with a core range from 8.5x (TIM) to 9.9x (Orange).Two months ago this range was 9x to 12x, with more obvious disparities betweenVodafone, Orange, TIM, TEM, Sonera and Bouygues than we see today. If this trendto the mean were broken, we would pay more for those companies who could use brandto drive market share and churn. We believe brands can be valued according to the‘cut-off-my-hand test’ — how much would, say, Orange be paid to let go of its brand?This could be 15% to 20% of equity value.

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We think that both Vodafone and Orange have powerful brands but in differentways: Vodafone maximises awareness, Orange attributes. Local brands will havea diminished role in future, but we particularly respect TIM, D1, E-Plus, Movistar,Bouygues, CosmOTE, and Sonera.+ �"� ��!#��!�)��0 ��(1�#� ��%!��0��Our preferred mobile stock picks, within our very cautious sector view, are Orange,Libertel and CosmOTE, all rated 2H (Outperform, High Risk).


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➤ Top mobile companies need top brands

➤ Brand value should turn into shareholder value

➤ Insufficient newsflow this year to propel stocks

➤ Data products challenge brands in new ways

➤ Top brand picks: Vodafone and Orange

2!��!��!�!� ��!�� 3This note tests what a good mobile brand is, what it does, how we know it when wesee it and how much value it helps to create.

We remain cautious on the sector. However, we are excited about brands and believebrand developments will help us to pick stocks as mobile subscriptions peak anddata products begin to trickle out of the tap.

➤ Top brand picks: Vodafone and Orange.

➤ Top stock picks: Orange, Libertel and CosmOTE.

Customers are fickle. The slowdown in prepay growth means that the targetcustomer base has changed:

1 Contract customers matter more and are less price sensitive than prepay, moresubject to perceived quality.

2 Prepay customers are tough to retain when the operator does not know theidentity of the subscriber1. Brand strength holds out the promise of lowerdependence on price competition.

We argue in this note that there is a correlation between market share and brand, andbetween churn and brand. So brands have a key value to operators — and investors.We put this at over 15% of equity value.

Brands also matter because in some instances, customers have a stronger associationwith a handset manufacturer or a service provider than an operator. The newcustomer goes into the shop, chooses the funkiest phone and then worries aboutwhich operator (read tariff) to connect to. The existing customer often belongs to arival network: there is a burden of inertia for the operator to overcome. One operatortells us that only 20% of potential customers know to which network they prefer toconnect. In part, this is because tariff structures are deliberately confusing: Omnitel,SFR and E-Plus all set their tariffs to reduce the possibility of easy price comparison.

1 This varies very much by company. Vodafone knows the identity of more than 60% of its UK prepay subscribers.

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Still cautious on thesector; brands provide ameans of differentiation


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� ��'&��&��' !�� !� ��For us, 2001 is the Year of Silence2 — a year in which the big questions that willhelp us to pick stocks don’t get answered properly. We want to know: do consumerswant to buy GPRS devices? Will UMTS work technically? But lack of newsflow onthese points will not help mobile stocks to break far out of their trading ranges.

We can identify companies which we think have the means to win despite notknowing the answers to these important questions. In a few years we may see mobilestocks trade in the same way like consumer stocks such as Nintendo and Sony.Good products will excite us, and if TIM launches a great music or m-mail product,we will expect the stock to go up; if Omnitel launches a great product, we mightshort TIM. Car stocks are a parallel here.

Of course, we haven’t much to get excited about yet. Voice and SMS are perfectcommodities, and most companies’ application suites are bare. Even those withstrong data strategies, like Vodafone, have little that is customer ready3.

� �� # ��This note argues that brands can have a big role in creating customer loyalty,reducing the cost of growth and improving service take-up.

Remember mobile is largely a consumer business, now with a 60% prepay base.Up to 75% of revenues are generated by individuals, with perhaps 15% to 20% oftotal revenues are recharged to companies or incurred by people doing their job(plumbers, taxi drivers, etc). That’s different from integrated operators (over55% of wireline revenues from business) or altnets (overwhelmingly business).While prepay has emphasised the consumer element although this could change aswireless data gets going, possibly increasing the business proportion.

Is there a single consumer business where brands are not important — soft drinks,motor cars, hotels and hospitality, washing machines, personal banking, airlinetravel? Mobile has much in common with all these industries — services that arehard to differentiate with customer inertia.

Our conclusions:

1 Brands are going to matter greatly to retention, costs of growth and tocompanies’ ability to persuade customers to use new services;

2 Brands are one of a few factors that could radically alter the industrystructure, with companies being acquired for brand and good brands takingover poor; and,

3 Despite the best efforts of advertising agencies, it is very hard to quantifybrand value to the nth decimal place, but we can justify valuation premiumsin certain cases: 15% to 20% of equity value is possible.

2 See European Mobile — Theme for 2001: The Year of Silence, Schroder Salomon Smith Barney, 7 February 2001.

3 See Vodafone — Can it Execute in the Year of Silence?, Schroder Salomon Smith Barney, 28 March 2001.

No evidence yet onconsumer’s appetite

for data

Brands develop loyalty,overcome customer

inertia


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%!�'��# ��!��!��We think Vodafone and Orange deserve a 15% to 20% premium to the sector.We argue that there are ways to measure brand effectiveness. Turning thesemeasurements into valuation requires applying the cut-off-my-hand test — whatwould a company be paid to sell and abandon its brand? We think this could be15% to 20% of equity.

More specifically:

1 We believe many brands have virtues, but in particular think Orange has beenable to use its brand dynamically and is clearly the most able to use its brand as abusiness development tool in new countries, although the initial evidence fromSwitzerland and Belgium is not conclusive. Among mobile operators, its cultureis the one where brand runs deepest. However, its one-stage rebranding ofexisting companies carries higher risk than Vodafone’s approach.

2 Vodafone clearly has a number of values and advantages that Orange does not,including scale and balance sheet strength. We do not expect Vodafone to be ableto use its brand as powerfully in Europe as it has in the UK without more brandinvestment. This is part of its joint-branding approach to controlled subsidiariesand sponsorship deals such as Manchester United and Formula One. The size ofits platform is one of its greatest assets.

3 Omnitel, D1, Movistar, Libertel Bouygues, Telecel/YORN, CosmOTE,E-Plus4 and Sonera are extremely strong single-country brands. Some are stillpiggybacking on the PTT brand: eg CosmOTE, TIM. TIM and Movistar arebeing successfully exploited outside Europe.

4 We think further investment is necessary in many other brands, includingOne2One, EPlus, PanaFon, Airtel, Amena, TMN, Optimus, STET Hellas, Ben,Dutchtone and Europolitan.

There are probably going to be two pan-European mobile brands, Vodafone andOrange. Vodafone is trying to export a successful UK brand abroad, across a verystrong international platform, which offers it strong awareness perhaps with thinattributes. Orange, with a deeper attribute-rich brand, does not have a benefit ofscale to such an extent.

These will compete against many single-country brands which have strong localawareness and image such as TIM5 and D1. In some cases, these are the formermobile incumbent (eg Proximus) or, like Omnitel or Itineris, are beingmerged/replaced with Vodafone or Orange brands.

4 The design of E-Plus’s 160 direct stores seems to us brand-oriented rather than functional, with an emphasis on consistentcommunication of the brand attributes (the ‘high-quality net’).

5 We are only referring to Europe here — as we say elsewhere TIM is having success with the brand in Latin America.

Vodafone, Orange topbrand picks


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��# !�� '�� We emphasise again that brand is but one element of the marketing portfolio, and ofcourse we have to look at a broader canvas to pick stocks. To underline this, werepeat our company smilometer, a cutting-edge tool which is intended to register ourview of influences on mobile stocks short term.

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Our preferred industry picks remain Orange, Libertel and CosmOTE. All threestocks are rated 2H (Outperform, High Risk). We also have an Outperform ratingon Vodafone.


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➤ Hard-to-get-at, high-value customers: mature markets, concentratedcustomer bases

➤ Low marginal ARPUs put higher-value customers at a premium

➤ Product, place offer limited room to mobile operators

➤ Price should be the tool of last resort

➤ As promotion comes to the fore, brands become critical

�� To put branding in its marketing context:

We think operators will change their marketing mix in 2001-2002:

1 Introducing a heavier dose of promotion6 while;

2 Restricting the importance of pricing;

3 Reducing the importance and place (distribution); and

4 Introducing new data products in 2002 or as soon as smarter GPRS phonesare available.

Pricing will always remain important. However, it is critical for operators tominimise its role. Companies have made great progress in managing down handsetprices particularly in the UK, Germany and Spain. D2 has cut prepay SACs by50 in the last four months. Prepay handsets are up by 40 to 70 in most major

markets. This means that subscriber acquisition costs are down from around140-150 to under 100 in most countries7. However, there are signs of pressure

on GPRS handset prices which are discounted by up to 200 in some countries.

There are two elements here:

1 Prepay bundles (the handset and SAC) get more expensive. Already, tariffs havecome down. Later in this note, we discuss the wildly different tariffs available.

2 We think tariffs stay structurally under pressure from competition and that voicepricing is likely to fall by an average 10%-15% per annum.

6 Marketing traditionally has four elements: product, place, promotion and price.

7 SACs are more than handset subsidies and include distribution costs, and distributor bonuses. These are usually allowed incountries where handset subsidies are negligible or illegal, such as Italy, Norway, Finland and Austria.

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Brands will emphasisepromotion over other

marketing elements


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Place — distribution remains key. However, companies approach distribution insuch very different ways that it is hard to generalise about trends:

1 Libertel is attempting to reduce its dependence on service providers. Orange hasnever used service providers, nor has VIAG Interkom.

2 Orange’s virtual network operator (VNO) agreement with NTL, first mooted in1999 and now expected to be signed in the near future, allows Orange a newroute to market. Libertel distrusts VNOs.

3 Supermarkets accounted for about 40% of UK phone sales in 1999-00.Vodafone’s UK subsidiary had a well-known, feted alliance with Sainsbury.It was named Sainsbury’s Supplier of the Year in December 1999. Sainsburyrecently withdrew the Vodafone product.

As for product, it is likely to become the most important battleground just as soon ascompanies come up with applications beyond voice and SMS. This is the subject ofour next sector note.

�� We shall hear a lot more about mobile brands over the next few quarters.By promotion we mean smart branding and advertising. The cross-Europe brandingcampaign which Vodafone is steadily putting in place (see later) is one example ofthe increased role of promotion.

There are two challenges:

1 Low yields from existing subscriber bases; and

2 High churn potential, from both prepay and contract customers.

A full background discussion of the anatomy of brand equity starts on page 51.For now, Figure 3 sets out graphically the position of the two brand equity elements:awareness, image.

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Brand EquityPricePositionProduct

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Branding is apromotion tool


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Brands help:

1 Retention. The first task for operators is to retain the most profitable customers.They have bought these customers and have to minimise churn. The phrase‘customer loyalty’ and the use of the word ‘customer’ rather than ‘subscriber’ hasbegun to dominate operators’ presentations. Better brand recognition is one of themain ways to fight lower prices by a competitor without matching the priceswhere the home brand is associated with superior quality and service. Once newUMTS entrants appear next year, incumbent mobile operators will attempt toportray a switch to a competitor as a leap in the dark.

2 Association with the operator, not the handset. In many instances customershave a strong association with parties other than the operator. For many customers,the choice of handset is more important. (In other words, Nokia’s brand is morepowerful than Optimus, Blu or Ben). This issue is the more urgent now that SIMcards have overtaken handsets in some countries. WIND tells us that 40% of itscustomers buy SIM cards only. It is worth noting that there are surprisingdiscrepancies in how companies use product. For example, in the UK, few phonesare branded with an operator’s logo. This is a big contrast to Italy or Japan.

3 Loyalty to an application or portal owner. As applications come to the fore, itwill be more and more important to manage branding across the content layers.TIW’s ownership of Premier League 3G rights is only the most obvious part ofthis. At the moment, some of this pressure is going the other way: the FinancialTimes has started branding mobile phones. We argue later that operators shouldnot name their portals differently from the core company.

4 Loyalty to a service provider. In many places, customers’ main relationship iswith a service provider such as debitel or MobilCom. The advent of 2.5G and 3Gupset the status quo of these brand-customer relationships too. Brands are bad forservice providers — they disintermediate intermediaries.


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➤ European mobile markets are mature — and dominated by prepay

➤ Retention is a critical operational issue

➤ Churn can knock out financial performance

➤ In the model presented here, we see company value 16% lower ifchurn increases from 10% to 30%

➤ Around 7.5 percentage points of EBITDA margin evaporate in thesame base case

➤ The impact increases drastically to more than a 53% drop in valueand around a 14 percentage point drop in EBITDA margin in a highcompetition scenario

��Subscriber acquisition is too expensive. The industry spent about 12-14 billion8 onSACs (subscriber acquisition costs) in 2000. We believe half these customers will onlyyield 15 a month. That means that possibly a quarter of the revenues these customerswill generate during their time with the operator, or half the equivalent gross cash flow,was spent on their acquisition9.

Taken together, this means that companies have to deal with two phenomena:

1 Many of them chased poor-quality customers in 1999-00. Even at mid-year 2000,we thought the marginal subscriber in Europe’s largest market was worth under15 in ARPU. By end-2000, the average subscriber was yielding less than 10.

Marketing must change tack and target customers more finely.

2 They now have to rollout data products when ready and introduce faster- handsetswhich enable their use, starting with GPRS. Marketing must encourage take-up.

��As many of the national markets break through the 70% penetration mark, the wildland grab is winding down. Branding must help retention of the most valuablecustomer bases.

Altogether, 260 million consumers in Europe have mobile phone subscriptions on56 networks. The growth phase of the European mobile markets is drawing to aclose. Penetration was 67% at the end of March and c70% at the end of June.

8 We have assumed that the average SAC on 87m new customers was 120 and churn was close to 20%

9 Admittedly, this is a trifle compared with the 107 billion spent on licences in 2000 (this was just the cash instalment in a 130 billion game9 — some licences have deferred payments; the Greek, French Danish and Irish processes complete in 2001).

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We forecast that European penetration will be 75% by the end of the year. This ispartly due to:

1 Passive factor: customer exhaustion — over 80% of adults have mobile phones

2 Active factor (more important): companies not writing cheques. Companies willdrive margins up by cancelling discounts (see below).

A consequence of slower growth will be a shift away from signing up newcustomers to holding on to existing customers. We believe branding will play alarge role in supporting this shift in focus.

A glance at the European penetration figure below shows how far advanced mobilemarkets in Europe are towards the latter stages of their growth phase. At the end of2000, penetration stood at 63% on average. Sweden had penetration of 74% —close to the 90% we see as full penetration, excluding the under-fives and thetechnophobes.

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As can be seen in Figure 5, Germany, which has 19% of subscribers for 21% of theEuropean population, added an eye-catching 30 percentage points of penetration in2000. It is highly unlikely that a third of Germans will buy a mobile phone in a12-month period again. Furthermore, since the average prepay subscriber there nowyields less than 10 a month, ARPU operators have stopped chasing the marginalsubscriber.

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Mass-market uptake of mobile phones began in earnest with the introduction of prepaidproducts10. Prepay now dominates: this means that the mobile, with a typicallyundifferentiated service is from a marketing standpoint like many other consumerstaples: washing powder, soft drinks, petrol, television. This puts enormous pressure onthe operators’ marketing machines to promote loyalty and usage.

10 The examples of countries such as Norway and Finland where prepay was not a factor are exceptional. We believe the main factorswere Metcalfe effects (the more subscribers on a network, the more useful, the more subscribers join) and the low entry cost ofcontract packages.

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Prepay growth has been so rapid that large operators have won at the expense ofsmall. The customer structure is generally very concentrated, creating a bigmarketing challenge for second-tier players. Branding and marketing work verydifferently for those with large subscriber bases. Industry leaders (D2, D1, TIM,OPI, Movistar and Orange France) have a different role to those with non-dominantbases (Blu, WIND, Interkom, E-Plus, Amena, Orange UK and BTCellnet).

1 Germany: four operators, 52 million subscribers, 79% in the hands of twocompanies.

2 Italy: four operators, 44 million subscribers, 86% in the hands of two companies.

3 France: three operators, 31 million subscribers, 48% in the hands of one companyand 82% in two.

4 Spain: three operators up and running, 26 million subscribers, 56% in the handsof one company.

5 UK: the exception to the rule: four operators, 44 million subscribers, almostexactly evenly split.


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Figure 7 shows that except in the UK, the top two operators have around an80% market share.

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"��#�� Only in the most benignly non-competitive environment can operators lower theirguard when it comes to churn. We believe brands help market share by reducingchurn. Later in this section, we use our churn model to show how important it is thatcompanies use brand to reduce churn.

Not every European company declares churn. However, we estimate Europeanchurn at 15%-20%, with several outliers. Since we think that European subscriberbases are likely to grow at 20% this year, the cost of churn will be over 40% ofsubscriber acquisition costs. Getting this down is a key priority. This is one rolefor brands.

Note that at this time of year, churn is seasonally high: net additions are therefore apoor surrogate for gross additions — which drive margins. Since growth was sofantastic in 2000, we should expect more than a couple of quarters in which churn isa great margin issue.

Inertia has power too in churn management. There is also a substantialwell-researched phenomenon in which people often use their behaviour to definetheir attitudes. Some people test gadgets before buying them. Others self-justify theiruse of a particular network, effectively saying “I’ve always usedTIM/Vodafone/Orange/Europolitan — it must be good”11.

11 The flip side of this phenomenon, which in the literature goes by the horrible name of cognitive dissonance reduction, is the sourgrapes phenomenon: “I can’t have it, so it can’t be worth having”. This is the argument we use when we cannot see the point inpaying up for a luxury item. “What is the point of a US$150,000 sports car if you can’t drive at 250kph?”

Churn is the enemy ofmargin; brands help

reduce churn


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$ ��Brands have a demonstrable value in retention, just as their strength correlates withmarket share. The issue for us is that we cannot distinguish among brand attributeswhich support growth and retention. It is ridiculous to suggest that a company canattract customers it cannot retain, provided that its customer proposition andcustomer service levels are satisfactory.

� �� Established operators have been very successful in building up impressivesubscriber bases, but this has been so rapid that it challenges customer loyalty.Growth has been rapid, driven by prepay customers, who do not generally displayloyalty. The pattern here is erratic: Vodafone had a huge churn problem in the UK in1998-1999. UK churn, which was over 20% in 1H99/00 has now come down toaround the 15% level. Orange has reduced UK churn to below 10% according to itsmost recent results.

There are complicated pressures here. Consider number portability: we originallythought this would drive churn up. However, the evidence that number portabilitypromotes churn is inconclusive. In the UK number portability has been a red herring,partly because it has been so difficult for customers to use (it takes up to four weeksto port a number).

Below we show a sensitivity analysis which shows that mobile operators’ financialperformance is heavily affected by levels of churn. The analysis has thefollowing approach:

1 We build a theoretical middle-of-the-road operator in terms of subscribers andARPU. We keep this revenue model fixed in our analysis.

2 We then vary churn and cost components affected by churn to see the impact onfinancial performance.

When we increase churn from 10% to 30%, financial performance suffersappreciably. In a base-case scenario (see specifics of the model below), our netpresent value of the EBITDA flows to 2011 reduces by 19%, if churn increases from10% to 30%. Average EBITDA margin for the years 2001 to 2011 drops7.5 percentage points. In a second, highly competitive scenario, the churn impactis even more dramatic (see table).

Figure 8 tabulates the main results of our sensitivity analysis on our middle of themarket operator.

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Brands help retention aswell as customer

acquisition

Our loyalty modeldemonstrates EBITDA

impact of churn


20

These results are little affected when we make the operator more extreme in terms ofhow close the operator is to reaching its ‘final’ subscriber base. This is true in eitherdirection — the case of a mature operator (such as TIM in Italy or TEM in Spain) orthe case of a nascent operator (like TIW in the UK).

Of course, loyalty is the product of many things, including brand, quality of service,competitive pricing and special features. Loyalty management is an art, and somecompanies have devoted considerable resource to it. One of the best examples is D2,which devotes 30% of call-centre resource to its top 3% contract clients. Its loyaltyclub, D2Platinclub, has a number of processes designed to protect D2’s share of topclients. More later.

�% �� Industry SACs currently run between 15% and 20% of sales, although they haveclearly come down in recent months towards the bottom of this range. Total SACsare not necessarily lower in mature markets. This is counterintuitive. One suspects,naturally, that total SACs decrease as markets are more fully penetrated. In a fullypenetrated market, fewer subscribers are acquired and therefore total SACs —subscriber acquisition costs — should come down. This is not necessarily so.Even in a fully penetrated market, SACs can remain high if there is high churn.There may be few additions to the market as a whole, but if there is flow ofsubscribers between the operators in the market, then the total SACs will remain high.

It all lies in the definition of additions. Total SACs are dependent on gross additions,not net additions.

➤ Total SACs = (SAC per gross addition) x (gross additions).

We break gross additions into two components:

➤ Gross additions = net additions + disconnects; or

➤ Gross additions = net additions + (average subscriber base) x (churn rate).

From this formula, we see that even in a fully penetrated market (low net additions),SACs can remain high if there is high churn. There may be few additions to themarket as a whole, but if there is flow of subscribers between the operators in themarket, then the total SACs will remain high.

An extreme example illustrates well this point of high SACs being possible in a fullypenetrated market. Think of an operator with 10 million subscribers and revenues of

3bn in a saturated market where no operator is successfully grabbing market share:there are no net additions. Assume a SAC of 150. The total SACs are then onlydependent on the churn. If there is 20% churn, then the total SACs will be 20% x10 million x 150, or ��illion. Five percentage points of churn costs�5 million or 2500bps of margin.

Recurring SRCs are more complicated. Operators tend to give estimates of (current)retention costs between 25% and 75% of SACs. A recent trip to Japan reinforced ourconcern that a probable future number is well to the north of this range. We recognisethe argument that SRCs will be a lot lower than SACs, since operators will be able usetheir detailed knowledge of the subscribers to target offers, upgrades, etc. That soundsplausible, but we think there will be learning curves for the operators and that weshould not underestimate competitive pressure, as well as the need for operators todemonstrate success in data products. In our base case, we use 60% of SACs, or 96.

Industry SACs falling —but we expect churn

to rise


21

�� The model manipulates cash costs for constant revenues. The basic attributes of themodel we built specifically for our churn analysis are:

1 The output is an EBITDA margin and a NPV of the EBITDA flow;

2 The cost model explicitly rests on assumptions on SAC per gross addition andSRC (subscriber retention costs) per gross addition; and

3 There is no capex model nor tax payment component so as not to muddle thechurn analysis.

In our analysis, we vary the following inputs to the model:

1 Churn rate;

2 SACs per gross addition;

3 Percentage of average subscriber base targeted for retention; and

4 SRCs per targeted subscriber12.

A section below explains in detail how we set these inputs for each of our threecases — base case, high competition and low competition.

We keep constant in our analysis inputs of the revenue model:

1 Market share;

2 Subscriber bases;

3 ARPU; and

4 Initial margin.

The model with inputs for the base-case scenario and a churn of 20% follows inFigure 9.

Note in Figure 9 that the proportion of gross adds that is disconnects grows from30% in 2000 to 88% in 2011. Varying our subscriber-base profile by making thisgrowth in the proportion of disconnects either more or less pronounced had next tono impact on our conclusions regarding churn’s effect on the NPV of EBITDA orEBITDA margin.

12 We vary the churn rate inside each scenario (base case, high competition case, low competition case). We fix the other three foreach scenario and they only vary when moving from one case to another (see below).


22

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23

%�� Below we give the detail of how we set the inputs for each scenario and present theoutput of each scenario in tables. It is a dry analysis but the conclusion is loud: up to1400bps of margin are at stake. Operators cannot lower their guard when it comes tochurn. If brand can help, brand is critical.

� ��For average market conditions, we believe the following to be the right inputs.

1 SACs per gross addition — 160;

2 SRCs per targeted subscriber — 96; and

3 Percentage of average subscriber base targeted for retention — 30%.

We arrived at the assumption of SACs of 160 by looking at current competitivemarkets such as Portugal. There, SACs in 2000 hovered around 155. In 2001, thesignals have been mixed with TMN and Optimus raising SACs and Telecel cuttingthem. We believe that GPRS will be accompanied by an increase in SACs and thatupgrade cycle through GPRS and then UMTS will require discounts — togetherwith reduced pursuit of new subscribers, we arrive at 160.

We believe operators will have to assign 30% of their subscriber base each year forsubscriber retention spending. This means that the operator does not quite spendretention money on a subscriber every third year. It is possible that this expense willbe more frequent; with perhaps two generations of GPRS, PDA devices, other 2.5Gtechnologies available, life will get more complicated well before 3G services begin.

Figure 10 shows detail of the churn sensitivity analysis for the base case.

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Note the 19% NPV differential in 10-year EBITDA flow and 7.4 percentage pointdrop in EBIDTA margin if churn goes from 30% to 10%. It suggests that a companyhaving little success in controlling churn should be valued a good deal less than onethat is having success.

1400bbps of margin areat stake


24

� �� We picked inputs here to reflect very stiff competition. The inputs are as follows.




The SAC of 300 is far above the 150-160 seen in Germany in 2000, which was anextremely fast growth year. However, it is still well below the 400-500 MobilComhas stated it is prepared to accept13. So, it is well within the realm of possibilities.

We derive the 200 SRC by applying a more stringent case that SRCs will betwo-thirds of SACs. This still permits the argument that SRCs could be lowerthan SACs.

The 50% figure for the portion of the subscriber base targeted for retention is notoutlandish. A new handset every two years and trial offers for every new serviceoffered should place us in this area.

Figure 11 has the tabulated results of a churn analysis in this, perhaps unlikely butdefinitely jolting, high competition scenario.

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The inference is clear: in a highly competitive market, churn minimisation becomesparamount. Should UMTS wars break out, we will have to watch for even theslightest difference in churn among competitors to differentiate the value parameterswe assign to each.

� ��To reflect a stable market with little competition, we had the following inputs.




13 We quote a conference call with slides presented to analyst on 23 April, slide four, bullet point two: “UMTS business plan includesa 500 subscriber acquisition costs for new and existing customers”. We think perhaps 100 of this relates to the weighted averagefee payable to D1/D2 should customers transfer.


25

The SAC of 70 is well below levels seen outside Italy and Norway. We derive SRCof 35 by accepting operators’ claim that SRCs will be 50% of SACs. Targeting only10% of the subscriber base for retention spending each year is very generous tooperators. It means the average subscriber is only upgraded only once in 10 Christmases.

Figure 12 shows the results when we move churn from 30% to 10%.

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The conclusion we draw is that only in a benignly non-competitive environment,operators can lower their guard when it comes to churn. Other measures than churn(data growth, data pricing) will be more important to value operators in such blithemarket conditions.


27

��&��


28

➤ Brands are not free — we should not underestimate costsof marketing

➤ Strong brands require customer training and development,which carries a cost

➤ Individual campaigns are easy to measure

➤ Brands could be 15%-20% of a company’s value

'��#�� #��#��Effective brands are intangible assets in every sense: although we think they belongin investors’ valuations, not on balance sheets.

Many valuable intangibles are hard to measure. In the next section we deal with thethorny issue of how to measure brand effectiveness. This section deals with howmuch we should pay. The background concepts behind mobile brand managementare developed in the section Brand Equity and Building Image on pages 52-60.

��First off: brands cost. There is direct advertising and sometimes considerableconsultancy costs and physical spend on signage, vans and printed material.Even when a brand is well known (like Pepsi-Cola, Omega, Tropicana, Gap orFerrari) it needs marketing spend to maintain it. It is not just a matter of awareness,but of reinforcing key attributes. Why else would Ferrari compete in Formula One?Why else would BMW allow its cars to be sawn in half in James Bond films?

1 Direct advertising alone is costly. Vodafone spent US$460 million on mediaacross Europe in 200014. This was equivalent to 3% of group cash costs andperhaps 5% of European cash costs. Advertising trade press suggests that the newcampaign to manage the co-branding exercise across its subsidiaries andindependent companies is costing about US$185 million.

2 Sports and arts sponsorship is extensive. Orange has designated US$70 millionfor spending on Formula One sponsorship over three years as well as supportinga number of arts bodies including the Bafta Awards and the Orange Prize forFiction. Vodafone’s commitment to Manchester United alone is US$30 millionover four years15. It has now agreed to sponsor Ferrari Formula One for anundisclosed (US$50 million per year?) amount. Formula One is the kind ofsponsorship deal that spells leader or winner to sports fans16.

14 Source: Financial Times 17 January 2001.

15 It is interesting to compare Vodafone’s sponsorship approach with Opel, which sponsors Bayern Muenchen. Both are highlysuccessful teams with an international following. But Opel is not a true pan-European brand (for example, it is not used in the UK) sothe local flavour predominates.

16 Perhaps English cricket sponsorship suggests resilience and hope.

&��

Just because it is hard tovalue brands doesn’t

mean they don’thave a value

Brand investment is anoffsetting cost


29

3 France Telecom (pre the Orange purchase from Vodafone) is the second-largestadvertiser in the country, spending some US$330 million on media according toSedocip’s 2000 annual survey. Much of this was/is spent on brand protection andon promoting France Télécom, Itineris (now Orange) and Wanadoo.

4 Investments also obviously require considerable intellectual input. Since Orangemanages its brand internationally, it has an international brand forum. In May2000, its fourth forum, in Israel, involved 120 of its managers plus mediaagencies from Europe and Asia.

&��How much would we pay for a company with a strong brand versus a weak one?The overview: some media groups have attempted to calculate brand equity, but theyhave done little more than measure the difference between net tangible asset value andmarket value. We are not into telling tales, but for Interbrand this resulted in thestatement that Xerox had a high brand value. The share price is down 85% in two years.

Inevitably one suggestion is that the only way to value a brand is to construct twoDCFs, one with and one without, and measure the difference. We have notattempted to do this for every company — it would be miraculous if we couldcalculate the market effects of Telecel or PanaFon changing their names. Moreover,we know that brands have a subjective element which is easily misunderstood.

�� (France Telecom has put the Orange brand on the balance sheet at a value of

10 billion. Generally, we do not feel comfortable with putting brands on balancesheets. This is not because of valuation issues: it is because we feel fundamentallyuncomfortable with mixing up a valuation measure based on future cash flowexpectations with cost accounting.

&�� )��Can we get close to brand value without simply saying that a brand is worth thedifference between two DCFs, for example between two different churn cases?

It is certainly easy to look at the cost/benefit relationships of particular campaigns.Orange UK’s Just Talk campaign in autumn 1999 generated a significant increase insales. However, there were many factors at play, including the phenomenal growth ofthe market itself, in part fuelled by Orange’s success. Hans Snook called it a “bonanza”.

1 Prepay market growth in 4Q99 was 47% over 3Q99.

2 The company has calculated that if it had achieved only market growth, it wouldhave added 861,000 customers in 4Q99; in the event it added 1,228,000.

3 Orange believes that the campaign contributed 50% of the difference betweenmarket growth and Orange’s particular subscriber growth — in other words183,000 new users.

4 Assuming each prepay customer were to yield £20 a month (the-then averageprepay ARPU) and remain for five years, the campaign was worth £219 millionin extra revenue.

5 The campaign cost £9.6 million, so this is a simple return of 22x.

DCF comparison is apoor approach to brand valuation

Advertising campaignsgive indications of

brand profits


30

Conservatively, one should only attribute of 14.5% to this outcome, since marketresearch at the time suggested that the number of individuals who would “seriouslyconsider buying an Orange mobile phone” rose by 14.5%. This produces a revenuenumber of 14.5% x £20 x 12 x 5x (1,228 – 861) = £63 million. A £63 million revenuegain still compares well with a campaign cost of under £10 million.

%�� We propose a simpler test. Sometimes things are just worth what people will pay.If these companies were invited to sell their brands away, how much would they accept?We think it could be worth 15%-20% of the company’s value at any one time.

Currently, some companies licence the brand. Licensing is one thing but the sumsinvolved are small: Orange has licensed its brand for under a £100 million fee to anumber of companies.

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However, the real test is not a licence, but what we call the cut-off-my-hand-test.Imagine an accident in which you lose a hand. In the UK, a jury awards a nominalamount; in the United States a jury would normally award damages based on how muchyou would pay to give up your hand.

For us, this is the proper test of brand value. Were either Orange or Vodafone to selltheir brands outright, how much would they accept? How much would Nike ask for?Each would be worth substantial sums to someone — particularly a company with thedetermination to compete against the other brand. We cannot imagine paying less thanUS$2-5 billion for either brand. France Telecom paid 45 billion for Orange UK (withdebt), and has put the brand on the December balance sheet at a brave 10 billion.

What would happen if a purchaser appeared for one of the European brands to be retiredin the next few years, such as Itineris, Telecel or PanaFon? What would the Telecelbrand be worth to ONI in 2003? For a small company with a superbrand (eg Telecel),we believe a brand purchaser could have to pay up to 33% of intangible assets — in thiscase about 50 million. This underlines the obvious point that the value of the brandincreases geometrically with take-up. That is why we believe that market share(Vodafone) is so critical. In circumstances where market share can be maintained, itmight be acceptable to attribute 15%-20% of a company’s value to brand.

17 Orange has suffered no brand fall-out as a result of OneTel’s bankruptcy.

Measure what a companywould pay to give up its

brand identity


31

➤ Brand awareness can easily be measured

➤ Attributes are harder to gauge

➤ Brands support market share

➤ Little evidence that brands support ARPUs either through volume orthrough price

*�� In order to create the raw data to value a brand we have to measure brand power.We think it is easier to measure awareness than attributes. We think that strong brandsgo with strong market shares. We finder it harder to draw a line between strong brandsand ARPUs or profitability.

Awareness comes with easier metrics than attributes18. We think it is easier to ratemobile brand awareness than image.

1 We think it is possible to argue a connection between strong mobile brands andmarket share both through customer acquisition and retention.

2 It is harder for us to see a connection between branding and ARPU, since bothvolume and pricing seem to us moved by too many factors.

Some brands, while well-known, are vulnerable. Failure to invest them has difficultconsequences: Pierre Cardin is an example of a brand whose attributes fell apart afterinsufficient reinforcement.

��There is fairly little data publicly available that measures the brand strength of mobileoperators. When we say strong brand, we mean a brand with strong brand equity, withhigh brand awareness and strong associations that prompt purchases.

Part of the problem is that many of these surveys are commissioned by the companiesthemselves. This is not straightforward bias: the surveys are done by independentresearch agencies to measure advertising success. However, there are vested interests atplay, and there is also a simple bias in using advertising measures.

Occasionally, mobile operators have published some data regarding brandawareness. Figure 14 shows recent Millward Brown data commissioned by Orangeas part of its advertising research19. It shows Orange as the most ‘aware’ brand in theUK. The data predates the recent Orange IPO. The measure is spontaneousawareness of telephone brands.

18 The degree to which attributes matter is of some debate. Some commentators argue that awareness is of such dominant importancethat Vodafone and Swisscom will have prima facie more powerful brands than Orange or Virgin, simply because of market share inlocal markets.

19 Figure 14 was presented in the Orange paper at the Advertising Effectiveness Awards of the IPA in 2000.

��'��#��

Easier to measureawareness than

attributes

Public data onawareness is flawed –

provided by mobilecompanies


32

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It is an amazing result: the research suggests more unprompted awareness of the Orangebrand than BT. One wonders if the research was conducted in neutral conditions orwhether the sampling approach was representative or broad enough. However, note thisdoes not quite mean that Orange is better known than BT. A top-of-mind20 brand couldbe Porsche: some people, particularly in Canary Wharf, will say it before they sayanother carmakers’ name. This does not mean that Porsche is better known than Ford.

We tend to be a little sceptical of such hard quantitative representation of somethingas qualitative as awareness in a consumer’s mind. For example, looking at Figure 14above, we wonder how awareness of the Virgin brand in general would affect aconsumer’s choice of mobile operators.

��Awareness is easy. Qualifying what the brand stands for is rather harder. It isdifficult to acquire meaningful data on the image or the associations of mobileoperator brands. The problem remains that by its nature, brand image, likeawareness, is very qualitative. Even the brand effects of very strong advertisingcampaigns are difficult to measure.

One of the easiest ways to look at image is to examine cases where companies haveactively gone out and created a brand from scratch. YORN is one example. YORN isthe youth, prepay brand of Telecel. Phones and SIM cards are sold under the YORNbanner suspended in balloon-like transparent boxes. There is only a tiny reference toTelecel (“powered by Telecel”). In effect, YORN is a VNO wholly owned by run thenetwork it runs across.

20 Top-of-mind refers to the first brand mentioned for any respondent for any category. For example, a respondent could answer“Coke, Omnitel, Ferrari”.

Brand attributes can bemeasured by looking at

the focus customer


33

YORN works because is a separate youth brand with particular attributes. The box isa visual joke on the transparency attribute. YORN spells out young original network— in English. Europolitan has made an agreement with Telenor for a youth-orientedVNO in Sweden called Djuice.

+��,��This is all very well, but how do we quantify brand image? One way to measureattributes is to look at how they change. We can test the effects of a single eventwhich changes perceptions of what a brand stands for, such as a distinguishingadvertising campaign, then separate awareness from attribute effects.

Example: Orange UK

We can use an advertising campaign to see how attributes change. One of the clearerexamples is the Orange “There’s no ouch in our voucher” campaign run in the UKin the last quarter of 1999. The campaign was aimed at addressing consumers’mistrust of mobile operators, which they felt would ‘rip them off’21. The campaignhas been used as a textbook example of success. Orange was starting from scratch inthe prepay market, which it had resisted. The campaign seized on perceivedweaknesses in its competitors’ offerings and built up attributes of honesty and valuefor money. Within six months, Orange was taking more prepay additions than anyother UK operator.

Figure 15 shows some brand image values pre and post the advertising campaign.

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We know the result: Orange stormed ahead in this segment. However, we find itdifficult to conclude from this data how the brand image improved. The percentageof people who agreed with Orange’s values under the category ‘Orange is a nameyou can trust’ increased by seven percentage points between October 1999 andJanuary 2000.

21 Orange IPA paper 2000.

An example campaignshows how attributes

can be changed


34

We do not know whether this alone is statistically meaningful. Despite ourmisgivings, we feel secure in saying the advertising was strong because the numberof net additions in the quarter was phenomenal (see Figure 16). Still, it is nigh onimpossible to extract the effect of other variables:

1 It is not clear how much of the gain in net additions was due the advertisingcampaign and how much was due to the new product offer, for example.

2 One of the new features in the product offer was removal of an expiry date onvouchers, and the product sold well in the first week of its launch, when theadvertising campaign had not yet started.

3 Another variable affecting the success of the launch was the action of competitors.

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�� There is an infallible way to tell a strong brand — it simply sells more. By lookingat sales, we can side step the difficulty of measuring directly and the scarcity of dataon brand awareness and image. Below, we tackle the issue of which mobile operatorbrands are strong by examining how well they sell. This breaks down into a reviewof revenue’s two components: market share and ARPU.

Our conclusions are simple:

1 We think there is evidence that good brands help boost sales by boosting take-up;

2 We do not think there is evidence that brands boost volumes; and

3 We think the view that strong brands help premium pricing makes sense butlacks evidence.

Sales correlation – moreto do with market share

than ARPU


35

Strong brands sell to more people, more often and at a higher price. A strong brandshould results in greater revenue. In a capital-heavy industry such as mobile, it iscrucial to run a heavy volume of sales over the assets.

There are two factors affecting revenue:

1 Market share; and

2 ARPU: volume and price.

�� The first test for brand is acquiring and retaining subscribers. We believe that manybrands have been successful at this, but that fierce growth has made it hard todistinguish branding effects from general market effects. There are isolatedexceptions, such as the “No ouch in our voucher” campaign.

There is some evidence that top mobile brands go hand in hand with large marketshares. This is due to:

1 Attributes reinforcing the buy decision – “my kind of network”;

2 Attributes increasing the emotional cost for a churner (ie risk of signing up with alower-quality if perhaps cheaper network) – “will Amena offer me the same....?”;

3 The self-reinforcing influence of market share.

In our pan-European model of the 70 European mobile companies, market share isthe single factor that most affects sales. Twofold differences in market share arecommon; twofold differences in ARPU are rare:

1 In Germany, D1 and D2 each have over 2.5x the market share of E-Plus: theARPU is not dissimilar;

2 In Italy, TIM has over 4x the market share of WIND, yet the ARPUs are only2-3x apart; and

3 In France, Orange has over 2.5x the market share of Bouygues, yet the ARPUsare very close.

There is a tenet in marketing that the top two/three brands take the lion’s share of themarket. An easy example is Coke and Pepsi. This is an important doctrine forcompanies, particularly capital-intensive ones. Famously, GE enters only businesseswhere it thinks it will hold the No1 or No2 position.

One explanation (somewhat circular) for why the top-three brands dominate marketsis that consumers generally only recall two or three brands when they need to makea purchase. These will be the brands with high awareness and hold the coveted‘top-of-mind’ positions with consumers. For frequently purchased items such as softdrinks where the purchasing decision is quickly made, it is crucial to have thisposition. It is still very important for less frequently purchased items such as mobilephone services, even if the purchasing decision is a more involved process thansimply recalling a brand.

Market share will moreclosely reflect brand

than acquisitionsubsidies


36

Figures 17 to 20 below show the market share in key western European countries.

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GermanySub total of top 2 brands = 79%

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ItalySub total of top 2 brands = 85%


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SpainSub total of top 2 brands = 84%

NetherlandsSub total of top 2 brands = 73%

GreeceSub total of top 2 brands = 73%

BelgiumSub total of top 2 brands = 89%



37

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Norway and IrelandSub total of top 2 brands = 100%



38

Note how:

1 In all cases bar one (UK), the top-two brands account for more than 70% ofthe market share. Of course, in Norway and Ireland there are effectively onlytwo competitors.

2 The top brand has over 50% market share in eight markets out of 16.

3 In all but three cases, the incumbent telecoms company is the market leader.Two important exceptions are the UK and Germany, where Vodafonesubsidiaries have a higher share than the local incumbent. A third exception isGreece, but there the incumbent was a late starter and has come on very strongly.

4 The fairly even split in the UK is an anomaly. This is only replicated in Greeceand to some extent in Portugal.

For the most part, it has been an uphill struggle for new entrants to take on the brandstrength of incumbents, which generally have ubiquitous brands that have beenaround for decades. In the UK, where the market share has become very evenly split,the two late entrants, One2One and Orange, proved themselves adept at buildingbrand equity through advertising. Orange was early on committed to a brand-ledstrategy22. One2One’s fortunes improved dramatically in the wake of its “Whowould you like to have a One2One with?” campaign23.

Figure 21 illustrates market share achieved versus time from launch.

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23 IPA Advertising Effectiveness Awards 1998 One2One.


39

%!*-��.��#��We don’t think brands help increase ARPU although, conversely, a company withlow ARPU, such as E-Plus, will often look like a cheap brand.

Taken together, price and volume set ARPU. Figures 22 to 25 show ARPU levels(actual where available, estimated otherwise) of mobile operators in Europe.

We mentioned above that we are sceptical about the relationship of brand to priceand to volume. We argue:

1 The data suggests that no real relationship can be established between strongbrands, as measured by market share, and higher volume and better price asmeasured by ARPU. The market leader seems to have similar ARPU to thenumber two or three.

2 Brands with market share leadership have ARPUs broadly similar to those ofcompetitors. This is the case in Finland, for example, where there is a strong marketshare leader, and in the UK, where there is less difference in market shares.

3 ARPU levels tend to be similar within a country. Germany and France are primeexamples of this. Since brands are mostly confined to country markets, brandpricing power should show in diverging ARPUs within a country. This is not soin most cases (next point for an exception).

4 In some countries, one brand seems to have lower ARPU than the othercompetitors, which are roughly on par. The UK and Denmark display thischaracteristic. This often goes with smaller market shares (and late entrants).

5 A few operators are able to achieve higher ARPU despite weak market share.This is the case for Europolitan in Sweden, which targets business consumers,and for PanaFon.

No correlation betweenbrand and ARPU


40

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%!*-��#��We have been unable to find any evidence for a branding/volume relationship, andwe doubt many companies have created value just through volumes: greater minutesof use (MOU) for an operator. This is partly because as subscriptions have grown,average use has fallen.

1 Libertel’s headline MOU fell from 117pcm in YTM99 to 107pcm in YTM 2000.

2 One2One has 21% of UK subscribers, but a considerably larger share of volume.Unfortunately, this does not translate into higher revenues. Its ARPUs are on a par orbelow its competitors. In order to achieve similar ARPUs to its competition, thecompany has higher call volumes at lower rates.

However, these hide detailed differences. For example, Libertel’s postpay minutes ofuse rose 19% (to 209) in 2000.

No evidence ofvolume/brand correlation


41

Can branding help build volumes from existing customers? This comes to the greatactivity debate24. Can brands increase customer activity? We believe the answer is no —only price and special offers, new products can do that.

%!*-��We believe brands help only a little in keeping prices from falling through the floor inthe face of competition. Strong brands translate very poorly into pricing advantage.Consequently, we do not have great confidence in the structural ability of companies tomaintain prices:

1 It has not happened in less competitive fixed-line telephony environments; and

2 The early 3G auction processes show that companies are not always good atgame theory.

Mobile operators have generally been able to sell at a higher price than theircompetitors, without having a trade-off in volume. Here, the evidence is very hardto analyse.

1 The tariff differences between competitors are huge. Schroder Salomon SmithBarney’s mobile pricing model demonstrates huge differentials among companiesoperating in the same markets.

2 There are always counter-examples. We hear anecdotes of minutes of use growingwithout price prompting. And a 3% fall in prices in Holland in May 1999 wasaccompanied by a 9% fall in minutes of use.

3 There is a dizzying array of offers. One mathematician has calculated that there areup to five billion combinations of network handsets and prices25. Comparing offers isnotoriously difficult for consumers. Oftel in the UK, for example, is concernedenough to be investigating the issue and looking for solutions to lack of pricetransparency26.

From the observation that few of the 70 European operators have significantlyhigher ARPUs than their competitors, we conclude that few operators have beenable to command premium prices without sacrificing volume27.

24 Much has been written about activity levels and ARPU, particularly since Vodafone started declaring active usage in April. For themoment, we think the niceties of activity levels make little difference. Suppose one company has an activity level of 85% and a(blended) ARPU of 24, and another an activity level of 95% and a total ARPU of 22. The active ARPU is the same, but whatreally matters is the trend in total revenues. Increases in active ARPU are usually matched by increases in blended ARPU, for us stillthe true measure of subscriber quality.

There is a related debate about saturation subscriber levels. This also presents a quandary to us. Perhaps real penetration is lower thanthe statistics suggest. However, if penetration keeps rising for longer, it will not necessarily be accompanied by revenues rising forlonger. Companies already find it useless to chase the marginal subscriber, who often yields less than 10 a month in ARPU.

25 The Times, 30 October 1999.

26 Oftel Effective Competition Review: Mobile. February 2001.

27 Swisscom is the important exception.

Limited evidence ofprice/brand correlation


42

To see in some detail the difficulty in determining whether some mobile brands cancommand premium prices, consider Figure 26. The data is from a survey conductedfor Oftel28. The survey shows ‘total’ prices paid by consumers falling into differentusage baskets. The tariffs used are those of 25 Aug 2000. Consumers are dividedinto 10 different baskets based on quintiles of usage (1Q, 2Q …5Q) and on whetherthey have daytime usage only or a combination of day, evening and weekend.We show above the middle quintile usage basket for ‘combination’ usage. This isthe Q3 combination basket, which has 160 calls per annum, spread relatively evenlyover day, evening and weekend.

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43

At first glance, this indicates considerable pricing differences among mobile brandswithin a country. A further look tells us that this is impossible to conclude. The Oftelsurvey made a strong assumption regarding handset subsidies. It is not possible todisentangle handset subsidy from prices of mobile services, so the survey chose toaccount for price of handsets in comparison. The approach in the survey was tochoose a mainstream handset (the Nokia 3210) and then calculate the total annualcosts in GBP for the mobile services and the handset. No attempt was made at usingsome other ‘equivalent’ handset when an operator did not seem to have acompetitive offer for the Nokia 3210.

Once we take into consideration the assumption on the handsets in the survey,comparing prices among operators becomes fairly meaningless. As an example ofthe problem, we look at the first graph in Figure 26, which is for the middle quintileusage and take then Sweden specifically. Figure 27 below shows the detail behindthe bar graphs.

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One wonders if the consumer might not have arrived at a fairly similar deal from allthree by choosing some other but ‘equivalent’ handsets. When looking at the totalnumber, there is quite a variance in price with Telia cheapest and Telenordia mostexpensive. However, if we take out the cost of the handset, the tables are turned andTelia looks the most expensive and Telenordia the least. Because the survey pickedonly one handset and did not attempt to account for better offers on other handsets(which is admittedly difficult to do since it requires one establish what ‘equivalent’handsets means), it is impossible to draw the conclusion that some mobile brandscommand premium prices.

We note that in Figure 26 all the graphs show that in Italy, where there is no handsetsubsidy, mobile brands have fairly level pricing.


44

➤ Europe contains clear examples of strong brand images, but also ofpoorly defined brand attributes

➤ Incumbents tend to focus on reliability and quality

➤ New entrants often choose youthfulness as an attribute, or attributesdirected at the business segment

�� /��Following is a review of the brand strength of the mobile majors. In weighing thestrength of the brand, we consider the following factors:

1 Market position — where does the brand rank in terms of market share?

2 Reach of the brand — how many markets and what total population does thebrand reach?

3 Brand awareness and image — is the brand a top-of-mind brand and does itsimage have strong associations?

4 Brand strategy plan and implementation — does the brand have a convincingstrategy to build brand equity?

These factors are in the order of their importance as we judge it. We prefer to putgreatest emphasis on market position and reach of the brand. In both cases the datais fairly free of subjectivity. Measuring brand awareness and brand associations is onthe other hand a highly subjective undertaking (see earlier section) and then fairlylittle of this subjective data is publicly available. Where information is available wediscuss the brand strategy and implementation.

We have tried to avoid two traps: (1) pronouncing on brand quality in a way whichadvantages the interesting brands (Orange, Blu) over those which appear lessobviously exciting, but which have also have a strong track record of attractingcustom (Vodafone, Telecom Italia Mobile, Swisscom, TeleNormobil). Also, (2) werecognise the danger of measuring brand strength only by current subscribernumbers: the shape of the industry is not yet fixed.

&��.��0��Vodafone has built a strong business, although the obvious voice-data-phoneattributes of the brand seem submerged; rather the brand stands for dependability,service quality and scale. It shares these characteristics with D1. For the moment itstrikes us as a geographically limited brand: for example, Telecel is a stronger brandthan Vodafone in Portugal and stands for rather different things. Vodafone isrebranding in stages. This is a steady approach: it will, for example, only drop theLibertel name in The Netherlands when the name Vodafone has the same awarenessthat Libertel currently enjoys.

b

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One of the strongestbrands although

attributes are not strongenough


45

Above all:

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2 It has greatest the reach of any mobile telecom brand (number ofmarkets, population);

3 Awareness is high from word of mouth and distribution network; and

4 The branding strategy is well defined and well underway.

There are shortcomings. Above all, the brand’s associations are weak, inour opinion.

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In Figure 28 above it scores an untouchable 1.6 for market position weighted bypopulation. Its assets generally follow the rule of having a top-two market share.In part, Vodafone builds its brand awareness by having an unequalled number ofsubscribers. Since mobile telecom services are a relatively infrequent purchase, theimportance of word of mouth is also relatively high. Satisfied customers are aneffective way of creating high awareness. In most of its markets, brand awareness isalso created from a highly visible network of distribution outlets.

We have left out assets outside western Europe. Vodafone is well placed to gaina majority stake in J-Phone, the No3 operator in Japan. There is unfortunately noobvious route to increase the 45% stake in Verizon Wireless, the US number oneoperator, and therefore no obvious way of bringing the Vodafone brand into playin the US.


46

Vodafone’s branding strategy also sets it apart. There many signs of a well-thought-outand well-executed strategy.

1 Co-branding has already started in all the western European markets andVodafone is allowing consumers enough time to transfer brand associationsof the former local brand onto the Vodafone brand.

2 Vodafone has recently hired David Haines into its new post of global brand chief.He has been a senior at executive at Unilever, Mars and most recently Coca-ColaGermany. At Coca-Cola, he helped devolve the marketing activity into morelocalised efforts.

3 Vodafone has recently hired a new advertising agency, McCann Erickson, a newmedia planning agency, Carat International, and a new creative agency, Wieden& Kennedy.

Vodafone’s advertising campaigns of late leave us hungry. “You are here.” is thelatest endline on the advertising campaign in the UK and can be seen on black cabsin the centre of London among others. There is nothing to support this endline otherthan geometric designs, not even the secondary sentence “Let the world come toyou”. We fail to grasp the positive purchase-enhancing association. We will bewatching for the influence of the new creative agency.

"��.��0��Orange has invested heavily in a distinctive brand and has tried to invest it withattributes of honesty, value for money, innovation and energy. The brand is associatedwith success and ease of use, and does not link with any particular demographicgroup. Indeed, its colour associations are neutral to positive in every country; it carriesspecial meaning in just three — the Netherlands, Ireland and Scotland.

Its brand image permeates all its material — not just advertising and the annualreport, but internal communications too. Old Orange (the UK company) imbued thewhole organisation with these attributes. New Orange is doing the same.

There are risks: it is early to see whether the rebranding of the successful Itinerisbrand can be achieved without affecting the French franchise. This was announcedin June 200129. The company’s endline (“The future is bright, the future is Orange”)is now seen in France, in English, in a set of adverts directed by Martin Scorsese andOliver Stone30.

The decision to rebrand in one stage is a brave one. It has worked in other industries(for example Snickers in the UK, formerly Marathon). It is the opposite ofVodafone’s approach. In Figure 29 we see how, on the Danish Mobilix webpage,the Orange name is just plastered across the old.

29 The company is also rebranding a number of smaller properties such as Ola.

30 We dread to think what the Académie Française will make of it.

Orange — strongattributes, limited

footprint


47

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Orange is already a role model for many other new entrants. Orange’s formula haseven reached the far corners of Europe — TAL’s31 look and feel is also similar.

�� Some other operators struggle to establish a clear image. When composing the tablebelow, we found it at times difficult to ascertain the attributes of operators. Talkingwith them, we found operators themselves often had an ill-defined idea of their brandattributes. There are of course exceptions. Libertel has its attribute of personal freedomin its name. Its end-line, “hallo wereld” (hello world), encapsulates well its mainattribute, and we find it catchy. But SFR is one example of a company with far lesswell-defined attributes: the name means radio, the advertisements emphasise price.

��2��Telecom Italia Mobile has many brand attributes in common with its competitorOmnitel: it is straightforward and associated with quality, reliability and servicestrength. Its advertising and brand positioning emphasise traditional virtues such asvalue for money and consistency. Blu and WIND have reacted with more innovativepositioning. Indeed Blu’s promotional material and adverts carry shades of Orange’sabstract images (the baby in Blu’s current campaign is flying in a very similar stanceto Orange’s famous swimming baby). TIM has been able to export the brand: it isdoing well in Brazil.

��3��3#��Telefónica Móviles has a strong brand in Spain, Movistar, which so far has not beenexported to its new territories in Europe. It is associated with innovation, servicequality, data and youth. It is a powerful brand, and one which carries more cachetthan Airtel or Amena, both of which appear more price-driven to us. The brand isdoing well in Latin America.

31 The Icelandic second operator.

Other brands havelook-alike attributes


48

��Bouygues is a strong brand, defined on very particular lines: technical quality.Signal strength, coverage, speed and ‘digitalisation’ are emphasised. The lack ofany particular attributes to SFR (and some very messy marketing campaigns) hasallowed Bouygues to take share from SFR without really biting into Itineris’s shareof the market. (Itineris’s strong distribution is partly responsible for its resilience).

��Sonera’s brand is naturally limited to Finland, and is a runaway success in thatcountry, associated with service quality, innovation and reliability. OriginallyTelecom Finland, the late 1990s rebranding was designed to helpinternationalisation.

*��One of the most complicated issues that will determine brand success in a mobiledata age is the portal versus operator brand dilemma. Most operators are developingor reinforcing quite separate brand identities for their portals from their (voice)service operations. The most obvious are Vodafone/Vizzavi and Sonera/Zed.

The importance of brand in Internet and mobile Internet settings is well understood.Top brands get a disproportionate share of surftime and advertising revenues. That ispart of the value of the Yahoo! and AOL brands. There will be a parallel race fordominance in the mobile Internet space: that is one reason for operators often usingquite separate brands for the mobile portal. (Zed is available in Europe, indeedworldwide). There is another, of course: many mobile portals are in fact conceivedto be multi-access portals. That way, Vizzavi competes head-on with Yahoo! and isdesigned to be used on lots of different devices including the PC.

Mobile portals separate the data device from the operator. Which is destined to bemore powerful, the data service Vizzavi or the operator’s name Vodafone? Which isbetter, an independent approach with separate brands or a unified approach(orange.net or UNI.TIM)?

An example from the US: we expect AT&T Wireless to set out a new mobile databrand in the next few months. However, this is not necessarily going to be a separatebrand from the core voice business. Rather, it can be reversed across the business ifAT&T Wireless ever wants to change its name. Since the AT&T brand is out of itscontrol, post demerger, it will probably want to control its own brand equity.

Since we argue that brands will become increasingly important, we think it will behard to develop mobile brands over the next few years if they are disassociated frommobile data. We are not out-and-out mobile data bulls32, but we believe getting dataright is a critical opportunity. The use of two brands diminishes the service providerto a network role. We prefer one brand.

32 See Is there a Return? and Theme for 2001: The Year of Silence, Schroder Salomon Smith Barney, 22 September 2000and 7 February 2001.

Portals should not haveseparate identities


49

&��#��It is a challenging task to communicate a brand image to consumers. Operators needtime to communicate their attributes consistently and frequently. Operators also haveto make sure that the attributes match consumer experiences. For example, it wouldbe futile for an operator to communicate innovation as an attribute if competitorswere consistently quicker to market with new services.

In Figure 30 we list attributes which have generally been developed from ourbranding conversations with companies as well as their published material.

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Attributes identified


50

No one has a monopoly on any attribute. Often operators identify similar consumerneeds and then choose similar attributes to address them. For example, few operatorsexclude quality of service from their chosen attributes.

We note:

1 Mobile operators with links to incumbents tend to focus on reliability and quality.This is a statesman-like stance.

2 New entrants often choose youthfulness as an attribute. This addresses an areawhere incumbents may be weak.

Some better-established new entrants have attributes directed at the businesssegment (eg Europolitan, Telecel).


51

%��%��


52

➤ Brand as weapon: strong brands buy customers cheaply

➤ Brand as philosophy: pervasive difference

➤ Legal value of brand (eg trademarks): rests on strength of brandawareness and attributes

➤ Brand awareness and image are the critical elements

2��This section covers the basic concepts of mobile brand management and the theorybehind brand management: how mobile companies use brands, how brand equity isestablished, how we look at awareness and attributes, how companies use brands todifferentiate an undifferentiated service.

�� Brand is one weapon among others for mobile companies. This is an obviousdifference to brand-dominated sectors like soft drinks (where Coca-Cola’s brand isits biggest asset), sports goods or the luxury goods industry, where the brand is oftenthe product. Indeed, Coca-Cola is the classic brand-led product — the product ismore or less superfluous and in its Classic form is bad for you.

However, companies are making more and more of brand. Vodafone is a good casein point. It is in the early stages of building a brand offensive. It has hired a seniorCoca-Cola executive, David Haines, to be its first global brand chief. It has justcompleted a shift to have majority-owned operators in Europe co-brand their brandswith the Vodafone brand. At the same time, it has begun some global sponsorshipdeals (such as Ferrari Formula One, Manchester United).

This is a gradual process, and there is an internal rule that companies will only dropthe local names when the Vodafone brand has reached the same level of awarenessas the local brand.

Note how important it is that company identity matches the service layer. Vodafonedropped the Airtouch name from its corporate identity as soon as it stopped using itas a service brand. When David Beckham plays with the Vodafone logo on hischest, he is simultaneously advertising the company and the service33.

33 The Vodafone brand is now used wherever the company has majority control — D2 but not SFR.

��',��2��

A more and moreimportant weapon


53

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�� We are conscious that in this note that we tend to concentrate on brand from thecustomer’s point of view — effectively as part of the customer proposition. This isonly the larger part of what brand managers tend to focus on. Orange’s brandattributes (such as honest, open, innovative) are reinforced internally to employeesand are expected to drive corporate behaviour very broadly. Similarly, Orange’semphasis on friendliness reinforces its strong customer service image. (It is theimage that matters — not everyone has had good experiences with Orange customerservice, yet it continually dominates in independent surveysof service).

Orange thinks of its brand as emphasising the firm’s vision and values. Figure 32below outlines the Orange vision and its values.

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Brand leadership isabout more than

advertising


54

��4��5��There are two major aspects to brands34:

1 The legal property; and

2 Brand equity.

6��The first aspect refers to intellectual property — trademarks, registered designs etc.Examples are Vodafone’s use of the single quotation mark inside an O or Orange’sorange-coloured square with the word Orange in white (see Figure 34.). There is somevalue in these legal rights. Orange has licensed its brand to a number of companies.

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However, operators do not rely on licensing agreements etc, but on offeringservices/products. The value of this legal property generally reflects a small partof the brand’s value on which it is based.

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34 Much of our theoretical basis has been drawn from the writings of Prof. Patrick Barwise of London Business School. We are alsograteful to Professor Barwise for his contribution, through discussion, to this note. Professor Barwise was also the chief author thekey discussion paper on the appropriateness of putting brands on balance sheets. See Accounting for Brands, The Institute ofChartered Accountants 1989.

35 There is limited fallout to Orange from OneTel’s bankruptcy

Legal property dependson brand equity and is oflimited investment value


55

��,��When a consumer makes the decision to purchase a mobile telephone service,operators hope the consumer is aware of their brand and has some positiveassociations with it.

For us brand equity is:

“Consumers’ perceptions and expectations of products or services brandedwith these trademarks”.36

Brand equity comes from all the activities of a firm. All the efforts that a mobileoperator puts into the quality of its network, the distribution of its services andproducts, the billing of customers and the communications to consumers all ends upas ‘brand equity’. Brand equity is then an opinion formed in the consumers’ minds.Crucially, this opinion, these perceptions and expectations, are what will make aconsumer decide to purchase or retain the services of a mobile operator or not.

Brand equity can be of high value to a firm. A Coca-Cola executive was quoted assaying: “If Coca-Cola were to lose all of its production-related assets in a disaster,the company would survive. By contrast, if all consumers were to have a suddenlapse of memory and forget everything related to Coca-Cola, the company would goout of business.”37

Brand equity can be hard to change. One2One still struggles with poor brandperception issues caused by two things that have no relevance whatsoever to itscurrent business:

1 Rolling out on a regional basis at a time when network coverage was still animportant quality distinction issue among networks.

2 Pursuing the cheaper end of the market (free off-peak calls).

Its highly successful advertising campaign also reflected low-end voice product.

All of us live under the influence of brands and respond in different ways to theirattributes. Much of this is subconscious.

1 Among everyday brands, the attributes of supermarket chains feel clear, but arehard to describe.

2 In luxury brands, the attributes often appear completely nebulous. We won’t arguethat Gucci and Chanel have different-looking advertising campaigns (and the productis different), but we are willing to buy dinner for any investor who earnestly declaresthe brands are completely distinct in attributes. We can tell Mont Blanc pens apartfrom Waterman and we know one outsells the other, but we would be hard-pressedto give more than cursory information on the brands’ attributes.

36 Brand new, V&A publications 2000, p75, Ties That Bind: Brands, Consumers and Businesses.

37 Brand new, V&A publications 2000, p75, Ties That Bind: Brands, Consumers and Businesses.

Awareness plusassociations


56

The difficulty in pinning down attributes is tricky for mobile phones, since with avery few exceptions, the services provided tend to be undifferentiated. As a result,brand development has often been about image rather than reinforcing differentservices38. There are many examples of companies which have had very distinctbrands, but each supporting a commercially inferior position. One2One, SFR, VIAGInterkom are all examples. Deutsche Telekom even considered dropping theOne2One brand in December 2000 — an idea quietly dropped in1Q01.

��It is useful to break brand equity into two components: awareness and image39.

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Awareness refers simply to how likely a brand is to sit in a consumer’s mind. If youask an Italian to name a mobile telephone operator, you will probably hear backTelecom Italia Mobile or Omnitel. This means TIM and Omnitel have goodawareness among Italian consumers.

CosmOTE has attained remarkable market share 36% in only a few months ofoperation. Part of that successful launch is the familiarity Greek consumers havewith the parent’s OTE brand, part was the ‘Greekness’ of the brand.

Incumbent operators often have the advantage of having good brand awareness.Their brands tend to be ubiquitous in their home countries and are generally olderthan most of the population. They are therefore associated with attributes whichimply a degree of trust and reliability, reinforced by familiarity.

1 The company is big, established, resilient; and

2 The consumer is at risk from less-established companies (some mobile phonecompanies have hate sites against them).

Image captures the attributes consumers subconsciously identify with a brand.Orange has a clear association with a hope-filled future. Consider the company’sadvertisement endline, “The future’s bright, the future’s Orange”, which is knownby a large portion of the British population and is now exporting to France. Theadvertising often uses children in its imagery, a clear symbol of the future. RecentFrench TV branding advertisements have featured children running down a beach.

38 Orange is rather an exception here.

39 Kevin Keller, 1998.

Awareness is easyto measure

Image needs to bereinforced by service

delivery

=Brand EquityBrand Equity AwarenessAwareness ImageImage+


57

!��#��Brands work differently, depending on how frequently the product or service ispurchased. In particular in everyday services, brand matters more than hard fact.There are magazines to give advice on car purchase, but none for soap: buying a caris riskier and more fun. Soap brands play a critical role in getting the product off theshelf.

��The image of a brand can go far beyond the associations to the functions of the basicservice or product. Any association can be attached to a brand through an effectiveadvertising campaign. Orange’s association with the ‘future’ is a strong example fora mobile company. This is not about telephoning, it is about a way of life. Orangeadvertisements rarely show anyone using a phone. Orange’s data rates are stillbehind peers. This will allow its image to deteriorate if it does not deliver. A wilderexample from outside mobile is Haagen Dazs’ use of suggestion in its advertising toassociate ice cream with sensual pleasure, youth and, well, sex.

Going beyond the basic services to wider associations are a useful tool for mobileoperators to differentiate themselves. Operators can address emotional needs ofconsumers to differentiate themselves when there is little to differentiate the serviceson offer.

1 Reliability (One2One advertises its hospital and fire station clients); and

2 Cool/chic (Blu has some seriously surreal advertisements).

��,��Brands occasionally support perceptions of quality in the face of evidence. Ofcourse, the image of an operator partly reflects the service and products of thecompany. When you place a call on the Europolitan network, does it connectproperly? Is the sound quality good? No one questions DoCoMo’s signal qualityalthough there are clear issues (the spectrum is too busy; the service is too popular).

If the service of the company is not at the same level as competitors’, it can bea body blow to the image of a company. One2One suffered one such in themid-1990s. It had launched service in September 1993 in London only with gradualregional rollout to follow. Then Orange entered the picture in April 1994 with closeto a national launch. At the end of 1995, Orange had overtaken One2One in termsof subscriber base. “Fewer people were considering the brand and more people wererejecting it.”40 This story had a happy ending for One2One as it recovered largelybehind an improved network and through its famous advertising campaign,“Who would you like to have a One2One with?”41

There are a few exceptions where the incumbent has not been universally associatedwith good service, and we often find distinct names for mobile companies, whetherTMN, BT Cellnet or D1/T-Mobil. These are exceptional: TIM, KPN Mobile,

40 One2Many, IPA Advertising Effectiveness Awards paper 1998.

41 This initially featured celebrities like Kate Moss (who chose Elvis Presley), Ian Wright (who chose Martin Luther King) and JohnMcCarthy (Yuri Gagarin). Later it involved less well-known people: Trevor Bayliss, the inventor of the wind-up radio (who chosethe inventor of the jet engine) and finally an anonymous ‘Derek’ who chose the girl at checkout 21 (who wasn’t interested).

Brand mechanics reflectthe frequency of

purchase

Brand needn’t refersimply to the service

offered

Service levels mustsupport brand attributes


58

Sonera, TeleNormobil all exploit the parent’s name. There’s only one instance weknow of where a non-mobile company has created a proper mobile brand:Bouygues. At this stage, it is hard for mobile operators within each country to bedifferent. Originally, coverage and connection quality were powerful distinctionsbetween networks as market research conducted in 1995-1998 persistentlyidentified. Remember that digitalisation was not complete at the time.

Now that coverage is almost ubiquitous42, this is much less of an issue. In Britain,for example, the regulator, reports (May 18) that all four operators connect andcomplete over 95% of calls in the test it oversees. There is no further differentiation.(We believe that coverage is going to become an important competitive factorunder UMTS, one reason why we worry that network builds may exceedoperators’ expectations).

42 Except along the Eurostar train route and around Lombard Street where coverage remains appalling.


59

� ��Giving a prominent role to branding is a novelty to many operators. Until now, fewhave used brand dynamically — Orange is a key example. Arguably, Orangeoriginally focused on branding because it thought itself incapable of competing withthe powerful UK distribution channels of Cellnet and Vodafone and needed torelaunch after the disastrous Rabbit service. The success of this brand-led strategycan be seen from Figure 36.

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It is a challenge to find a brand image that will appeal to consumers and is differentfrom that of competitors. An entire business strategy can rest on it. That was the casefor Orange plc: “Orange committed itself to an unequivocally brand-led strategy”43.Another example is Virgin Mobile. It strikes us that this MVNO has little to offerother than its brand’s association with being a ‘consumer’s champion’44.

43 The FTSE’s bright, the FTSE’s Orange, IPA Advertising Effectiveness Awards paper 1998.

44 Although we sometimes find Virgin’s advertisements great fun. (See Figure 37). A 1999 television ad involved a nervous man on ablind date pulled off his feet by an effusive woman and a voiceover saying “V welcome”. In another, a pregnant woman lies in thebath while a her partner brings her a cup of tea which she balances on her bulging stomach to the voiceover “V overdue”. Clearly, thecompany knows how to pun on its name.

Differentiation willremain extremely

difficult


60

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We recognise that there are degrees of difference that matter. Tesco and Vodafoneare two examples of successful brands which are not intensely different from allcompetitors, but distinct underneath. Vodafone’s association with quality andlongevity are subtle and to detractors indistinct. However, the ubiquity of the brandought to reinforce its qualities.

Here are examples of operators that convey strong product attributes intheir advertising:

1 Cross Europe voice mail access — Vodafone;

2 Technological/service quality — Bouygues; and

3 Product innovation, breadth of added-value services (eg email) —Movistar/Móviles.


61

%#��We think it is important not to confuse brand with advertising. However, sinceadvertising plays such a powerful role it may be useful to look at an example.Take TIM.

A TIM example

Telecom Italia Mobile has also been investing heavily in image development aimedat distinct customer segments.

TIM traditionally has been targeting mature age segments. For example, it has usedAndrea Bocelli, the opera singer, in its advertising campaigns. He embodies theattributes of quality, solid performance and leadership in his field.

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Bocelli does not particularly appeal to the concerns and needs of the younger agegroup which has been the focus of TIM’s latest campaign. Like Telecel, this is asegment TIM needs to develop, partly in reaction to new entrants specificallytargeting the youth segment, such as WIND.

%#��2��'��

Branding is more thanadvertising


62

To address the youth segment, TIM created an advertising campaign centred onthree young female friends sailing in a yacht around Italy. As the yacht stops in eachcoastal town, TIM blitzes the town with local advertising and promotional events.

TIM created an SMS game to go along with the campaign. At the end of the tour, thethree friends got ‘lost’ on an island. Subscribers are invited to guess from a multiplechoice on which island the three friends are stranded. This game engendered abouttwo million SMS messages in a single month. Two hundred lucky winners will go tothe island in question and celebrate with the three friends. The attribute thecampaign promotes is friendship.

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To weave itself into the broader fabric of Italian society, TIM has some cleversponsorship deals.

1 It sponsors the Italian football league (called Serie A TIM) and cup (CoppaItalia TIM);

2 It places co-sponsors with Alitalia segments in the in-flight literature about theneed to turn off mobile phones; and

3 It has been a sponsor of Ferrari F1 racing cars, a source of national pride. TheFerrari sponsorship and all its associations with leadership and winning will begoing to Vodafone next season.

At the end of these campaigns, TIM can test whether it has repositioned itself (muchas Telecel is doing through YORN).


63

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Branding.pdf · Getting serious about mobile brands – 10 July 2001 3 It is not getting easier to retain customers. Growth requires attracting the best from competitors