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Telecom: a million problems, one 'Skinny' solution

17 Nov 2011

Telecom Mobile has a problem. Well, actually, a million problems.

That’s the approximate number of users it still has connected to its outdated CDMA network, which the company wants to shut down by July 31 next year.

Those CDMA laggards are generally young, low-spending mobile users who only want simple (and cheap) voice and text services and have therefore been difficult to entice over to the new $574 million XT network. The fact XT offers a far superior mobile data service is of no interest to these people.

Still, Telecom needs them to make the switch because the economics of running two networks don’t stack up.

So it will soon be launching a youth-focused budget prepaid ‘sub-brand’ called Skinny, which will use the XT network but will apparently offer service combo deals from just $4 a week.

We weren’t supposed to know all this yet but last week Telecom was forced to reveal its plans after a work-in-progress website was mistakenly made public.

This launch botch-up doesn’t bode well for Skinny. Neither does Telecom’s chequered history with sub-brands; its previous youth-focused brand, Boost Mobile, was phased out in 2007.

A few months ago there was what appeared to be well-founded speculation the company was planning to launch a value offering under the 1 Mobile brand.

The reasons for Telecom’s change of heart over the brand identity – if that’s indeed what happened – are unclear.

Eyebrows have also been raised about the company’s choice of manager for the Skinny project. Paul O’Shannessey, who is heading up a team of about 20 staff, has no mobile industry experience and his most high-profile role previously was as CEO and major shareholder of a short-lived YahooXtra-backed retail portal called Hubsta.

Will Mr O’Shannessey have more success leading Skinny?

Budget mobile sub-brands are a high-risk, low-reward business. By definition, a key mobile industry operating metric, average revenue per user, is always going to be low for this type of budget operation. Then there is the constant challenge of how you avoid cannibalising the parent brand’s business whilst at the same time remaining price competitive.

In this market 2degrees has build up a strong reputation as a value brand. The army of soon-to-be-shut-off CDMA customers will need to buy new handsets in order to migrate to an XT-based service. Skinny will have to offer some pretty sharp phone deals to make that happen because it will be just as easy for these CDMA users to switch to 2degrees or Vodafone since they’ll need a new handset whichever provider they choose.

Working in Mr O’Shannessey’s favour is his background in e-retailing. It seems clear Skinny will be a web-focused proposition and he has talked about a 'youth sourcing' marketing strategy which will involve engaging with young people to tailor mobile plans to their needs.

Will this approach work? There are a million reasons Telecom is hoping it does.