Hutchison terminates distributors to cut costs

Hutchison terminates distributors to cut costs

ASX-listed Cellnet has announced it will lose $78 million of its annual turnover as the result of changes Hutchison Telecom has made to its mobile phone distribution channel.

Cellnet is one of five distributors dropped following the vendor’s decision to manage its own 3G logistics operations.

In a company announcement, Cellnet director Darryl McDonough said the group was disappointed with Hutchison’s decision to overhaul its distribution model.

However, “strategically we have for the past year and a half purposely gone about changing our business model to make it more resilient to losses of this nature,” he said.

The loss of the Hutchison contract comes less than a year after Cellnet was dropped by Nokia following its decision to distribute its handset accessories through a sole contract with Force Technology International.

At the time, Cellnet managing director, Stephen Harrison, said the distribution of Nokia accessories accounted for about $20 million of Cellnet’s annual turnover of about $315 million.

Commenting on the loss of the Hutchison contract, Harrison said he was disappointed the handset distribution relationship had come to an end.

However, the high-volume, low margin nature of the contract meant it would be easier to make up the shortfall than it was after losing Nokia.

In addition, Hutchison’s decision to take over its own logistics was not a reflection on Cellnet’s performance, he said.

“Hutchison’s decision is a change of direction — we didn’t lose the contract,” he said. “We do a lot of content for them for the 3G service, plus accessories… we could do some business in the future.

“Nokia was a loss… [but] we pulled ourselves up with Nokia, and will do so again with Hutchison,” he said.

Harrison said Cellnet was under a 12-month contract with Hutchison for handset distribution, which expired in April.

Hutchison director of stakeholder relations, Steve Wright, said the company had reviewed its distribution model and decided to drop its five 3G and CDMA handset wholesale distribution partners in an attempt to lower its operating costs.

Wright said Hutchison was now in the process of finalising the cut-off date for agreements.

Brightpoint, T Choice and Roadhound are also understood to have been affected by the new model.

Wright said Hutchison’s relationship with distributors Ingram Micro and eXeed would not be affected.

“Only distributors on the wholesale logistics side are affected.” he said. “It [the decision] has nothing to do with our retail points of presence or channel sales strategy. It is purely about delivering stock … to our retail delivery points.”

Wright said Hutchison was now beefing up its own logistics operations, which would include an expansion of its existing warehouse facilities.

The company is also reported to be establishing a new stock distribution facility in Melbourne.

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