Close-Up: Newsmaker - Talk Talk set to benefit as Ofcom gets tough on BT

Charles Dunstone uses his marketing savvy to take on BT, Francesca Newland says. Charles Dunstone, the group chief executive and co-founder of The Carphone Warehouse, doesn't look anything like the Virgin tycoon, Richard Branson, but that doesn't stop the comparisons.

Both are successful British entrepreneurs who adopt a friendly style.

But, more importantly, with the launch of Carphone Warehouse's fixed-line service, Talk Talk, Dunstone is taking on a giant of the British establishment, BT. And the edginess of his offer is more than a little reminiscent of the Virgin brand's challenge to British Airways.

Dunstone's timing is epic. From 1989, he has built his mobile-phone retail operation as the market for handsets became established and it is now the biggest operator in Europe. This time around, he's rolling out Talk Talk just as Stephen Carter, the chief executive of Ofcom, is getting tough on BT.

Carter, you see, has a big job to do. As the former chief executive of ntl, he understands exactly how tricky establishing true competition to BT under current market conditions is. He also understands its importance.

Dunstone points out that Britain was early to deregulate and as a result was advanced in mobile technology, which he says gave birth to Vodafone, a company to be proud of. He adds: "So I think that people are slightly embarrassed in the UK that our fixed-line market is so far behind other places in Europe now and it kind of looks like the regulator's been a bit fleeced by BT. Politically, it doesn't look great. So I think they have to redress the balance."

To date, Carter has signaled a more aggressive attitude towards BT, saying it will have to cut access costs to its broadband internet network. BT responded last week by pledging to slash the costs voluntarily. Carter's also considering forcing BT to separate its retail and wholesale divisions in a move that would echo the more successful deregulation of the utilities.

Dunstone says: "We're optimistic that the regulator's going to beat BT up a bit, but we'll have to wait and see."

He adds: "BT has 120 lawyers on its regulatory team. If I were running BT, I'd be doing exactly what they're doing. I have the utmost respect for the people who work there, but that's why we have a regulator."

So the market looks set to help Dunstone's Talk Talk succeed. Meanwhile, for his part, he's casting a watchful eye over its branding. He says: "People have an enormous amount of trust for Carphone Warehouse. Within the new and confusing world of alternative fixed-line suppliers, if it's provided by us they're more trusting."

Dunstone is a great believer in customer service: "It's everything. The Nokia phone we sell is no different from the Nokia phone anyone else sells, so the whole reason for our existence is to add value and service. We don't sell phones, we sell consultancy.

"If you talk to people about why they shop at the Carphone Warehouse, a lot of the time it comes back to the quality of the people that they come across in the stores and their attitude."

Talk Talk is attempting to cut through the clutter of the fixed-line market by offering free calls between Talk Talk users. Dunstone explains: "We've tried to cross a bridge between the rational and emotional needs of customers. The rational bit on its own is dull - tables of price comparisons with BT. People don't get terribly excited about fixed line, except when they think about calling their family and friends. So, if you make part of your proposition relate to that, it's very powerful.

"That's why 'It's good to talk' was so successful for BT. It tapped that vein. What we've done is to say: 'Yeah, it's cheaper than BT, but, by the way, we're pushing 'It's good to talk' to the next level because all the calls you enjoy making are going to be free.'"

Talk Talk announced it had 400,000 customers in March. The new figures, to be released in June, will be more interesting as they will reflect the effectiveness of the ad campaign created by Clemmow Hornby Inge, now on air.

Dunstone says: "Our aim is to be the number-one alternative to BT. You can't do that just by running direct-response ads. You've got to build a brand at the same time as you sell the service, so the ads have to work quite hard."

Its launch has also incorporated a PR strategy devised by Freud Communications (Jonathan Ross interviewing Dunstone as if he were on his chat show one Thursday morning in front of the national press). There's also The Story of Talk Talk, created by Heresy.

It's a small book written in fairytale language handed out at Carphone Warehouse stores. Its simplicity is compelling and Dunstone says: "It's the best piece of printed communication we could ever produce."

Most high profile of all, perhaps, will be its sponsorship of Big Brother, announced in April. Dunstone thinks it's a good fit, but admits that the dip in the show's popularity last year means it will carry some risks.

"It's a sponsorship around a programme that's very driven by its interactivity with its viewers by using the telephone, both mobile and fixed. There are obvious synergies and opportunities for us to give benefits to our customers."

He adds: "We're competing in a new market against someone like BT. We don't have the pounds they have to spend on advertising so we've got to be smarter, more opportunistic and take some risks, perhaps in a way that, if you were the market leader, you wouldn't.

"We've been reassured and convinced that the programme this time is going to be sufficiently different that it will become the phenomenon it has been, but that's a risk. But we couldn't have afforded it at the old price."

He adds that if Big Brother is going to be "pushing the envelope" in order to restore its popularity, there are risks involved in the association. But he concludes: "If you're the cheeky new challenger, then that's where you should be."

So what kind of market share is Dunstone aiming for and surely if too many people sign up to Talk Talk then his profits would be threatened?

He says: "BT has about 17 or 18 million customers. That will come down to nine or ten million over the next three to four years. The question is who will be the biggest player within the potential market of seven or eight million. So if you're really on fire maybe you can get two million."

He asserts that anyone who signs up to the service while it's free will always receive free Talk Talk calls.

There appears to be a kind of unwritten rule that all of the new fixed-line competitors, including One.Tel and Tesco, take on BT, not each other.

Dunstone says: "There's no-one big enough at the moment that it would be worth advertising against. We're all at the beginning and I think that there's a degree to which, although it creates some confusion, to have a number of people offering an alternative legitimises the whole idea of moving away from BT."

The esteem with which Dunstone holds the marketing of his products makes him the dream chief executive for any ad agency. Right at the heart of Carphone Warehouse's branding is that of Dunstone himself. He's friendly, and for a chief executive of one of the UK's biggest companies, he's unusually available to trade press journalists.

His personal wealth is enormous: £427 million in The Times Rich List, but that's not an image he would allow to be associated with that of the humble chief executive of Carphone Warehouse.

QUESTIONNAIRE

Age: 39

Lives: Holland Park, London

Family: None

Favourite ad: Apple "crazy ones"

Most treasured possession: Sailing boat

Most admired agency: Clemmow Hornby Inge

Living person you most admire: Tony Blair

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