Wednesday 11 June 2008
Section A – This ONE question is compulsory and MUST be attempted
The following information should be used when answering question 1.
AutoFone was established almost twenty years ago at the beginning of the mobile telephone boom. It was formed by
a dynamic Chief Executive Officer (CEO) who still remains a major shareholder of the company.
AutoFone brought two new concepts to the market. Firstly, it established retail shops where customers could go and
handle the products and discuss mobile phone options with trained sales people. Before AutoFone, all mobile
telephones were sold through the customer directly contacting the telephone network provider (like conventional home
land line services) and were generally aimed at business rather than leisure users. Secondly, AutoFone sold products
and services from all the four major network providers licensed by the government to provide telecommunications
services in the country. Previously, customers could only choose products and services from within one network
provider’s range. AutoFone allowed customers to choose products and services across the range of the four providers
and reflected this in the company’s motto ‘ethical advice: the customer’s choice’.
In 1990, AutoFone signed a thirty-year supply contract with each provider. Although, in retrospect, these deals were
on commercially favourable terms for AutoFone, the network providers were happy to agree these deals because none
of them believed that mobile telephones could be successfully sold through retail shops. However, speaking in 2003,
the managing director of one of the networks suggested ‘that AutoFone had got away with incredible profit margins’
when they signed the deals in 1990. The four network providers themselves had re-signed twenty-five year licence
deals with the government in 1995. Under the terms of these deals, licences will be restricted to the four current
providers until their renewal date of 2020.
Retail shops Division
AutoFone currently has 415 shops around the country. To reduce costs most shops are on the edge of (but not in)
the main shopping area of the town they serve. It is usual for AutoFone to sign a fifty-year shop lease in return for
low initial annual rental and a rent-free period at the start of the lease while the company fits out the shop to reflect
AutoFone’s corporate image. In 1997, AutoFone floated on the country’s stock market to assist the funding of further
shops and so continue its organic growth. The national coverage of its shops, the publicity generated by its CEO and
a successful television advertising campaign culminated, in 2005, with it being rated by consumers as one of the top
20 brands in the country.
The CEO of AutoFone established the retail shops along, in his words, ‘entrepreneurial lines’. He regards each shop