Carphone Warehouse has agreed a �3.4bn merger deal with Dixons

Carphone-Dixons merger driven by Internet of Things

The convergence of smartphones and consumer electronics is behind the £3.8bn merger of Dixons and Carphone Warehouse announced today.

Combining Carphone, Europe's biggest independent mobile phone retailer, and Dixons, Europe's No. 2 electricals retailer, would create a group with turnover of about £12bn pounds, 2,900 stores and 45,000 staff, the companies said.

The move was prompted by the rising popularity of smart household devices such as music players, televisions, ovens, washing machines and even heating systems that can connect to their smartphones – a rise seen by some as the emergence of an Internet of Things, in which all the devices people use in and out of home will be connected and communicating with each other.

"We operate in two complementary markets (mobile phones and consumer electronics) but they are markets that are converging," Carphone chief executive Andrew Harrison told Reuters.

The two firms hope the merger, and new position in the market, will place them at the forefront of this trend. Currently Dixons lacks exposure to lucrative mobile and smartphone retailing and Carphone is likely to face increased pressure from mobile phone networks wanting to be more reliant on their own direct channels to consumers.

The two firms said they would be able to achieve synergies and cost savings of at least £80m pounds on a recurring basis, expected to be delivered in full in the 2017-18 year. They said the combined company would also be able to achieve "significant additional value" from growth opportunities.

Kester Mann, of telecoms and media analyst CCS Insight, says he has no doubt this shift in the way we interact with the digital devices in our lives has played a large part in the merger.

"This agreement marks the latest push into the UK high street by the mobile sector at a time when many shops are closing down, and reflects the coming together of the mobile and consumer electronics segments", he said.

"We're about to see our digital lifestyle extending out of the living room into the rest of the home. Eventually, almost everything will be connected; ovens, toasters, cameras, washing machines, fridges, lights, alarm systems and so on.

"Many of these devices will be controlled by our smartphones and tablets. So a merger between a consumer electronics retail giant and one of the high street's leading mobile distributors is a logical and forward-thinking move for both companies."

Mann also believes that the combined weight of the two established brands will have a large impact on the consumer technology industry from a business perspective.

"The combination of two well-known brands will create a potent force on the high street that will offer significant opportunities to both in terms of scale, cost-cutting and distribution.

"The motivation behind the deal reflects some of the challenges mobile phone retailers like Carphone Warehouse are facing. UK operators are cutting their dependence on distributors in the face of falling revenue. Indeed, 3 recently ended its relationship with Carphone Warehouse altogether.

"The smartphone market in the UK is rapidly approaching saturation and more people are buying mobile subscriptions on a SIM-only basis."

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