Hitting a mobile target

ComTel’s mobile phone advertising strategy is finely honed to snare targeted marketing, and is being approached without the perilous ‘make or break’ imperative. By JAMES THOMSON

By James Thomson

ComTel’s mobile phone advertising strategy is finely honed to snare targeted marketing, and is being approached without the perilous ‘make or break’ imperative.

While the launch of the iPhone in July has put the mobile internet and advertising sector firmly in the spotlight, few companies are actually turning the hype into revenue.

Listed mobile phone junior ComTel is one of those companies. In late August, ComTel’s subsidiary SMSPup launched Australia’s first advertising-subsidised mobile phone plan, under which customers who agree to receive five advertisements a day can save $19 off a $29 monthly phone plan.

ComTel chief executive David Sweet sees the new strategy as part of the convergence of mobile telephony and the internet – the SMSPup website already has 140,000 people on its database who have agreed to receive SMS and online ads in return for free web-to-mobile SMS messages.

“Advertisers have been waiting for a breakthrough in mobile advertising, and ComTel is delivering a proven and highly cost-effective solution,” Sweet says.

The new service is part of ComTel’s efforts to diversify its revenue base after a difficult year in which its shares have fallen from 60c to just 4c. Winning back the confidence of investors will take some time, but after increasing revenue from $8 million to $38 million in 2007-08, Sweet is confident ComTel is on the right track.

While ComTel’s core business is the operation of pre and post-paid mobile phone networks, the launch of the subsidised mobile service and much of ComTel’s growth was driven by the acquisition of permission-based marketing company Empowered Communication for $23.7 million in October 2007.

Empowered operates five segment targeted websites where users – there are 500,000 in total – agree to receive ads and complete surveys in return for points, which can then be exchanged for goods.

Sweet also watched the progress of British company Blyk, which launched a free subsidised phone service in December last year and passed its initial target of 100,000 users in April, five months ahead of schedule.

“We looked at that and thought, we can offer that solution,” Sweet says. “We’ve got 130,000 people who have agreed to receive text advertising so we already have a base that’s bigger than Blyk.”

According to Sweet, the power of SMS advertising is the ability to convert advertisements into sales.

“To get a direct call to action via email can be quite hard,” he argues. “But because people have their phone with them all day every day, you’ve actually got a much stronger call to action response.

“The mobile phone is not about branding, it’s about telling people that hamburgers are on sale at half price this afternoon.”

Sweet also makes no secret of the fact that this new product is something of an experiment. “We think it’s a great phenomenon and it’s worked in the UK, but we can afford to take a slowly-slowly approach. We are not banking the business on this being successful tomorrow.”

ComTel posted a net loss of $27.1 million for 2007-08, compared to a loss of $6.6 million in the previous year. The reason for the loss was a $31.5 million write-down on the value of goodwill from a company called Sonnet in July 2007.

The company’s trading result was much better, with earnings before interest, tax, depreciation and amortisation hitting $8.1 million in 2007-08, compared with a loss of $1.7 million in 2006-07.

The company has $13.5 million of debt, but it is planning to raise $15 million from a strategic investor that will help ComTel recapitalise and restructure its debt.

Sweet and ComTel also had the distraction of being caught up in the collapse of margin lender Opes Prime, with Sweet losing the bulk of his small stake in the company.

While the episode was not too much of a distraction – the shares had been sold off about 24 hours after Opes went under – Sweet says he sympathises with investors who lost big amounts in the collapse. “It’s one of those interesting learning curves. I feel desperately for the people whose whole life were in their business and lost the lot.”

Despite the looming economic slowdown, Sweet remains positive about the outlook for ComTel. “We’ll see some of the mobile spend reduce, but given that we are a small player, it’s less likely to have an impact on us. We are in a growth phase and we are not overly concerned about the current market.”

Indeed, he says the slowdown may actually present opportunities for the company as advertisers favour mediums that are measurable and direct, such as email and SMS. ComTel’s ability to access its highly-detailed database of 500,000 customers allows it to target advertising very specifically.

“Advertisers are getting more and more focused on how they actually get more sales,” Sweet says. “Because we can target the demographic we can demonstrate that a better return on investments.”

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