Giffgaff: How small mobile operators can charge less

Mobile phone operators are not well trusted. In fact, if you asked the public to rank them, as an organisation type, on trust, they wouldn’t come out much higher than estate agents - and that’s according to a man that’s CEO of the UK’s youngest mobile service provider.

“It’s the way they’ve operated in the past; the lack of transparency, complicated tariffs with weasels in the proposition somewhere, expensive out of plan minutes, free phone numbers not being free and generally not telling people what tariff is best for them. That was something we set out to do better.”

So says Mike Fairman of Giffgaff to Pocket-lint over a pair of black americanos in the grand, glass ceiling lobby of London’s Landmark Hotel.

Launched in June 2010, Giffgaff is a virtual operator run as a subsidiary of O2. It uses the same equipment and the same network infrastructure but with a very different ethos and an entirely unique modus operandi.

Giffgaff - coming from the Scottish slang for mutual giving - is all about the customer and the community, two terms which have become virtually interchangeable for a company that’s run without any large call centres, without any high street shops and where the primary method of sale is word of mouth. If you post a question on the “Ask the Community” section of the Giffgaff forum, the average wait time for a response will be 90 seconds, and that’s any time of day or night.

Before you start thinking about some enormous mountain of goodwill, that’s not quite the case, although the system wouldn’t work without at least some notion of altruism. Members of the community are rewarded with points for their contributions on the Giffgaff forum and, twice each year, those points are exchanged for cash and paid out to the customers’ pockets with some of the top tier members picking up around £30-40 per month like this. Although Fairman won’t say exactly, the 75,000 likes that Giffgaff has on the company Facebook page is a decent indication of the size of this community and this community's use is not just limited to technical support.

“When we have issues with our proposition in any way, we ask the customers on the forums. We had a debate with customers about usage of Goody Bags [Giffgaff’s pre-pay bundles].

“Our Goody Bags turned out to get much more use than we thought they would be. At the same time, Ofcom put up the cost of interconnect rates and that meant we weren’t quite hitting it financially. So, we asked customers on the forum where we could put up prices to compensate. The consensus was eventually that we should put up core prices. So we did.”

A jump from 8p/min for calling non-Giffgaff mobiles and landlines and 4p for text to 10p and 6p respectively might not seem huge but, according to Fairman, there were “pages of some pretty heated debate”, but perhaps that’s understandable when value is one of the two pillarsaround which the company has built its strategy - customer engagement, unsurprisingly, being the other.

“We’re about offering really good value for money, being transparent in terms of pricing, making our packages easy to understand and unlimited packages where they are really unlimited.”

With the other major operators in the UK charging 20p and over for the same out of plan calls, the savings certainly look impressive. So, how does Giffgaff manage to undercut the opposition so severely?

“Part of the reason why other networks charge 25p is because they have other overheads that they have to recover; having shops on the high street is expensive, subsidising handsets is expensive. We have an inherently low cost business model. We’re not extravagant in anything we do. We don’t have extravagant head offices, we have a very small team and we don’t have massive call centres. If you structure your business model in such a way that you don’t have those costs, then you don’t have to charge those rates.”

Out of plan calls are, of course, only one part of the arrangement and, indeed, a very small part if you manage your minutes correctly. All the same, Giffgaff doesn’t do too badly at the other end of the deal either. The first aspect that many will like is that there are no contracts. It’s a pre-pay system at heart - with an option to auto-top if you want - and the idea is that you buy bundles of calls, texts and data called Goody Bags which expire at the end of each month. The Goody Bags are fairly comparable price-wise with SIM-only deals that you’ll find on the major networks, but there are a couple of little edges worth considering.

The first is that internet access on all of the Good Bags is unlimited. There’s no fair usage policy. There are anti-abuse clauses in the terms and conditions to stop anyone really going crazy but no normal limits. The second point of interest is that 0800 numbers are free, like they should be, making it a bit of a puzzle for Fairman, to put it diplomatically, as to why other networks are still charging for them.

“Is it a scam," he ponders shifting a little awkwardly in his seat. "Um, I don’t really want to slag off everyone else. If you go back into the mists of time and imagine mobiles had just started and operators had just invested billions building their new networks, the radio leg between the device and the fixed network would have been at a more considerable cost to the mobile business.

“When someone makes an 0800 call, BT makes revenue from it. BT is happy to share that revenue but, in the old days, it wasn’t enough to cover the cost of that mobile call, and I think that’s a just a legacy that’s continued.”

Another key way that Giffgaff can afford all this is because it doesn’t really advertise. A normal marketing approach for a new business is to throw millions at TV air time and by sponsoring a big football team but, again, this is not the way Giffgaff works. Instead customer acquisitions are handled by the user community almost entirely. While forum posts can earn you some decent points, the real money is to be made in the Member Get Member scheme. If you convince another person to sign up, then you get 500 points (£5) and they get a fiver’s worth of credit to kick them off. It’s not a huge amount on a one off basis but then there are members of the Giffgaff community who have the scheme running as a business.

“Last year we paid out nearly £1m and there’s one guy, who’s called Uzzy on the site, he got £11,000 in the last pay out by standing outside the Bull Ring shopping centre talking to people and handing out SIMs. He’s saving up to put himself through university.”

And with a £22,000 per year pre-tax profit, doing it pretty well it seems.

Slightly less legwork and nearly as lucrative is the scheme that a group of members have to provide the service of cutting out micro SIMs. Currently, Giffgaff only makes standard size cards, so it’s left to this team to share out the leads of those looking to join up with their high end smartphones. With iPhone as a whole the most populous device on the network, that’s a fair amount of business. It is also business that will be drying up, though, with Fairman stating that Giffgaff will be starting to offer micro SIMs later in 2012.

Those community members that are really keen, of course, can always join the company proper. Some of the site was built by a Giffgaff user named Ryan and his wife is now one of the company’s forum Educators - employees whose job is to feedback to Giffgaff and to make sure that the environment and the feel of the forum is right. And even if you’re not looking for a position, there’s an open invite for any Giffgaff member to visit the company’s Beaconsfield offices if they like.

“What we’ve discover is that you can have an amazingly mature debate with your customers. I happen to think all of this makes us one of, if not, the most customer centric companies on the planet.”

“It’s a fantastic insight tool, so we don’t spend that much on customer research any more but we do spend a lot of time one to one on the forum.”

“You get so close to customers. It’s a real watchdog. If you’re doing something wrong, you’ll know about it the next minute. You can’t get away with anything. There’s the conscience of the customers on your shoulders all the time. That’s not something you can get in an organistion with millions of users.”

Of course, as independent as Giffgaff might like to see itself, the fact remains that it’s wholly owned and answers to one of the largest mobile operators in the land with, in turn, Telefonica, one of the biggest in the world. For some, that’s a pretty hard sell but Fairman ensures us that Giffgaff users are not simply second class citizens on a larger network. There is no prioritisation of access or bandwidth and there simply couldn’t be. In many cases, it just wouldn’t be possible to differentiate a Giffgaff user from an O2 one once inside the core network. As it goes, if anything, Fairman sees the parent company more as competition.

“A lot of things we do have the potential to, and do, rub O2 up the wrong way. O2 has been very enlightened in the way it’s set us up in the first place. It’s been big enough to have an idea that’s very different from its core business and it was big enough to realise that the O2 brand was not for everyone.

“We’ve got our own management team, own offices, and we’re a very different proposition and very different mindset. As long as we don’t deliberately go for their customers rather than everyone else, then that’s okay. Enlightened businesses often end up cannibalising themselves. Amazon is doing it at the moment with the Kindle. They’re cannibalising their own book business with electronics.

“I like to think that O2’s play with Giffgaff is a bit like that. A bit of conscious cannibalism with a nod to the fact that that might be the way things have to be done in the future.”

From what Fairman says, it certainly appears to be a business model that’s working. After a slow start, including meetings with the head of Telefonica Europe where the Giffgaff boss was asked straight out whether or not they should continue to invest in the project, this customer-focused enterprise appears to be taking off.

To have talked numbers in 2010 would have been “pretty embarrassing” as Fairman puts it but, in October 2011, Giffgaff made more new connections than in the whole of the previous year. Customer advocacy is up, customer satisfaction loud and proud, there have been system upgrades in January to make space for new customers, the addition of BlackBerry services (mail, BBM, etc) and the project is proving such a success that Giffgaff is even looking to take its model to Telefonica networks abroad.

So, then, if value is one of the key strategies of the proposition does that mean that we will finally see a network actually do something about bring the cost of roaming down?

“Roaming is a great idea and obviously something we’ve been thinking about and, since you’re pushing, yes, I don’t see why not. I will make the promise to our customers. It would just be an obvious thing to do. If we go global, will do something about it.”

Giffgaff might not be able to beat your contract, it might not have the cheapest data plans at high levels and it won’t be able to sell you that hot new handset either, but what it does represent is a fair deal. So, if you’re disillusioned with your provider and all the ones you’ve had since your first Nokia, then Giffgaff might just be worth a moment of your time.

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