Tesco is to push the barriers yet again with a telecoms deal that could revolutionise staff communications and shopper services. IT boss Nick Folkes gives Joanna Perry a glimpse of things to come

Tesco’s latest telecoms deal will save it more money than many other retailers spend on IT in a year. But the grocer’s contract with Cable & Wireless to build a telecoms network also marks an important point in the retailer’s innovation story.

This is not really a story about IT so much as the retailer’s commitment to pushing back boundaries to create new customer propositions. In the past, Tesco has led the way in combining technology and ideas to give customers things that they did not previously realise they wanted, such as internet grocery shopping and stores with only self-service checkouts.

The creation of the new wide area network gives Tesco a platform to roll out many services. With 40 times more capacity than the retailer’s existing infrastructure, it seems like Tesco’s IT department is going to have some fun thinking up clever ways to use the platform now another barrier has been brought down.

Tesco IT director, UK infrastructure and operations, Nick Folkes admits that the grocer’s existing infrastructure has become restrictive. “Our IT and business capability has been constrained under the existing network; this leads to sub-optimal systems,” he says.

“For instance, we can’t get video to stores very easily. When we do ranging, we end up sending a catalogue to the store to show them how to do it.” Folkes says that the cost and carbon footprint benefits of being able to deliver more electronically are clear to see.

The most immediate innovation will benefit staff and contribute towards the£8 million to£10 million annual cost savings that Tesco calculates it will make once the infrastructure is in place and running smoothly, in 18 months. Tesco uses some voice over IP – running telephone calls over its computer network – in its international division already to connect executives. However, one solution to be deployed in the UK business on top of the new network will take this to another level.

In essence, Tesco will create what Folkes describes as a private mobile phone network. Using Cable & Wireless’s fixed mobile convergence system, staff with company mobile phones will have their calls carried over the new corporate wide area network, rather than being picked up by Tesco’s mobile phone operator O2. When staff are out and about, their mobile handsets will still automatically connect to the O2 network.

Cable & Wireless says that this provides better-quality connections as well as lower call rates. The handover between the private network and O2’s network will be seamless – just like mobile phone users experience when they are on the Continent, where users’ phones roam between several different mobile phone operators as they move around.

About 40,000 staff will have mobile handsets that work on the private mobile network. Fixed line phones and cordless office phones used by staff in stores and distribution centres will be replaced by standard mobile phones.

Folkes explains that store managers carry three devices at present – a PDA, a mobile phone and a cordless office phone – and that the new mobile network will replace the cordless and mobile phones. In future, Tesco may choose to give store managers BlackBerry devices to deploy management information to them. However, he does not envisage the mobile network supporting the type of wireless devices that have barcode scanners attached. Any Tesco staff who already use a more advanced device such as a BlackBerry will be able to continue to do so, because the private network is GPRS-based.

The deal has been justified on a strict capital-return-on-investment basis. However, Folkes adds that there are other important benefits. He says: “Ultimately, this is about cutting costs but, at the moment, the majority of staff are using fixed handsets and they end up going off the shopfloor to make calls.” He explains that the new network will give staff more mobility and allow them to track down colleagues immediately, increasing the speed of communication.

On the question of whether the network could in the future be opened up to consumers connecting via their own devices, such as mobile phones, Folkes says he is not ruling anything out. He describes the network as an enabler and foresees a time when, for example, it might be possible for a consumer to hear a music track in store and download it to their mobile phone straight away. Other future applications could include payment by mobile phone.

Additional ideas for how the network might be used to deliver extra services to customers are also being explored. For example, Tesco’s IT department is working on a video-conferencing system that could deliver specialist advice to shoppers in stores. The idea is that product specialists could provide advice in fields such as IT, pharmacy products or wine, without having to have experts in these areas present in every store.

The system is not ready to go live yet, but Folkes says that a couple of stores have been selected for a trial. The kiosks that the customer video conference system would use could also provide in-store offers and direct customers to items around the store.

Tesco also has a couple of other ideas up its sleeve of ways to use video to cut costs and improve communication between staff members. The first is for staff information and management presentations to be broadcast to stores and distribution centres. Folkes adds that another use for in-store video would be staff training, because video presentations have more of an impact that other training aids. He says this could cover topics on everything from health and safety to how to bake a loaf of bread.

Tesco is also to deploy a high-definition video conferencing system from Cisco internationally so that its overseas executives can communicate more easily across the group. As well as cutting travel costs and improving productivity, the environmental benefits of this in particular are being highlighted.

Furthermore, the Telepresence system running over Tesco’s own network will allow it to reduce the cost of video conferencing and provide additional benefits. It is designed to replicate a face-to-face meeting with not only a high-quality video and audio link, but also allowing documents to be shared and virtual whiteboards created.

Cable & Wireless beat 13 other suppliers to clinch the deal. Folkes says that, while any of the major telecoms suppliers could have provided a similar data network, only Cable & Wireless listened to what Tesco was trying to achieve with fixed-mobile convergence and innovation was at the core of the services the supplier could offer.

This development could prove the most important investment Tesco makes in its infrastructure in the next few years. It will allow changes in the way staff operate and customers interact with the grocer that can’t yet be imagined.

As competitors race to catch up with the developments Tesco has made with selling groceries and household products online, they could well find this innovator leaving them behind with new services yet again.