The sensational failure of California-based reseller Econopage Inc. last month, chronicled with great detail and length in the media, brings to light several questions regarding the nature of the paging resale business.
Most resale agreements do not end in such disasters. Generally, despite some occasional antagonism, both carriers and resellers manage to turn a profit. Yet, when a reseller suddenly does go sideways, no one seems too surprised.
When a carrier turns off airtime to a reseller, carriers and resellers alike say it is usually because the reseller’s business plan was not viable. Either the business was operating under false assumptions of what the churn rate or exposure on equipment would be or had poor marketing methods. As a rule, resellers have certain weaknesses that, if not recognized by the reseller, can lead to a business collapse as well.
According to Kurt Abkemeier, an analyst with J.D. Power & Associates, resellers’ main forte is finding people to buy things. “Essentially, that’s all they do and that’s all they do well,” he said. “They’re in there to get up-front activation and generate some kind of revenue stream.”
Their weaknesses, he continued, lie in areas of customer support and billing, and the more customers a reseller adds, the more difficult it becomes to deal with the billing and support services necessary to keep them. According to Abkemeier, resellers that allow their weaknesses to become liabilities are the ones that stumble in payments and that the carrier sees as a risk and cuts off.
When a carrier cuts off service to a reseller, nobody wins, said Dana Krug, vice president for national reseller accounts at Paging Network Inc. Carriers need resellers to get their products to market, and setting up and maintaining a resale agreement costs money, he said. Therefore, Krug believes carriers will begin taking closer looks at resellers’ business plans before signing agreements with them.
“We would give deep discount pricing for airtime and let them go about their own business,” said Krug, “We never paid much attention to how they did that. We were just an airtime supplier in a commodity business, and it became a price-based game.”
In this scenario, the only communication between the two entities were billing statements and payments. As such, if a carrier felt something was amiss, it would either dramatically change the agreement to protect itself, or shut off service to cut its losses. But many in the industry on both sides of the issue see a different future for resale relationships.
“The nature of the old resale agreement is going to change,” said Glynn Ingram, president of Unity Communications Services, a one-stop shopping reseller of paging, cellular, Internet-access and long-distance services-bundled into one bill-to small businesses and consumers.
Ingram is no stranger to the resale business. He currently has national resale agreements with two paging carriers, two cellular carriers, one long-distance carrier and one Internet service provider. Additionally, he was formerly senior vice president of nationwide and national accounts at MobileComm, where he managed some 1,500 resale accounts.
He said the key to a successful resale relationship is communication.
“You build a relationship first at the trust level,” he said. “They have to have a sense that you’re going to have scale … We that resell network services have a responsibility to convince (carriers) that we’re people they can trust. Carriers respond very well to that. I can say, having managed 1,500 resellers, that the ones who did this were the ones that worked.”
Ingram recommends resellers discuss their business models and growth plans with carriers prior to signing resale agreements and listen to suggestions the carriers may give, especially resellers entering the paging business for the first time. Once a history of communication and trust is built, he said, the carrier may be more inclined to work with a reseller if problems emerge than walk away.
“Normal people who talk a lot will do that,” he said. “If it’s not a partnership, it’s `I’ve got to minimize the damage and turn this thing off.’ When that happens, you’re in big trouble.”
Ingram also pointed out that carriers have some changes to make as well. “A successful resale program can be more profitable than the direct channel,” he said. “You just can’t distribute your product enough through the direct channel” alone. “With the advent of telecom deregulation, companies are going to have to figure out how to do this alternative independent distribution or they’re going to have trouble.”
With this in mind, some paging carriers are offering resellers a partnership program to help support each others’ strengths. PageNet, for example, recently altered its relationships with certain resellers.
PageNet now is more involved in distributing pagers to end users that are generated by the reseller. The carrier also helps to promote and test products in certain markets and takes customer support and activation calls. The company also handles certain billing procedures. This leaves the reseller to pursue the advertising, marketing and sales functions of the business without distraction.
However, only about 200 of PageNet’s 6,000 resellers can take advantage of this program since it is only offered to resellers that sign national distribution agreements.
Krug said PageNet is in the process of reviewing the business plans of its existing local and national resellers and has begun examining the business plans of all new resale applications.
While these developments do not guarantee another Econopage won’t happen, they do point to the changing nature of resale agreements and serve as indications of a potentially different future.
“We have to figure out as an industry how to do the right things,” Ingram said.
