The differences between paging resellers and carriers is perhaps most evident when looking at what happens to paging resellers that offer customers prepaid multiyear or lifetime contracts.
The plan seems fairly simple at first-rather than signing customers to monthly service plans and collecting small checks each month, offer several years of service for a one-time, up-front fee that is much larger. This generates an impressive number of customers used to getting discounted airtime from carriers, followed by a whole lot of cash, quick. The problem occurs when the reseller doesn’t put aside enough of the upfront money to pay the monthly bills to the carrier.
A quick fix for the reseller may be to offer more long-term prepaid contracts to bring in more revenue to pay the bills.
“They’re not fiscally responsible enough to keep their numbers in order,” said Alexander Ott, himself a reseller as president of New York-based Affordable Message Center Inc.
Because this plan relies on growth, each group of new customers has to be larger than the previous group in order to pay for the accumulating airtime costs. Eventually, growth evens out and the reseller finds that it hasn’t the funds to pay the huge airtime bills for its large customer base. The reseller quickly defaults on the monthly payments and is out of business.
“The greater reliance on multiyear and lifetime contracts, combined with a pretty low startup cost for those contracts … can raise a red flag,” said Scott Baradell, director of corporate communication for PageNet. “It doesn’t mean it can’t work, but the business plan must be pretty solid behind this marketing plan.”
Other resellers that compete with those using this business model are its worst critics. Once customers become infatuated with prepaid lifetime contracts, they don’t want to pay monthly bills, and resellers that rely on monthly payments suffer. “It kills us,” said Jeff Gould, manager of Pony Express, a paging reseller in Huntington Beach, Calif. “We have to compete with them and try to offer the same prices. Not only are we not making money, we’re losing money.”
Also, when the reseller using this plan folds and customers find themselves without service unless they transfer their account directly to the paging carrier, word of mouth spreads that paging resellers in general are less trustworthy. “It makes customers feel unsafe with resellers, and they go right to the carrier,” Gould said.
Perhaps the most memorable proponent of this business model was Econopage Inc. of San Jose, Calif., a reseller with more than 100,000 customers that went out of business in October when it defaulted on its payments to carriers Paging Network Inc. and PageMart Wireless Inc.
Now, about five months later, another paging reseller with the same marketing plan also has defaulted on its payments. Econopage of Southern California Inc. (Epsocal), a paging reseller in Santa Ana, Calif., closed its doors March 4. Epsocal and Econopage shared a similar name, state and business plan, but were two separate companies.
According to Tom Phelan, vice president and general manager of PageNet of Orange County Inc.-the regional office handling Epsocal’s account-PageNet worked with the company following the Econopage disaster to ensure no one mistook it for the now-bankrupt Econopage, since they shared similar names.
In the process, PageNet realized Epsocal was using this same marketing plan and same pricing structure that led to Econopage’s demise. Fearing a similar outcome, PageNet advised Epsocal President Larry Nichols in early December that his company’s resale contract would not be renewed past the May 31 expiration date unless they could agree on some new terms. Knowing he couldn’t legally continue to offer multiyear prepaid deals without a carrier willing to provide the airtime, Nichols closed his doors to new customers. While they were working to define new terms, PageNet said Epsocal defaulted on its January and February bills.
The stories differ here. Nichols claims PageNet refused to negotiate a new contract with him. Also, he said he put aside money to pay the monthly bills, but both PageNet and PageMart Wireless Inc. grossly overbilled him-to the extent that the money the carriers owed him for their overbilling totalled more than what they said he owed.
The carriers, on the other hand, said there was nothing wrong with their billing and that Epsocal simply couldn’t pay its bills.
“We have limited visibility to what they’re doing,” Baradell said. That, combined with the risky nature of the long-term prepaid model, can make a carrier nervous. As such, carriers will take steps to protect themselves against the business plan failing, which usually means things will start getting more difficult for the reseller.
This usually catches the reseller off guard. Carriers offer discounted airtime deals to resellers that promise to deliver a certain number of customers in a year’s time. In doing so, they tacitly and perhaps unwillingly encourage the reseller to pursue this model because the only way some resellers can attract that set number of customers is to offer these multiyear prepaid contracts.
So the reseller offering multiyear prepaid contracts believes the discounted airtime given in return means the carrier condones that business plan. Until one day, the carrier figures out what is going on, gets nervous and suddenly demands a new payment structure or announces that the resale agreement won’t be extended, and the reseller feels like a girl who just got stood up on prom night.
As mentioned before, the few resellers that use the multiyear prepaid model acquire a large number of customers. When the reseller eventually defaults, the carrier offers to switch the reseller’s customers to its own service-which both PageNet and PageMart did with thousands of Econopage and Epsocal customers.
Seeing this, the reseller-angry and confused by the carrier’s apparent betrayal-accuses the carrier of conspiring to steal its customers. “PageNet and PageMart are attempting to steal our customer base and rebill them as they have with tens of thousands of other consumers in the past,” Nichols said in a written statement. “Every customer that can be converted onto PageNet’s or PageMart’s system represents $60 to $120 in additional annual revenues for the carriers-without the cost of marketing.”
But few buy the story, including other resellers. “If the guy would’ve paid his bills, they wouldn’t have had to steal anything,” said Gould.
But these same resellers point out that carriers are not exactly powerless in this situation. They could end this practice if they stopped giving airtime discounts based on the number of subscribers a reseller attracts and instead offered discounts based on the revenue generated from subscribers.
Also, a carrier could allow a reseller to pay for a year or two of airtime up front, allowing the reseller to offer these multiyear plans to customers without the concern of reconciling that cost each month over several years. According to PageNet’s Baradell, the company’s legal department is currently determining how such prepaid contracts might be established, but said that it does not offer them yet.
In any case, resellers are unlikely to change on their own. It is the carrier that has the power to change things. “Carriers are the leader, and they have to change before resellers do,” said Ott from Affordable. `
Nichols maintains prepaid multiyear contracts could work-if carriers would just support it more, such as by letting resellers prepay their airtime bills. “For that model to work, you can’t be overbilled and can’t constantly be at odds with the carrier providing airtime,” he said. “When you take out these factors, it’s not a problem.” Nichols said he plans to sue both carriers.
