The emergence of personal communications services providers is putting the often-tenuous relationship between carriers and resellers to the test in more ways than one.
PCS once was viewed as the next area where resale would be used widely to increase subscriber numbers quickly. Instead, competition from PCS is forcing cellular carriers to match deeply discounted pricing plans, which ends up putting a pinch on resellers, say industry experts. And PCS carriers aren’t exactly lining up at resellers’ doors with contracts in hand, they say.
Often wireless carriers are simultaneously a resellers’ lifeline and its biggest adversary. After all, carriers provide the services off of which resellers make their money. But at the same time, carriers in large part control a reseller’s ability to succeed by way of the rate plans they provide and other factors under their control.
This often leads to a love-hate relationship between reseller and carrier, in which resellers feel they “can’t live with ’em, and can’t live without `em.” Indeed, legal disputes between resellers and carriers seem to be a dime-a-dozen lately, with differences over everything from contract wording to rate plans landing the two in court.
Hit the road
The resale industry also is under pressure from organizations such as the Personal Communications Industry Association. The FCC last month denied a forbearance petition filed by PCIA that asked for the immediate elimination of mandatory resale.
“We are very much in favor of resale but not mandatory resale,” said Jeff Cohen, a PCIA spokesman, earlier this year. “We believe firmly that resale will play an important role in industry growth, but resale should happen in a free-market environment.”
Resellers say they are having a difficult time securing resale packages from PCS carriers, despite Federal Communications Commission rules that require PCS carriers to work with resellers.
David Gusky, vice president of the Telecommunications Resellers Association, said while TRA doesn’t have any recent data on how many of its members have negotiated PCS contracts, anecdotal evidence suggests the reseller community has had little success in securing PCS contracts.
“It’s been very difficult to get any PCS contracts to date,” said Kent Weaver, president of One Source Communications’ Southwest region, who said his company has tried to secure relationships with Sprint Spectrum L.P. and AT&T Wireless Services Inc. “They’ve really been balking for a year now, and they haven’t given us any good answers.”
There may be a good reason why.
“We’re not interested in having resellers sell our product,” said Tom Murphy, a spokesman for Sprint PCS. Murphy said the company does not actively recruit resellers, but it does try to deal with resellers that approach the company because the FCC requires it. Instead, said Murphy, Sprint PCS finds retail arrangements with national mass merchandisers to be the most effective means of distributing its service to consumers.
Resellers say they are fighting battles on other fronts as well.
One Source recently accused Nextel Communications Inc. of violating resale rules in a petition to deny Nextel specialized mobile radio license applications for Arizona, Florida, Michigan, Virginia and West Virginia. The FCC rejected One Source’s challenge, saying the reseller lacked standing because it didn’t bid in the SMR auction.
“If I wanted to own licenses, then I would have bid in the auction,” said Weaver. “If I wanted to resell service, I’d be a reseller, which I am.”
Weaver said the FCC has put itself in an awkward position that doesn’t allow it to be unbiased because it also must collect on auction funds.
Rocky road
The relationship between cellular carriers and resellers can be just as rocky.
“Some carriers work with us, but some would just as soon have resellers out of business,” said Paul Wheatland of San Diego Wireless, which operates one retail outlet and supports a subscriber base of more than 7,400 subscribers.
Some resellers say now that cellular carriers have established large subscriber bases, many increasingly are trying to bring distribution in-house and squeeze out the resellers.
“They don’t see us as a distribution channel,” said Wheatland. “They see us as competition.”
“The carriers have always viewed resellers as competitors to the detriment of both,” said Herschel Shosteck, president and chief executive officer of Herschel Shosteck Associates Ltd., Wheaton, Md. “Resellers open up other distribution channels and shoulder all the risk of bad accounts and fraud.”
The increasing competition from new PCS players is putting pressure on resellers’ margins. Cellular carriers, they say, are lowering prices to match the discounted buckets of minutes PCS players are offering, which ultimately puts the pressure on resellers’ bottom lines.
“If we didn’t offer the bundled minute plans we wouldn’t be able to get the subscriber,” said Weaver. “Either you don’t acquire new subscribers and focus on keeping the customers you already have at a certain rate, or you change the back end of your business somehow.
“Carriers are experiencing some of the same problems too, but not the same percentage change in terms of margins,” he said.
Weaver said the margins are better in smaller markets where PCS has yet to provide aggressive competition to incumbent cellular carriers.
Road ahead
Resellers will face another challenge in 2002, when current mandatory resale rules are set to sunset. Gusky said TRA is fighting to have the sunset date reversed or modified. The market conditions that exist in 2002 should determine whether mandatory resale is canceled, he said.
Some resellers say they are not concerned about the end of mandatory resale because they believe there always will be carriers willing to work with them that they can switch customers to if another carrier shuns the resale distribution channel.
For now though, say industry experts, resellers should concentrate on establishing resale as an effective distribution channel that carriers won’t want to do without.
“The important thing is going to be for resellers to keep their service above and beyond what the carriers are offering, because there is not enough margin for us to differentiate on price,” said Wheatland.
The road more traveled?
Despite market pressures and difficulties securing contracts, wireless resellers could see growth in the near future. A Yankee Group report suggests wireless resale could grow from a $1.5 billion industry this year to a $4.57 billion dollar industry by 2002. According to the report, resellers today account for nearly 5 percent of all service revenues, and that number could grow to nearly 8 percent by 2002.
“Each distribution channel has its own place in the market,” said Shosteck. “The carriers that recognize that they can’t control that distribution channel, and that they must support all distribution channels, will gain the most.”
“All carriers see resale as a valuable channel down the road,” said TRA’s Gusky. “We have seen all carriers beefing up their in-house distribution, but they realize it will be hard to fill up their subscriber base on that alone.”
Gusky said TRA would like to see the resale market comprise about 10 to 12 percent of the total market, compared with between 4 and 5 percent today.
The next few years will be significant, said Weaver of One Source. He predicts resellers are entering a period of consolidation.
“The players that withstand the competition and hold out for the next year will be the ones that survive,” he said. “The margins will get better eventually.
“Over the long-term, I still think this is a good business,” continued Weaver. “There is a lot of positioning going on right now in cellular, PCS and resale. This year will be a time of shakeout.”
