Wireless resellers are a hardy breed. Their success or failure teeters on the shoulders of carriers that tightly control the supply of the product they need to survive. Whether warranted or not, carriers harbor fears that resellers will steal customers and sap resources, and much of a reseller’s job is to calm these fears and prove their worth.
“The key issues have always been managing the relationship with the wholesale suppliers. It’s always touchy because you’re trying to negotiate deals with those you have to go head-to-head with,” said Tony Pomilla, principal with Lynch Associates Inc. and former chief financial officer with MCI WorldCom Inc.’s reseller business.
“The margins are always tight in this business, and as the sunset rule comes into play, that’s going to put even more stress on resellers. To survive that, they’re going to have to prove their value to wholesalers. You have to show you’re helping the carrier drive margins,” Pomilla said.
On Nov. 24, 2002, carriers no longer will be required to provide unrestricted access to their services, begging the question: Will carriers still feel an obligation to sell to resellers? David Gusky, executive vice president of the Telecommunications Resellers Association, said he suspects carriers will stop selling to resellers, but much remains to be seen.
Rick Goldsmith, president and chief executive officer of Cellnet Communications Inc., a wireless reseller serving the Detroit and southern Michigan markets, said being prepared and having the facts encourage a good carrier/reseller relationship.
“It’s a matter of showing the carriers how important we are in the value chain. We’ve developed a picture of everything the carriers have to do in order to get that $40 check from the customer every month,” Goldsmith said.
This seemingly hassle-free approach to selling wireless service should have carriers lining up to use resellers, but the large sums of money carriers pour into infrastructure and spectrum licenses often hinder their willingness to share their resources.
Carriers traditionally have wanted direct control of all their customers, since the lifetime value of a customer can be more than $1,000, according to a report issued by the TRA and The Yankee Group titled, “Wireless Resale: A Viable Distribution Channel for Facilities-Based Carriers.”
An unnamed carrier said in the report that many resellers are not worth the effort. “We have to provide ongoing human resources to manage the relationship, give them access to the network, worry about credit risk … “
In resellers’ defense, one unnamed reseller explained in the report that carriers are failing to see the value of this type of customer acquisition. The reseller said carriers have virtually no cost of acquisition, no customer-care costs, billing costs or collection costs.
“Yet,” the reseller said, “we have not done well in our presentation of these issues. Subsequently, we are viewed as a competitor.”
Overall, verifying the viability of the reseller, hoping the reseller won’t steal its customers and making the network interconnections are almost not worth the carrier’s time, the report said. The industry is growing more than 20 percent per year and carriers are looking for massive net additions of subscribers.
Resellers with good negotiating skills and a large customer base are going to fare the best, but everyone will be helped out by the onslaught of new services being provided by carriers.
Goldsmith said there are hundreds of new services customers are going to use in the future. Each new service is a possible new source of revenue.
“I think there are going to be people other than carriers wanting to do business with these customers. The future value of these customers, based on the new products they’re going to be using, is the reason phone companies are merging and paying huge amounts of money,” Goldsmith said.
Increased competition is also influencing some carriers to take another look at resellers as a means of strengthening their distribution points. The top 50 U.S. markets have an average of 4.4 active carriers, and as competition increases, carriers have less to lose by dealing with resellers, said the TRA report. Carriers now, however, will have fewer resellers to choose from. The number of medium-sized and large resellers significantly dwindled during the past year.
Two major resellers-Connecticut Telephone and Prime Matrix Wireless-each had major changes in the last year. Connecticut Telephone was acquired by USN Communications Inc., which in February of 1999 agreed to sell substantially all its assets to CoreComm Ltd., and Prime Matrix declared bankruptcy early last year.
MCI WorldCom, however, continues to gain customers.
“It got a lot more aggressive on the sales side. As a result of the acquisition (of Sprint Corp.), there has been increased focus on wireless. Clearly MCI is focused on facilities-based wireless,” said Pomilla, who also noted Sprint has gone through some conversions to get everyone on the same technology.
Home invasion
Resellers now have a new sales avenue courtesy of the Internet. Several Internet-based companies have popped up during the last year, offering wireless service and products from the most well-known providers and manufacturers.
Telstreet.com is one of a handful of online resellers. Users can shop different rate plans, handsets and phone accessories, and purchase the items through the Web site.
“Despite the fact that we sell services for major carriers, they also have Web sites. We offer the ability to compare information from several carriers and have the most accurate and in-depth research on phones … in an unbiased format,” said Jim Brett, vice president of online user experience for Telstreet.com.
Companies such as Tel-street.com generally aren’t viewed as competitors to traditional resellers. Goldsmith said the more people that are online researching wireless products means there will be more knowledgeable people who might come to his business when they are ready to purchase.
Brett said half of all the people who visit Telstreet.com eventually come back to buy, which means the other half are either not buying or are using alternative means.
Internet sales account for less than 0.5 percent of all wireless services, according to the TRA. But it predicts this number could increase to as much as 10 percent by 2002, in part because traditional resellers also will start using the Web.
“Resellers are more able to transition from a bricks-and-mortar store to an Internet-based setting than perhaps some of the carriers, and it’s more efficient to market services over the Internet,” said TRA’s Gusky.
The abundance of online resources for wireless services and products will probably result in more than one company falling by the wayside.
“There will definitely be a saturation and a fallout of the less competitive sites. There is only room for a small number of well-positioned companies,” said Brett.
Telstreet.com said it has all direct-carrier relationships and agency agreements with 14 of the top carriers nationwide. Its competitors may also under similar similar arrangement, as well as subagency and referral agreements.
