The use of affiliates to manage and operate local markets is common in the wireless industry. While the larger carriers use affiliates to help build out their national footprints, affiliates are often left behind the scenes operating the networks and providing a local connection the large carrier cannot provide.
“It’s a very strong benefit for an affiliate to market a national brand,” said Mark Allen, vice president of marketing for Sprint PCS affiliate AirGate PCS. “As a regional player, we would not have the financial resources to market a new brand.”
AirGate manages Sprint PCS markets in South Carolina, North Carolina and Georgia covering more than 7.1 million potential customers. While the carrier is proud of the service it provides to its customers, Allen noted its cooperation with Sprint PCS serves the best interest for all involved, even if AirGate does not get the big headlines.
“Being anonymous is not a concern at all,” Allen said. “Our primary objective is to produce a business model and provide profits for our shareholders.”
Sprint currently has partnerships with 14 affiliates nationwide, including Alamosa PCS, Airgate, US Unwired and Ubiquitel. Those affiliates control licenses covering 70 million potential customers, with networks covering 43 million pops.
For its affiliates, Sprint provides the license, while the affiliate builds and operates the network at its own expense and markets the service under the Sprint PCS brand name. In exchange for use of the license and brand name, the affiliate pays Sprint PCS 8 percent of its local revenue. Sprint PCS also provides other services, including billing and customer care, at no additional cost, allowing the affiliate to leverage economies of scale across Sprint’s customer base.
The carriers also pay a reciprocal roaming rate between themselves at prices set by Sprint PCS. The rate is currently 20 cents per minute but is scheduled to be cut in half by the beginning of next year for most of the affiliates.
“The level of cooperation with our affiliates is very tight,” said Thomas Mateer, vice president of affiliates at Sprint PCS. “The customer knows no difference between using services from an affiliate or Sprint PCS.”
Mateer said to help its affiliates with marketing their services, the carrier provides turnkey products, including advertising tool-kits and television and radio advertising.
“We provide national advertising that affiliates can add a local tag line or telephone number to in their markets,” Mateer said. “I don’t want to say their jobs are easy, but when you have the tools, it makes it easier. They can focus on localizing the product for their markets.”
Analysts point out affiliates using the Sprint PCS brand name also benefit from the legacy the carrier has in the telecommunications market.
“Although the company still seems like a start-up, Sprint PCS has one of the oldest brand names in the wireless industry in many markets,” said Bear Stearns & Co. Inc. “Think about it, Verizon is new, Cingular is new, Voice-Stream and AT&T are new in many markets, and Nextel was introduced in a timeframe similar to Sprint PCS.”
“We think we get the best of both worlds,” said Christie Davies, vice president of corporate communications and advertising for Triton PCS, an AT&T Wireless affiliate. “We can focus on our local presence in our markets, while the AT&T name has instant notoriety worldwide.”
Triton PCS operates licenses covering 13 million potential customers in North Carolina, South Carolina, Virginia and eastern Georgia. Triton, along with fellow AT&T Wireless affiliate TeleCorp PCS, further removes their own names from the service they provide by marketing under the SunCom brand name, a move Davies said benefits the consumer and lets the carrier tailor its services to its markets.
Those tailored services include an emphasis on customer care, including rapid call-answer times, welcome packages for new subscribers and anniversary calls. The emphasis on customer care has led to about 90 percent of incoming calls to Triton’s customer care centers being answered on the first ring.
“Despite challenges the company has faced recently, including restructuring, AT&T is still one of the most recognized brand names on a worldwide basis,” said UBS Warburg of AT&T Wireless.
Through its program with PCS affiliates, AT&T contributes its PCS licenses to the affiliate in exchange for an equity stake and long-term roaming agreements at agreed-upon rates. The affiliates are responsible for raising capital, building and operating the network and attracting customers.
In addition to the name, Triton, and other AT&T Wireless affiliates, benefit from preferential roaming agreements with AT&T, nationwide coverage they would have difficulty providing themselves and volume discounts on infrastructure equipment. The last advantage should come in handy as AT&T overlays its networks with GSM and GPRS technology.
`We have a very good day-to-day working relationship with AT&T,” Davies said. “They have a very keen interest in maintaining the AT&T brand name.”
While affiliate programs seem to be win-win situations for the carriers involved, Allen said from a marketing perspective, the affiliates would like more leeway in promoting rate plans they think would be of greater interest to their customer base.
“Sprint may want to promote a $35 rate plan nationally, while we think the customers in our markets would be more receptive to a $50 rate plan,” Allen said. “There are always differences in some objectives, but in general, the relationship is positive.”
