As the mobile-phone market continues to surpass all forecasts, there are multiple ways those phones end up in the hands of consumers.
At the beginning of last year, industry observers expected handset makers to sell around 500 million phones worldwide in 2004. Instead the market topped out at about 650 million phones. At the beginning of this year, forecasters predicted a total of 700 million in phone sales, but industry’s strong showing in the first quarter prompted an increase in estimates to around 740 million. By the fourth quarter, that number could be even higher.
The reverberations from such sales are lasting and widespread. Handset makers, carriers and phone component suppliers are among those cashing in on shoppers’ apparent insatiable appetite for mobile phones. The handset distribution market also is directly tied to the success of the handset market.
Brightpoint Inc., Brightstar Corp., CellStar Ltd., Ingram Micro Inc. and Tessco Technologies Inc. are among those playing in the U.S. handset distribution market. Such companies generally purchase mobile phones directly from original equipment manufacturers like Nokia Corp. or Motorola Inc., and then resell them to wireless carriers, dealers and retailers. Most handset distributors also sell logistics services including warehousing, packaging, software provisioning and credit services.
Most major carriers like Verizon Wireless purchase their handsets directly from their handset suppliers. However, second- and third-tier carriers like Dobson Communications Corp. and Western Wireless Corp.-as well as mobile virtual network operators like Tracfone Wireless Inc.-purchase their phones from handset distribution companies. Such purchasing agreements cut down on inventory and shipping expenses and yield economies of scale. Further, most independent mobile-phone retailers don’t have the prowess to purchase their own phones. Although concrete figures are not readily available, handset distribution companies touch perhaps one-third of all mobile phones sold in the United States.
Market players argue that-despite the many challenges and issues facing wireless-the handset distribution industry is full of potential.
“We know how to take … products and services to store shelves,” said Robert Laikin, chairman, chief executive officer and founder of 16-year-old Brightpoint.
Laikin, an unassuming, to-the-point businessman, said Brightpoint is poised to take advantage of several key trends in the wireless industry-foremost among those the current MVNO craze.
Research from Frost & Sullivan forecasts the MVNO market to hit around $9 billion in revenues by 2011, up from around $2.5 billion last year. Similar numbers from Yankee Group show the MVNO market reaching $10.7 billion in 2010, covering 29 million customers. The consensus is that the market will be significant.
Most importantly for mobile-phone distributors, MVNOs are almost guaranteed to outsource their handset needs. Players like Virgin Mobile and others exist primarily as brands-they generally own little of the mechanics of their business. Already Brightpoint manages the handset operations for Virgin Mobile, Tracfone, Boost Mobile, Movida and Primus-and Laikin said the company recently signed on with “two large MVNOs,” although he declined to name them.
“That’s the new opportunity,” agreed Kim Dukes, director of sales and client solutions for CellStar. The company also manages handset distribution for MVNO Tracfone as many of the relationships are non-exclusive.
But the industry’s potential does not end with MVNOs, noted Brightpoint’s Laikin. As the definition of wireless expands-with WiMAX, Wi-Fi and Voice over IP products-so too does the potential for sales of devices and accessories. For example, Brightpoint recently signed an agreement to distribute VoIP and Wi-Fi products from Belkin Corp.
Further, distribution need not involve only devices or devices at all-both Brightpoint and CellStar are researching the booming wireless content and application market. CellStar signed a deal with Sybase to resell the company’s mFolio product, which supports Internet surfing on smart phones. Laikin promised that Brightpoint would make some moves in the wireless content industry sometime in the third quarter.
Finally, opportunities could even come from inside the handset distribution market. CellStar is working to expand its handset return and refurbishment business, what it calls reverse logistics. CellStar’s Dukes said handset makers may outsource their “post-sales support” services, which would create a significant opportunity for handset distributors.
Despite such opportunities, the handset distribution industry faces its share of challenges. Indeed, most in the industry saw flat revenues during the past year, while the growth in handset shipments hit double-digit numbers. Further, not all market trends present opportunities-the industry’s recent spate of carrier consolidation could create significant obstacles.
As Cingular Wireless L.L.C. digests AT&T Wireless Services Inc., Sprint Corp. works to complete its purchase of Nextel Communications Inc. and Alltel Corp. secures Western Wireless Corp., the list of remaining customers grows short. Further, industry observers predict that the nation’s top carriers will slowly stamp out second- and third-tier carriers-the primary market for handset distribution companies like Brightpoint and CellStar.
“It’s kind of hard to predict the future,” Dukes said. “We haven’t seen a major consolidation of these smaller carriers.”
“I think there will be tier-two and tier-three carriers remaining,” Laikin said.
Another area of concern involves international markets. Brightpoint especially has had its ups and downs in foreign markets, having withdrawn from Mexico, Ireland, China and Brazil, among other countries. CellStar too has shied away from China-the world’s largest wireless market-due to the country’s challenging retail atmosphere.
“In the short to mid term, we will stay out of China,” Laikin said, explaining that the mobile-phone market there is too complicated, and therefore represents a bad investment.
But perhaps the main issue facing the handset distribution market is the relationship between carriers and handset makers-and how that relationship will evolve. Some believe that carriers eventually will take over the development of mobile phones by sourcing made-to-order devices from Asian electronics companies. Others believe the industry will separate services from devices-TVs are sold separately from cable and satellite broadcasters, for example. The answer to this question is unclear at best, but those in the handset distribution industry hope things will shake out in their favor.
Phones and service “won’t be bundled together,” Laikin predicted. “If we look out 10 years from now, I think we will see a lot fewer carrier-owned stores. Over time they (carriers) will get out of the business of buying handsets.”
