The aftershocks from 2004’s massive carrier consolidation continue to reverberate across the wireless industry. As Cingular Wireless L.L.C. works to digest AT&T Wireless Services Inc. and Sprint Corp. completes its merger with Nextel Communications Inc., the rest of the industry is left to work out the details. Those affected include handset makers, infrastructure vendors, content providers and a variety of other players. For some, news of carrier compression is not good, but some distributors are trying to give it a positive spin.
“We think that, long term, it’s very good,” said Joseph Ram, president and chief executive officer of handset distribution company InfoSonics.
InfoSonics is one of a number of ancillary wireless players, businesses supplemental to a market driven by large network operators. Dealers, resellers and distributors like InfoSonics are working to evaluate the new U.S. wireless landscape, and find their role within it.
“We have a huge business opportunity going forward,” Ram explained.
Other companies share InfoSonics’ confident outlook.
“We see the carrier consolidation as a huge win for us,” said David Steinberg, chairman and CEO of online phone retailer InPhonic Inc. “The more profitable a carrier is, the more money they have to spend on gaining high-value customers.”
Steinberg said that large online distributors like InPhonic will end up winners in a consolidated market. Bigger and more profitable carriers will be able to pay independent distributors more money per customer activation. Further, Steinberg said that larger distributors like InPhonic will be able to meet the needs of larger carriers. Carriers typically reward distributors based on the number of customers they sign up-the larger the number of customers, the greater the bonus.
“We are in an industry in which size matters,” Steinberg said. “You will start to see consolidation in our space, much like you have in the carrier space.”
Indeed, InPhonic is already driving consolidation among online phone sellers with the recent $20.9 million acquisition of fellow online retailer A1 Wireless USA Inc. InPhonic’s acquisition comes shortly after the company’s successful initial public offering. InPhonic does not disclose its activation numbers, but the company scored $144 million in revenues in the past nine months.
Carrier consolidation “is a big win for us,” Steinberg reiterated.
The same could be true for handset distribution companies like InfoSonics. The company derives 70 percent of its revenues from handset sales to regional wireless carriers, with another 25 percent coming from sales to dealers and the remaining 5 percent coming from online phone sales. InfoSonics ships 160,000 phones per quarter, and counts around $55 million in annual revenues.
InfoSonics’ Ram argued that carrier consolidation ultimately will spur the market for independent handset sales. As the carrier market tightens, the price of phones will increase because carriers will reduce their handset subsidies. Ram said this will spur mobile-phone shoppers to look for phones outside of a carrier’s distribution network. Further, handset replacements sales will speed up as new phones continue to flood the market. Ram said these two factors will open the way for independent handset distribution companies like InfoSonics.
“That will create a secondary market for phones outside the carrier,” Ram said, which is precisely where InfoSonics wants to play. “That will increase opportunities for us.”
However, Ram acknowledged that the future is unclear, especially in the tumultuous wireless industry. Thus, the ultimate effects of carrier consolidation are hard to discern.
