As the wireless industry is rocked with one huge acquisition, spectrum auction and technological development after another, a small-and often overlooked-market segment continues to operate just below radar. Resellers have quietly been activating wireless customers for the past few decades, but some say they may soon light up the industry by ushering in a sweeping change that could bring carriers to profitability and a new business model to the table.
Resellers, which buy blocks of licensed airtime from carriers and then resell it to end users, generally have been looked down on in the wireless industry. Even their trade organization, the Telecommunications Resellers Association, recently changed its name to the Association of Communications Enterprises, or Ascent, to get away from that dirty r-word.
“The term was becoming somewhat of a negative,” said David Gusky, Ascent’s executive vice president.
The negativity is a result of major carriers’ attitudes, which view resellers as competitors-not as the additional distribution channels resellers portray themselves as.
“Historically, they (carriers) have a negative view of resellers,” said Herschel Shosteck, head of Herschel Shosteck Associates Ltd. “There never really was a robust market for resellers.”
Resellers argue there is no reason for the animosity. Resale is a valuable and cost-effective service, they say, but carriers are just unwilling to understand.
“It’s important that the carriers look at the business proposition” of reselling, said Rick Goldsmith, chief executive officer of Cellnet Communications Inc., a reseller in Detroit and southeast Michigan. “They don’t have the huge cost of acquisition and customer care” when using resellers.
But, as Gusky explains, “it’s always been an adversarial relationship” between the carrier and the reseller.
The impetus of the relationship comes from the long-distance calling industry, which also featured battles between carriers and resellers. That fight is largely over, with resellers accounting for up to 20 percent of long-distance sales.
Many see the wireless resale industry falling into a similarly stable situation-and many guess the date of this change will be Nov. 24, 2002.
In November of next year the Federal Communications Commission’s rule requiring carriers to provide unrestricted access to their services will sunset. The rule made reselling a good business, Gusky said.
“The regulatory climate tended to prompt a fairly large group of resellers,” he said.
Those in the reseller industry fought hard to push the FCC to consider reinstating the rule after it sunsets, but now many are writing the rule’s obituary.
In fact, Gusky said, for all intents and purposes the rule is sunsetting now.
“We’ve clearly seen a transition in the industry,” he said. The rule’s sunset “is now the driving force in the industry.”
Carries now are relying only on larger resellers, and the small “mom and pop” resellers, who survived because of the FCC’s rule, are slowly dying off.
“That’s brought on some difficult times for smaller resellers,” Gusky said. “I think many of them have fallen by the wayside.”
And this, Shosteck said, will likely be the end result of the resale business.
“Like anything else-get big or get out,” he said. “You end up with the most successful ones consolidating and eventually becoming a monopoly.”
Evidence of this consolidation is hard to ignore. Several of the nation’s largest resellers-including Prime Matrix Wireless, Connecticut Telephone and Anything Wireless-have gone bankrupt, been acquired or moved away from reselling.
However, there may be more on the reseller horizon than mere consolidation. Many in the industry are looking at the reselling events in Europe and wondering if it is a precursor to what could happen here.
In its latest report, titled “Third-Generation Wireless (3G): The Continuing Saga,” Herschel Shosteck Associates points to the mobile virtual network operators (MVNOs) in Europe, spearheaded by Virgin Mobile in the United Kingdom, as examples of what will most likely happen to the wireless communications industry in the United States.
Shosteck said he believes the first U.S. carrier that becomes an MVNO will be “pleasantly surprised.”
Much like resellers, MVNOs buy wholesale minutes from network operators and resell them to end users. They provide their own customer acquisition, customer service, billing and collection. The major difference is that MVNOs interconnect with an operator’s network, and may even own some switches and towers, which is vastly different from the resale situation in the United States now.
Shosteck describes MVNOs as “a reseller on steroids.”
“What they (MVNOs) bring to the market, which very few bring, is: one, brand awareness and, two, distribution,” Shosteck said. The MVNO setup leads to larger numbers of customers and smaller costs for carriers, he said.
However, before MVNOs catch on here, carriers must first finish their merger and acquisition process and build out their networks, Shosteck said. Also, only companies like Disney and Sony will have enough name recognition to become dominant MVNOs.
James Flynn, vice president of distribution for Cingular Wireless, said he is familiar with the MVNO business model but knows of no plans to move toward it.
“I’d say that I’m surprised that there is almost no interest in that in the U.S.,” he said. “I’m surprised there’s not a trend here.”
Cingular, which is generally more open to resellers than other carriers, does about 10 percent of its business through resale. That could go up if more customers respond to resale.
“What we are attempting to do is optimize our distribution,” Flynn said. “We’re not in the business of forcing our customers to do business with us. We’ll follow the market.”
Whether MVNOs catch on in the United States isn’t really important, Gusky said. Resellers are a hardy lot, and will be able to make due.
“If a small reseller can find a niche that the carrier isn’t interested in … there’ll always be a place for companies like that,” Gusky said. “The thing about resellers is that their expertise is in marketing, and they can always find a niche for themselves.”
