While the majority of wireless carriers are moving toward outsourcing their handset distribution needs, Powertel Inc. is moving in the opposite direction.

The West Point, Ga.-based personal communications services company recently ended its relationship with Brightpoint Inc., a distribution and value-added logistics services provider, and opened its own distribution center in LaGrange, Ga., to directly ship product to its 330 retail outlets in the Southeast.

“We did it more for control reasons than anything,” said Davey Solomon, vice president of purchasing and distribution with Powertel. “We can apply 100 percent of our resources to getting our job done.”

Powertel insists the move was a management-driven decision. Plans eventually were to bring distribution in-house regardless of which vendor the company was using. But sources close to the company indicate that poor performance also was a factor, citing instances when the wrong phones often were shipped to Powertel stores.

“There are a lot of reasons involved … They did not terminate us for lack of performance,” asserted Bob Lakin, chief executive officer and chairman of Brightpoint. “We did not have any more problems that were outside the standard of any new [PCS] start-up … Under their contract, they had the right to do it on their own. In an industry that is a little less than two years old, there is a learning curve for what services companies need. When you’re in a growing business, your target market grows and moves. There’s a lot of flexibility both sides have to have.”

“A lot of companies don’t make the transition well to outsourcing and don’t understand the dynamics of managing outsourcing relationships,” said Bob Egan, research director with Gartner Group in Stamford, Conn. “At the end of the day, it’s where it shows up on the balance sheet.”

Not a trend

Lakin and analysts indicate Powertel’s move is not the start of a trend in the wireless industry. All U.S. PCS carriers outsource distribution as well as start-up satellite and technology companies, said Lakin. About 50 percent of U.S. cellular carriers outsource those services. Nextel Communications Inc., Omnipoint Corp. and Aerial Communications Inc. are among Brightpoint’s customers. Omnipoint recently extended its agreement with Brightpoint through March 31, 2000.

Sprint PCS is in its third year of a five-year $45-million contract with UPS Worldwide Logistics, which distributes handsets. Brightpoint assists in accessory fulfillment.

“We should continue to see vendors and carriers rely on outsourced distribution,” said Christy These, equity analyst with Raymond James & Associates. “There is an opportunity to offer to RBOCs and other carriers the chance to outsource functions that are an administrative burden and higher in cost … Carriers’ focus should not be on logistics, it should be on selling airtime and product development.”

Outsourced distribution services are becoming more sophisticated, said These, to the point where outsourcing companies are helping carriers stimulate demand for products through managing and coordinating promotions.

Lakin describes Powertel as an anomaly in the industry. “It’s the only carrier that has decided it’s best suited to take shareholder money and put it into distribution,” he said. “The trend in the industry is to outsource everything and focus on billing, marketing and building brand … A carrier has a difficult time justifying to Wall Street that it is raising money to build a warehouse to manage inventory. Investors are interested in wireless subscribers and airtime.”

Lakin says virtually all U.S. cellular carriers will outsource distribution within five years. Carriers tell Brightpoint that competition will push airtime rates continually down, and they will need to convince investors that they are streamlining and cutting costs. Outsourcing companies handle larger volumes of product, which translates into lower costs for carriers.

Cellstar Corp. in mid-June signed an agreement with Bell Atlantic Mobile to distribute branded handsets and OEM accessories to the cellular carrier’s indirect sales channels. BAM continues to handle distribution for its own retail stores.

“It was not just less expensive from a real dollar point of view, but it was more efficient,” said Jim Gerace, BAM spokesman.

BellSouth Cellular Corp. continues to handle its own distribution, saying it wants tight control on distribution. BellSouth Mobility DCS, BellSouth Corp.’s PCS operator, outsources distribution with Brightpoint.

Powertel said its transition allows it to automatically replenish inventory to its own retail stores and reduce its investment in working inventory. The company is installing the capability in its first site this week.

“It gets more difficult to do when you hook in with third-party vendors,” said Solomon. “We’ll soon have 50 retail stores. Once we have [automatic replenishment] in place, we’ll be able to replenish to a store what they sold yesterday.”


Editorial Reports

White Papers


Featured Content