While the big names in the wireless industry usually get most of the credit for providing wireless coverage across the country, it is the smaller players who often make up the backbone of the much larger beast.
Affiliations between large, national carriers and small, local carriers have allowed the wireless market to expand quickly, providing coverage to most locations and allowing customers to roam over networks seamlessly. But with most of the potential wireless customer base covered by either analog or digital cellular service, or personal communications services, are carrier affiliations doomed for extinction?
“I think the trend is certainly going in that direction,” remarked Paul Spurgeon, president and managing director of the telephony division at Nations Media Partners.
Sprint PCS, one of the big players in the PCS market and a proponent of affiliates, recently announced it was not entering into new carrier affiliation agreements, noting instead it would work to expand existing contracts with current affiliates to strengthen its network.
“We came to the decision late last year that the remaining markets that we do not already offer service in are small enough that adding new affiliates did not make sense, both for our operations and for potential affiliates,” said Tom Mateer, vice president of affiliations for Sprint PCS.
Sprint has signed 18 affiliation agreements to date, representing licensed PCS coverage of nearly 58 million people in 38 states.
While affiliate programs initially allowed larger carriers to build out their national network plans more quickly and cheaply, smaller carriers also saw benefits from the programs, including cheaper pricing on handsets and easier access to newer handset models. Affiliate contracts also allowed small carriers to retain all of the roaming and subscriber equipment revenues from customers and approximately 90 percent of collected service revenues.
“An affiliation program is what I call the faster, better, cheaper way of doing things,” noted Nations Media Partners’ Spurgeon. “You have access to more products and to better marketing than a stand-alone program. It’s a better economy-of-scale model for small carriers. It also allows the small operators to establish themselves with a well-known brand name behind them.”
“Our affiliates have told us that they have liked the idea of a strong national brand backing their service offerings in their local markets,” said Mateer. “Entering a market without that name brand was going to be tough for them.”
TeleCorp PCS Inc., an AT&T Wireless Services Inc. affiliate and provider of wireless services under the SunCom brand name in the southeast United States, was one of the smaller operators that launched service with the benefits of an affiliation in mind.
“It was really a decision from the outset,” said Gerald Vento, president and chief executive officer of TeleCorp. “Having a recognized brand was very beneficial for a company like ours in 1998 when we launched with AT&T. The co-branding was very important.”
If an affiliation is such a good deal for all those involved, why don’t all carriers partake of the perceived treasures?
Verizon Wireless, the largest wireless carrier in the country with more than 24.5 million subscribers, sees little benefit from an affiliation program. Other than some roaming agreements with Alltel, Verizon is an affiliate-free company.
“We cover 90 percent of the population on our own,” said Andrea Linskey, spokeswoman for Verizon. “By not using affiliates, we can better control the consistent quality of our network and protect our national pricing plans.”
Verizon also is lucky enough to be made up of several former wireless carriers, including Bell Atlantic Mobile, Vodafone AirTouch plc and PrimeCo Personal Communications L.P., which had substantial coverage over many parts of the country prior to their merger.
Powertel Inc., a Georgia-based independent Global System for Mobile communications provider also passed on the affiliate program, deciding instead to find other means to cover its potential customer base while keeping its autonomy.
“An affiliation was never part of our strategy,” said Kevin Inda, spokesman for Powertel. “Our strategy was to build very good coverage. There was really never a need for affiliation since we did not have a noncontiguous area we covered that needed to be built out with other carriers. Instead, we are part of the GSM alliance, which acts like an affiliation program for all of the GSM carriers in the country.”
Spurgeon of Nations Media Partners noted that roaming agreements negotiated through alliances are a great way to roll out a product while maintaining a company’s independence, but they lack the nationwide brand name that can fuel continued growth.
“If a smaller carrier does not join an affiliation, they risk in the long term of being left out of consolidation and other financial benefits of being part of a larger company,” Spurgeon said.
Consistent service quality throughout a national network is another concern for large carriers that rely on affiliates to carry their brand name in smaller markets.
“There are growing pains in affiliate programs,” explained Spurgeon. “Smaller carriers have to learn how the bigger company wants things done, while larger carriers have to keep tabs on the consistency of the service. McDonalds is not popular because of good food, but because the food is the same no matter where you go. If a carrier on the West Coast offers a service, you want to make sure an East Coast carrier offers the same service.”
While most contracts spell out network requirements for the quality of service and pricing plans, in the end, it is up to the local affiliate to follow through on the service promise to the end user.
“We found we could manage the quality of our service with specific guidelines covering the quality of service expected from our affiliates,” Sprint PCS’ Mateer noted.
“Our customers look toward us for what we are doing, not so much at our affiliation with AT&T,” said Vento of TeleCorp. “We had a less than 1-percent drop call rate last year. That says a lot to our customers about our service commitment.”
