Just yesterday, it seems wireless carriers and resellers were at legal odds in front of the Federal Communications Commission.
Resellers fought for mandatory access to carriers’ networks, while carriers battled that effort, coming up with a concession that would end mandatory reselling two years from now.
But as the Nov. 24, 2002, sunset date approaches, those who have fought for reselling rights have seen a surprising and positive change. Major carriers are embracing wholesale programs purely for business reasons.
Late last month, executives from Verizon Wireless, Sprint PCS and BellSouth Cellular attended a conference by the Association of Communications Enterprises (Ascent), formerly the Telecommunications Resellers Association, to promote their wholesale programs. That was a significant change, said David Gusky, executive vice president of wireless services with Ascent.
Attitudes toward reselling have changed because competition has become more intense, said Brent Uhrmacher, vice president of private label services with Sprint PCS, a carrier that once resisted resellers.
“Carriers who look at other distribution channels and acknowledge certain segments will drive the overall market,” said Uhrmacher. “This is a change … We really need to continue how we in all honesty can take a disproportionate share. We have a significant investment we want to make a return on.”
Carriers also are receiving interest from some nontraditional companies wishing to enter the wireless business to expand their product portfolio. Internet companies, car manufacturers and utilities are witnessing the success of Virgin Mobile’s virtual network operator (VNO) strategy in the United Kingdom. The company, which sells everything from music content to suitcases, plans to launch eight more virtual networks in the Asia-Pacific region next year and has reportedly been approached by 30 network operators that want to broker resale deals.
“One can argue why should a network operator give the competition so much leverage,” said Herschel Shosteck, chief executive officer and president of Herschel Shosteck Associates Ltd. “We would argue that is 70 percent of revenue.”
In the United States, rumors circulate about America Online Inc.’s interest in reselling service. Content providers like CNN believe their brands are so strong that if they sold their own line phones, they could offer CNN services over them, said Gusky. General Motors is selling the OnStar system and could bundle mobile-phone service with that.
“I think that really looking at some of the emerging areas-the nontraditional companies-we’re going to find a lot of success,” said Uhrmacher.
In light of the bankruptcies that have marred the reseller market of late, U.S. carriers are becoming choosier about who they do business with, setting out criteria companies need to follow. Sprint PCS requires companies to target a specific market. Companies also need the capital wherewithal required to get a return on investment.
BellSouth offers a product-based and platform-based prepaid program along with a post-pay program. BellSouth resellers essentially own the customers and create their own brand and marketing strategy.
Revenue potential from wireless resellers could be large. Twenty percent of revenues in the long-distance market come from resellers, while wireless reselling revenues are less than 5 percent today, said Gusky.
VNOs could go even further in the future. European operators are beginning to sign a number of wholesale agreements, realizing they need predictable revenue as they incur the high costs of third-generation equipment and licenses and move into the data-intensive market.
“There is new interest and excitement these days,” said Richard Siber, associate partner with Andersen Consulting. “Virgin Mobile is coming in with big brands and deep pockets. It is negotiating aggressively, which is giving it a leg up over former resellers.”
Virgin, however, has two major advantages many companies don’t, analysts caution. It has a strong brand name, extensive distribution channels and a large appeal from newer demographics like teenagers, said Shosteck. Other VNOs haven’t been as successful. WorldCom Inc., whose plans to obtain a wireless play ended when merger plans died with Sprint Corp., hasn’t hit a critical mass of millions of customers, despite reselling for a number of years.
Resellers have to assume a number of critical economic factors, such as bad debt and customer care, said Siber. Margins among existing VNOs have been under 8 percent, he said. Network operations also must be carefully monitored.
“We anticipate that VNOs are going to be a very interesting and exploited concept,” said Shosteck. “The downside is that it requires careful coordination of marketing and engineering. The network operator needs to know what kind of traffic that comes online.”
Outsourcing the network
The VNO concept in the United States could take an interesting turn when the U.S. spectrum auctions begin. Most analysts don’t rule out companies like AOL and Microsoft Corp. bidding on spectrum and then outsourcing the network operations to companies like Crown Castle International Inc., which has driven this concept in Europe with carriers like broadcasting company BBC.
“We think that’s very realistic,” said John Powers, vice president of development with Crown Castle. “They want to compete quickly … We talked to quite a few exactly about that concept. That’s likely what will happen in Europe. There’s definitely a big push.”
Existing U.S. operators, which have finally become comfortable with selling their towers to tower companies, may do the same with the rest of their network elements.
“As cost becomes apparent, there is incredible pressure, and one way to do this is to outsource the network,” said Shosteck. “In the last three years, virtually every mobile operator has sold towers. The next step is cell sites, switches and backhaul.”
Powers says Crown Castle sees this coming, but it will be a slow evolution in the United States.
“In the United States, it will be slower moving because the existing operators have infrastructure in place, and there’s a comfort level there,” said Powers. “We’ll continue to see shortages of experienced people and as more and more operators come in, there will be more interest.”
