Cingular Wireless L.L.C. staged a minor coup last week as the industry’s largest operator signed a 10-year deal to replace smaller, but faster-growing rival Verizon Wireless at RadioShack Corp.’s more than 5,000 retail outlets beginning next year. The deal provides Cingular with access to RadioShack’s expertise in wireless sales, which the electronics store said it hopes to enhance with its new retail partner.
Along with the Cingular deal, RadioShack signed an 11-year pact to continue selling Sprint Corp. wireless products and services, including Nextel Communications Inc.’s iDEN portfolio following Sprint’s pending acquisition of Nextel.
Financial terms of the agreements were not released, though RadioShack said it expected the deals to be more financially favorable to the retailer over the life of the agreements compared with its current agreements.
David Edmondson, RadioShack president and chief executive officer, said that in moving from Verizon Wireless to Cingular, RadioShack expects to see an increase in gross customer additions through its retail locations and, in turn, higher activation revenues. While Verizon Wireless has signed up 40 percent more net customer additions through the first half of this year than Cingular. Cingular has attracted 31 percent more gross customer additions overall.
Edmondson also noted that of the 28 million wireless customers added through indirect sales channels last year, 9 million chose Verizon Wireless or Sprint, while 16 million selected either Cingular, Sprint or Nextel.
“That’s an 80-percent increase in market share available to core RadioShack stores,” Edmondson said.
Analysts noted in 2001 that RadioShack at one time accounted for nearly one-fourth of gross subscriber additions for both Sprint and Verizon Wireless. But in recent years, RadioShack has seen wireless sales slip as carriers have expanded their indirect retail footprints and increased their direct-marketing efforts.
The new agreements also expand RadioShack’s technology offering, as the retailer will offer CDMA services from Sprint, GSM services from Cingular and iDEN technology through Nextel.
Cingular said the deal was an important extension of its distribution plans and would target a core tech-savvy market segment, which the carrier said was highly sought after by the wireless industry.
“We want a balanced distribution plan that includes company-owned and indirect third-party points of sale,” said Glenn Lurie, Cingular’s president of national distribution. “The RadioShack deal will help fortify what we feel is an already strong third-party presence, a direct presence through our Cingular and former AT&T Wireless [Services Inc.] locations and an increase in sales through our online channels.”
Cingular noted that RadioShack would offer its full range of postpaid products, as well as its GoPhone prepaid services. RadioShack will continue to offer prepaid services from Tracfone Wireless Inc.
Cingular also is expected to take advantage of RadioShack’s expertise in operating nontraditional indirect channels, including kiosks. The retail giant signed a deal last year with Sprint to operate 150 Sprint-branded kiosks, which Edmondson said were generating an average of $5,000 in sales per square foot.
“We are looking at alternative distribution channels,” Cingular’s Lurie said.
Verizon Wireless shrugged off the news, claiming RadioShack’s wireless plans no longer suited the carrier’s distribution or financial requirements.
“Verizon Wireless and RadioShack are moving in opposite directions as it relates to wireless communications sales,” explained Lowell McAdam, chief operating officer for Verizon Wireless. “It no longer made sense to continue the relationship given the high cost of this channel relative to other distribution channels and our insistence that growth and profit be balanced.”
Verizon Wireless added that it would focus future distribution efforts on its company-owned stores as well as with its retail distribution partners Circuit City, Best Buy, Costco and more than 6,000 agents nationwide. The carrier also ominously said it would be “a vigorous competitor of RadioShack.”
American Technology Research telecommunications analyst Albert Lin said he thought Verizon Wireless losing RadioShack as a distribution partner could cost the carrier between 100,000 and 125,000 net customer additions per quarter beginning next year unless the carrier is able to find a suitable replacement-which Lin expects Verizon Wireless to announce before the end of the year.
RadioShack’s management said it hoped its relationship with Verizon Wireless would remain amicable through the remainder of its current agreement, but that it has alternative plans should the relationship deteriorate.
Sprint’s new agreement with RadioShack builds on a previous 10-year deal signed in 1996 that included exclusivity in selling postpaid wireless services until RadioShack signed the Verizon Wireless agreement in 2001 and provided Sprint with at least 15 percent of RadioShack’s retail floor space.
Analysts noted the deal should be positive for Sprint as the carrier will be the only CDMA option in RadioShack locations, and the carrier is rolling out high-speed wireless data services that should appeal to RadioShack’s tech-savvy customer base, though Sprint could be eclipsed by Cingular’s new entry in the short term.
“With Cingular coming into the picture, we see a shift away from Sprint being the top carrier at [RadioShack] for at least the next year or so,” ATR’s Lin said.
