Can You Make It in Resale?

If you can make it there, you can make it anywhere. Although this may hold true for New York, wireless resale may be a different story. The wireless spotlight traditionally has been on the carriers, their networks and their offerings, but wireless resale plays an important role in the industry's common goal of promoting wireless to the masses. Because let's face it: Any method of increasing consumer awareness of wireless is a boon for the industry. Consumer interest feeds on itself, strengthening the industry and, ultimately, your company.

MCI has taken the resale approach with wireless since 1986, when it decided to concentrate on its long-distance service and resell wireless service at retail levels. The company offers cellular service in 57 local markets, and it serves 68%, or two-thirds, of the available potential subscribers in the marketplace.

Friendly Advice For some companies, the resale approach is the best. It requires no up-front investment in facilities. Instead of incurring billions of dollars in cost to acquire licenses and build autonomous wireless networks, a resale company can leverage its core strengths, such as integration, branding and merchandising of an entire host of communications services, into wireless.

A communications company doesn't have to be a corporate giant like MCI to consider opening a resale operation. In planning a resale strategy, a company should look at three major areas that are crucial to the operation of a resale venture: price, concept and relationship.

"Price is absolutely the first consideration here," said Barry Zipp, MCI director of Personal Business Services. "A company that is considering resale as a source of profit must be able to secure a favorable wholesale price which lets it make money. This is especially important because the distributor is rarely selling his service at rate card, but is instead providing discounts to his business clients because of the volume of business he is getting in return."

Second, Zipp said, you have to remember that you don't run your own network. However, you want to be able to take advantage of special features that the network can offer, such as branded announcements, extended home market rates or access to its customers.

Relationships can make or break a reseller, according to Zipp. A partnership hinges on a mutual agreement of performance standards that are upheld no matter what. For example, M-Tel always bills MCI for its wireless services in a timely manner, which ensures that MCI can turn around and bill its customers the same way. In addition to shared industry standards, MCI offers M-Tel certain areas of expertise, such as toll-free service, call centers and data services.

"It's the mutual respect and cooperation between the two that make all the difference in the world," Zipp said.

The Resale Answer "For us, there just are no disadvantages to the resale approach," Zipp said. "However, the industry is going through a lot of upheaval right now, so big resellers will always be dealing with the challenge of getting favorable operational support and prices from its wholesalers. How much of a problem that will eventually turn out to be is anyone's guess right now."

The impact of the resale strategy on the wireless industry, whether on distributorships or smaller private wireless companies, is significant.

"The two biggest reasons to support the resale strategy within the communications industry are increased competition, which leads to lower retail prices, and a greater pool of providers from which to choose," Zipp said. "Each distributor and industry carrier has, ideally, their own strategy; their own way to appeal to the customer and his needs. This is good for the industry at large. It can't help but increase sales volume when the basic players extend their marketing efforts to take advantage of this growth potential."

It stands to reason that if the resale strategy is so attractive to the folks at MCI, it will be to other distributors as well.

"There are thousands of distributors out there, as opposed to only a few companies like MCI who offer an entire host of communications services under one umbrella," Zipp said. "And it's too early to predict the numbers in relation to PCS, as well, because PCS is just now getting up and running. It's just very difficult to tell how the resale market will shake out in the next few years."

PCIA and the Telecommunications Resellers Association (TRA) have been bickering via letters to the FCC about alleged barriers to resale of PCS and SMR service. Basically what it comes down to, said Darryl Sterling, a Yankee Group analyst, is that TRA doesn't think that a reseller has a viable chance of surviving without government regulation, even if it has a strong operation. On the flip side, he said, PCIA believes that regulation will allow inefficient resellers to slip past, which won't add value to the market.

"They would hide under the umbrella that was provided by the FCC," Sterling said

The bickering started when TRA sent an ex parte letter to the FCC, attached to its 1997 Year End Survey of Wireless Resellers, asking the commission to do away with the provision sunsetting the CMRS resale rule and to deny PCIA's pending request that the commission forbear from enforcing the CMRS resale rule as applied to broadband PCS carriers.

"So what they're doing is lowering their operating costs by paying for the services, the equipment and the airtime at a lower rate," Sterling said. "They have to have the capital to work with as well as the subscriber base."

TRA said that its survey found that resale agreements for PCS and SMR carriers were virtually non-existent, that there was a "resale blockade" preventing companies from reselling PCS and SMR services.

PCIA countered with a letter to the FCC that questioned the validity of the survey results and urged the FCC to ignore TRA's letter asking that the commission deny its own request.

"TRA's survey instrument consists of such biased and leading questions that no valid conclusions can be drawn from the results."

TRA came back with yet another letter to the FCC saying that it stands by the survey results.

"The fact remains that telecommunications providers across the country have approached the major PCS and SMR carriers in an effort to secure service for resale, and no more than a handful have been successful."

Ultimately, it is to the carriers' advantage to have resale agreements. Because they have spent so much money building out their capacity-rich digital networks, carriers want to get as many subscribers on as possible for maximum efficiency.

"They're trying to get revenue streams out of idle airtime," Sterling said.

He said that the strong resellers will survive because they eventually will gain a large enough subscriber base through their reputation. They will buy large amounts of airtime at inexpensive prices.

The wireless resale market is going to grow, projects The Yankee Group in its report, "Wireless Resale: Is There a Future?" However, that growth will be based on resellers' ability to realize economics of scale, provide a wide scope of service and achieve brand awareness. The analysts project that wireless resale will grow to more than $4.5 billion in service revenues by 2002, a 7.7% market share of projected wireless industry revenues compared with 4.4% market share in 1997.

Competition and capacity are the drivers behind resellers, according to the report. The only means for non-first-tier carriers to match the bundled service offerings of first-tier carriers is to include wireless via resale in their full-service portfolios.

According to the report, resale of analog service is going to be on the rise. Digital resale will not be a factor in the wireless industry for a couple of years, Yankee Group analyst Darryl Sterling said. Digital coverage is not yet ubiquitous, and carriers still are working out kinks in their networks and establishing brands.

Another issue for resellers is the price of digital handsets. Sterling said if resellers have to subsidize the phones to get them to a price point that consumers will buy them, they are investing a lot of money to acquire the customer. If that customer doesn't stay on for two or three years buying service, then the reseller doesn't break even, he said.