RESELLER CHANNEL: Wireless Resale Gets Second Look

Posted: 7/2003

By Khali Henderson

AT&T plans to resell wireless services from none other than AT&T Wireless, the company it spun off in July 2001. Similar moves are being considered by other large carriers and are indicative of a changing view among carriers about network ownership and increasing pressure on wireless operators to cut customer acquisition and support costs.

For its part, AT&T this summer will offer its residential long-distance customers in selected markets the ability to manage their combined wired and wireless spending through a single provider. The wireless portion of the new plan will be branded as AT&T Wireless.

AT&T spokesman Gary Morgenstern says the overriding motivation for the deal is to reach parity with the RBOCs by adding wireless, data and local services to the bundle. The company uses resale as means to do this. In addition to its resale arrangement with AT&T Wireless, it offers local through the UNE Platform and has a resale agreement with Covad Communications Co. to offer DSL through a linesplitting arrangement. No DSL offer has been rolled out yet, but Morgenstern said it would be soon.

Other Tier 1 carriers are looking at the resale strategy, too. As PHONE+ reported last month, Qwest Communications International Inc. is pursuing ways to expand its wireless coverage. We are pursuing numerous options to deliver a national wireless footprint to our customers, says Qwest spokeswoman Carey Brandt, who declined to discuss a story in the Wall Street Journal that reported Qwest entered talks with Verizon Communications Inc. and Sprint Corp. about renting capacity on their national wireless networks.

Qwest Wireless was launched in Denver in 1997 and serves 1.1 million customers in major cities in its 14-state territory, including Minneapolis, Phoenix, Salt Lake City and Portland, Ore.

In addition, MCI Chairman and CEO Michael Capellas said, in a May interview with Bloomberg News, the company has held high-level talks with a couple of mobile-phone companies.

This is particularly interesting since MCI (then WorldCom) last year shed its wireless resale business, referring its 2 million customers to underlying carriers the company had used. At the time, executives said the company would save some $700 million a year by unloading the business.

WorldCom resold wireless services for about five years, but never acquired its own network though it made several attempts. In 1999, it considered acquiring Nextel Communications, a Reston, Va.-based wireless carrier focused on the corporate market. In 2000, the proposed mega-merger of WorldCom and Sprint Corp. fell apart, quashing WorldComs hope of acquiring Sprint PCS.

Certainly, MCI/WorldCom was criticized over the years for its lack of wireless facilities. But it appears those attitudes may be changing.

At this point its not about ownership, says industry pundit Jeffrey Kagan. Its about marketing and providing the customer what they want the way they want it.

We think that this market trial we are going to do with resale is going to show that you dont need to own every service component of your offer - bundled or otherwise, says AT&Ts Morgenstern. We said somewhat the same thing when we sold off the satellite business years ago. We didnt have to own the satellites to provision satellite services to our customer.

Morgenstern says AT&Ts strategy goes back to October 2000 when then-CEO Mike Armstrong announced the company would spin off its wireless and cable properties. As you might recall, we did that to free each of the entities to pursue each of the markets they believed would be most beneficial for their shareholders without being encumbered by competing priorities of the parent company, he says.

Indeed, Mark Siegel, a spokesman for AT&T Wireless, says, Because we are a pure wireless play, unlike most other wireless companies, we dont have to rationalize what we do in the marketplace with the needs of a parent company that happens to a local phone company. We have unusual freedom in that regard.

In a press statement, AT&T Wireless Chairman and CEO John Zeglis says the AT&T agreement supports an important strategic thrust for AT&T Wireless of attracting new customers in creatively cost-effective ways as we drive toward our goal of becoming free cash flow positive in 2003.

In fact, Siegel says the company has many channels and uses indirect channels to reach out to new customers and at the same time potentially lower the cost of customer acquisition.

Thats where a resale arrangement becomes valuable is when you dont have to incur all the marketing costs, says wireless analyst Adam Guy of Yankee Group.

While that certainly has been the case all along, reselling has evolved from a contentious relationship to a cooperative one in recent months. Guy says one possible reason is a lack of available customers has made resellers more attractive to wireless carriers.

When there were professional people out there without cell phones, wireless carriers didnt need resellers, he explains. Now, theres nobody left, [so they are saying,] Lets deploy some alternative channels to steal customers from our competitors and reach out to the remaining few [new] customers more cheaply.

If there is a way to get more customers, wireless carriers will do what they have to do, says Guy even if that means offering a more value-oriented plan. But, he adds, in order to make that profitable, they have to reduce the cost of customer acquisition. One of the ways is to employ a reseller with a loyal subscriber base.

Cost of acquisition isnt the only concern, Guy says. Another pain point for the carriers is the soonto- grow support costs, he says. Just think about the service and support burden that IT managers and carriers are going to face when you no longer have fleet of cell phones or two-way pagers but of pocket PC devices with Pentium processors and custom enterprise applications.

Guy points to the recent spate of channel programs wireless carriers have established in an effort to use VARs and systems integrators to tap the enterprise market as evidence that wireless carriers are anticipating this growing concern.