rethinking wireless distribution
January 31, 2008
By Tom Wheeler
Clearly I’ve been spending too much time on airplanes and in airports. Last month I wrote about why, if the airlines don’t own their aircraft, wireless carriers must own redundant networks. Now a trip to the rental car counter, coupled with a recent announcement from Sprint, raises similar questions about wireless carriers’ retail distribution strategies.
Sprint announced plans to close eight percent of its over 1,500 company-owned retail outlets. Why stop there? Why does it make sense for wireless carriers to operate more stores than Sears and Macy’s combined?
I remember my first visit to a phone store in the early ‘90s. The industry had just passed the 10 million subscriber mark and was looking for a distribution method that was less expensive than the prevailing use of independent agents. I scratched my head a bit as the CEO of the company proudly showed off one of his new stores and explained its economic benefits. I wondered how well a network company could transform into a retailer. The idea succeeded beyond anyone’s wildest expectations.
Now the question becomes whether the strategy has continuing value. Is a retail strategy necessary when over 80 percent of all Americans have a wireless phone and the remaining non-subscribers (children, prisoners, etc.) are unlikely to walk into a retail outlet?
Today’s subscriber growth comes not from educating and signing up new users, but from stealing subscribers from another carrier. Sprint hemorrhaged over 800,000 pre and post-paid subscribers to other companies last quarter. Is a retail store critical to that migration? It’s not as though billions spent on advertising haven’t helped consumers understand their market choices. A recent discussion with one carrier store employee suggests the majority of store traffic is about operational issues (“how do I get my phone off call forward?”) and billing questions, not phone sales. Over 5,000 retail stores would seem to be an awfully inefficient and expensive way to handle “how do I?” and “what’s my?” kinds of queries.
Approximately half of all phones are sold in carrier-owned stores. Wal-Mart and Radio Shack account for over half of the remaining number, followed by other retailers. These outlets cost carriers more per gross add than do company stores while demonstrating, by selling competitive products next to each other, the potential for an even lower cost future. This raises the airport question. If rental companies can share overhead at the airport, why can’t wireless companies?
Wireless carriers increasingly offer a Chevy-like service of basically similar capabilities. If I can rent a Chevy from Hertz, Avis, National or Budget all within the same rental car pavilion, why shouldn’t I be able to buy a phone (or get questions answered and bills checked) in the same manner?
There’s a bigger issue here as well. The most cutting-edge 21st century information and services companies are wedded to a distribution and customer support model that hasn’t changed since the 19th century. They are not practicing the “anywhere, any time” attitude their advertising and the brochures flaunt. The future is in high-speed networks and untethered Net-access devices; by embracing that future, carriers could demonstrate why others should do so as well.
Distribution during the first decade of the wireless industry was through third-party agents. The second decade saw Starbucks-rivaling bricks and mortar. Now, in the third decade of wireless it’s time to think anew again.
Tom Wheeler is a managing director at Core Capital Partners, a venture capital firm specializing in early stage technology-based companies. He has been CEO of both the Cellular Telecommunications & Internet Association (CTIA) and National Cable Television Association (NCTA).