Cellular Commissions Hit $9.8B, Subsidies $4.8B In 2004

By Joseph Palenchar On Dec 5 2005 - 8:00am

Indirect retailers accounted for more than 50 percent of $12.4 billion in consumer-level cellular handset and accessory sales during 2004, and the dealers earned $9.8 billion in commissions from carriers, according to an analysis by Ovum, the U.K.-based consulting and research company.

The indirect channel includes national retailers, small dealer/agents and online retailers, and their combined sales share hasn't changed much over the past few years, said Ovum's wireless VP Roger Entner.

The report, which didn't outline changes in handset sales or commissions compared to previous years, mainly assesses the impact of the wireless telecommunications industry on U.S. gross domestic product (GDP).

Although the indirect channel sold a lot of phones, “the bulk of independent retailer/dealer [cellular] revenues in 2004” came from commissions, the report said, because the retailers' handset sales “are booked by the facilities-based carriers rather than by the independent retailers/dealers.”

Therefore, of the $17.2 billion in handsets and accessories sold by suppliers in the United States in 2004, carriers accounted for $16.8 billion of the total. Those products were then either sold by carriers to consumers or by carriers to distributors and dealers, who in turn marketed the products to consumers. Dealers bought only $400 million in gear directly from suppliers, Ovum said.

Common commissions to dealers in 2004 were $250, little changed from previous years, Entner said.

Commissions weren't the only costs that carriers bore in 2004 to generate new subscriptions; carriers also subsidized subscribers' handsets by $4.8 billion in 2004, Ovum found. The company reached that conclusion by noting that U.S. carriers paid suppliers a total of $16.8 billion for handsets and accessories in 2004 before selling them direct to consumers or to retailers, but those products fetched only $12 billion at the consumer level.

Ovum's opus also outlined carrier and reseller (MVNO) revenues, assessed the impact of wireless telecom on the economy and U.S. productivity, and forecast industry growth and future economic impact.

Among the findings:

• Of $104.4 billion spent by consumers and business in 2004 on wireless handsets and services, only $3.2 billion, or 3 percent, went to MVNOs such as Virgin or Tracfone Wireless.

• Of the $3.2 billion in MVNO revenue, $900 million to their wireless-carrier airtime wholesalers.

• Consumer spending on wireless services, handsets and accessories hit $116.8 billion, up by xx percent.

• The wireless industry generated $92 billion in additional GDP in 2004, or more than twice as much as the music industry or the movie industry. Assuming a continuation of the annual 15 percent growth enjoyed byu the industry during the past five years, the industry will soon have a greater impact on GDP than the agriculture and motor-vehicle industries.

• Wireless accounted for the employment of 3.6 million people.

The study also determined that the wireless industry directly employs 18,000 people in the reseller segment, 109,000 in the dealer segment and 226,000 in the carrier segment, accounting for the majority of 534,000 directly employed by the wireless industry, including network equipment suppliers and wireless support-service suppliers.