Dealers Hang Onto Local, Long-Distance To Round Out Telecom Portfolio

By Greg Scoblete On Dec 17 2001 - 8:00am

Amid their full-court press for cellular, broadband and satellite-TV subscribers, electronics stores are offering local and long-distance landline phone services to round out their telecom offerings.

But profits in local phone service are eroding because consumers are increasingly replacing second phone lines with wireless phone service or, for Internet access, with faster always-on cable-modem or DSL service. Long-distance profits are likewise slipping because the service has entered the commodity stage, dealers say.

Nonetheless, some dealers are hanging in. In fact, Best Buy recently announced that it has begun selling GTC Telecom's long-distance service. Other retailers, particularly office superstores such as Staples, continue to sell landline long distance to small business and home office customers. And RadioShack continues to sell Sprint long-distance service as part of a portfolio of Sprint telecom services, including wireless.

The brunt of carriers' CE retail strategies, however, are concentrated on calling cards, cell phones and broadband Internet access, which garner greater profits for both retailer and service provider. "Residential telecom has lost ground this year and certainly hasn't seen the growth that it experienced over the past three years," said Robert Rosenberg, president of Insight Research, a telecommunications market research firm. Landline long distance, for example, "is really a commodity at this point; there's not as much differentiation in offerings," he said.

"It [long distance] is really a small part of our overall business," said a RadioShack spokesperson. RadioShack has been selling Sprint residential long distance since 1997, and the service has suffered along with the entire residential long-distance market.

Some retailers view residential phone service, particularly long distance, as a means to diversify offerings. That was part of the logic behind Best Buy's recent decision to sell long distance, said a spokesperson.

In October, Best Buy announced its first foray into selling landline long distance services, partnering with Costa Mesa, Calif.-based GTC Telecom to sell the company's 5-cents-a-minute plan in store locations via a Web-station kiosk, at the counter or online at BestBuy.com.

The plan lets subscribers make state-to-state calls for 5 cents a minute, 24 hours a day, seven days a week. Shoppers can enter their phone number into the Best Buy-GTC Web-station to see if the plan is offered in their area. The kiosk and Best Buy's Web site also offer frequently asked questions and a glossary of long-distance terms.

Best Buy claimed it chose GTC because it was able to move faster than the larger telcos and was the best-suited to work with Best Buy's online venture.

GTC sales VP Frank Naccarelli said GTC was looking for a way to penetrate a large national retailer with an online presence.

"Consumer electronics is a very viable channel for us because those customers tend to be Internet savvy," said Naccarelli. "It makes sense for us to partner with Best Buy because it gives us access to people who will later be looking for Internet access."

Though GTC currently does not sell its Internet access through Best Buy, it is hoping that exposing consumers to its brand will induce them to buy GTC's dial-up Internet access.

While not specifically referencing the Best Buy deal, Naccarelli said that his company provides a monthly revenue stream for affiliate retailers as long as the customer stays with GTC.

It is up to the retailer to determine how to use this money, either to pocket it or use it to discount phone hardware, said Naccarelli.

A Best Buy spokesperson indicated that the chain would tie in discounted hardware bundles and various other cross promotions and value-added incentives with GTC Telecom's service, but Best Buy wasn't specific. "We're still examining the various options," a spokesperson said.

Tying a phone sale to a long-distance service offer is really the marquee strength for CE retailers, said Rosenberg.

RadioShack, for instance, views long distance primarily as an add-on to its hardware sales, said a spokesperson. "Long distance is an opportunistic business, something that we could sell alone — and often do — but prefer to tie it to another offer," said the spokesperson, who declined comment on the profit-sharing deal with Sprint and whether subscription revenue is used to discount hardware prices.

Other long-distance and local-service providers, however, are concentrating their marketing efforts elsewhere.

"Competitive local exchange carriers (CLECs) don't really view retail as a viable alternative to push their services," said Rosenberg. "They keep to direct sales. As a market today, CLECs are hurting severely, so they may try new venues if they can muster up the cash."

A spokesman for carrier RCN, which offers service in several major markets including New York, New Jersey and Boston, agreed. "If you sell a bundle of services — phone, cable television and cable Internet access — like we do, it really requires highly qualified individuals to sell this suite. We are looking to keep our customer acquisition costs down, so it doesn't make sense to court retailers with revenue sharing plans when we know we can sell the services better," he said.