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Cellular carriers continue to expand their base of direct- and indirect-channel storefronts, and they're still driving the majority of activations through their direct channels to keep acquisition costs in check and drive up average revenue per user (ARPU), according to an In-Stat study.
On average, 60 percent of activations are made through carrier-direct channels, with only 40 percent of activations made through such indirect channels as retail chains, master agents and independent wireless specialty stores, In-Stat found in its survey of carriers and indirect retailers. The carriers don't believe this percentage will change over the next year, In-Stat said.
In 2005, carriers increased the number of direct and indirect outlets that sell their services and plan to do so again in 2006, In-Stat noted. In 2004, each major carrier opened an average of 208 carrier-owned storefronts and 173 indirect storefronts. In 2005, each major carrier plans on average to open 155 carrier-owned stores and 206 indirect outlets.
In 2004, Sprint PCS alone opened 200 company-owned stores, but following its acquisition of AT&T Wireless, Cingular operates the most outlets at 2,800. Verizon comes in second with 1,300 stores and 590 company-owned kiosks in Circuit City stores (see tables).
“Carriers' stores alone cannot reach the entire potential subscriber base well enough, which is why they rely on indirect channels to increase their reach,” said Becky Diercks, In-Stat's custom research director. RadioShack, she noted, accounts for as much as 25 percent of all gross customer additions for its carriers: Verizon, Sprint and TracFone.
Nonetheless, carriers prefer to drive sales through their direct channels, noting that “carriers typically sell phones at prices lower than their indirect partners sell them.” A TWICE survey of carriers and dealers, in fact, found that select major carriers — including Verizon and Cingular — offer current subscribers who come to their company stores to upgrade phones the price that they're offered to new subscribers. Exceptions include Nextel and Sprint, dealers and agents said. Sprint, for example, uses a rebate program to offer the same prices to current and new subscribers who purchase phones through direct and indirect channels.
Carriers are driving the majority of sales through direct channels, In-Stat explained, not only because of lower acquisition costs but because of better control over the sales and service experience, reduced fraud and an increased opportunity to sell advanced services. For that matter, carriers in recent years have bolstered their online sales effort because of even lower acquisition costs and the opportunity to sign up the subscriber for electronic bill payment and automated online customer care.
A total of 39 percent of the 55 interviewed carriers say it costs less to activate through direct channels, and the cost reduction is 34 percent on average. A total of 57 percent of the carriers earn greater ARPU from subscribers activated through direct channels, and the ARPU is 40 percent greater on average.
In addition, some major carriers, including Verizon, “are starting to shy away from big national retailers” such as Target and Wal-Mart, Diercks said. “They found these channels were not as effective as they had hoped. They cost a great deal of money to support, and they sell so many products that they could not focus enough on selling wireless services well.” On top of that, she said, “many wireless subscribers come into stores for service/technical support, something that national retailers are not well-prepared to support.” Sprint and Verizon, she noted, have been redesigning stores to place more emphasis on technical support.
Despite their preference for going direct, some carriers have begun to open up their wallets a little more to compensate indirect retailers, In-Stat found. Thirty-nine percent of carriers said they've increased their compensation to indirect channels during the past year, on average by 27 percent. Forty percent, however, said their compensation stayed the same, and 7 percent said it declined.
A survey of indirect retailers confirms the perception, In-Stat said. Thirty-nine percent of the 105 indirect partners survey said compensation grew, and the average growth cited was 27 percent. A total of 51 percent of indirect distribution partners said compensation was unchanged, and 6 percent thought it declined.
In-Stat ( www.instat.com) conducted the survey in January and February and published the findings in a study titled “Wireless Carriers and Their Distribution Channels: 2005.” It can be purchased by calling (480) 483-4441.Carrier-Owned Stores, U.S.
|Note: Figures as reported in companies' latest available financial results.|
*Includes kiosks in Circuit City stores
Source: In-Stat, Scottsdale, Ariz. ©TWICE 2005
Source: In-Stat, Scottsdale, Ariz. ©TWICE 2005
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