RadioShack will end its five-year relationship with Verizon Wireless when its contract with the carrier expires on Dec. 31, and will enter a new 10-year agreement with Cingular Wireless, effective January 2006.
RadioShack has also extended its decade-long relationship with Sprint PCS with a new 10-year contract that takes effect next June.
The retailer said its new, more profitable relationship with Cingular will provide it with an entrée into the GSM protocol, which it described as the global standard in wireless phones. “We decided it was imperative to introduce a GSM carrier to remain competitive,” said RadioShack's president/CEO Dave Edmondson. “Cingular was our GSM choice as they are the largest wireless carrier in the U.S.”
Cingular said it will sell its full line of post-paid products and GoPhone prepaid products through RadioShack's more than 5,000 company-owned stores.
RadioShack will continue to offer the CDMA protocol through Sprint, and will also introduce IDEN technology through Nextel, pending that provider's merger with Sprint.
In a statement, Verizon's COO Lowell McAdam noted that “Verizon Wireless and RadioShack are moving in opposite directions as it relates to wireless communications sales.”
RadioShack acknowledged that the new agreements are expected to be more profitable for the chain in the short- and long-term. The deals will also provide “significant future growth opportunities” due to RadioShack's entry into the GSM market, the addition of Nextel products and services this fall, and expanded distribution, ostensibly through the operation of carrier kiosks.
“First and foremost, our negotiations were focused on improving the economics of the RadioShack store wireless business and on assuming a more significant role in the carriers' overall distribution strategy,” Edmondson said. In a conference call last month, chief financial officer David Barnes told analysts that RadioShack had restructured its agreement with Sprint, resulting in higher handset costs but also higher sales commissions for the chain. RadioShack also operates mall-based kiosks for Sprint.
Analysts estimate that the wireless category accounts for between 35 percent and 40 percent of RadioShack's total sales and more than half of its profits, while Sprint and Verizon, the chain's core nationwide carriers, together account for an estimated 90 percent of RadioShack's wireless business.