Mobile phones - is it worth selling them

Mobile phones - is it worth selling them

Many computer resellers have wondered if they could be selling mobile phones as an extension of their core business. After all, there seem to be plenty of buyers out there, and as the products get better and smarter and more like computers, perhaps it makes sense. ARN talked to the main phone carriers,some phone manufacturers and some resellers who are already in the business, and the word is . . . be carefulThe mobile phone market is a complex and changeable one. It operates on a number of levels, uses terminology which can confuse and to some observers makes computer resellers look like saints. What you can sell, whether you can make a profit and the degree of technical knowledge required, depends on which level you operate on.

Optus has four categories of mobile phone resellers or dealers and this is where it's important to get the terminology straight.

Resellers. A telecommunications reseller (or service provider) is a company that provides a telecommunications service (mobile or fixed telephony) but does not own a network. A carrier provides a telecommunications service and owns a network. A reseller - for example AAPT, PacStar, Call Australia - will buy bulk "minutes" from a carrier at a discount and then sell a service to the end user. The end user becomes the reseller's customer rather than the carrier's customer. Thus a telecommunications reseller, in owning the customer, has to take sole responsibility for looking after the customer. It bills them and provides customer service (which often means passing service faults through to the prime carrier).

Franchise. Optus has a franchise chain of Optus World stores that sell mobile phones, long distance phones services and office equipment such as fax machines, pagers and so on. Telstra is also moving out of direct operation of its retail shops.

Dealers. Optus has a network of dealers - companies like Century 21 and Network Mobile Phones - that sell mobile phone handsets and long distance services and connect customers to the Optus network. Their customers become Optus customers and are billed and serviced by Optus. The dealer receives commission for each customer. A dealer can be exclusive to one mobile carrier only (a "premium" dealer) or sell the products from more than one carrier (an "authorised" dealer).

Retailers. Optus retailers generally sell other things as well as mobile phones - Harvey Norman, K-Mart, David Jones, Vox, Tandy, Chandlers and so on. They sell mobile handsets and connect people to the network on behalf of the carrier. They usually sell more than one carrier's products and their customers, once connected to a carrier's network, are customers of that carrier and are billed and serviced by that carrier. These retailers receive commission from the carrier.

Is there any room for me?

The question for computer resellers to consider is whether there is any scope for them to enter this market, and if so, is there any profit or future in it?

It's possible to operate at different ends of the mobile phone market. The high end is that of the expert dealer who sells high featured data-type phones. These phones can be complex and they need a high level of sales expertise, but there is scope for also selling peripheral equipment and services. The low end is the shopfront that sells consumer-type phones. These phones only require a small degree of knowledge and it's basically a sell-and-forget business.

The categories of mobile phone sellers as defined by Optus are: those who sell air time only; air time plus a handset; and air time plus a handset plus customer service.

In Australia, the sale of handsets only isn't profitable because no-one would want to pay the real price of a phone. Carriers heavily subsidise handsets by selling them with an airtime contract. Because cheap handsets with airtime contracts are well advertised, consumers are attracted to these rather than a handset without a contract which would retail for over $1,000 for a top of the line phone.

Gary Maddern, assistant general manager marketing and sales for NEC, said that "the profit margin on handset sales is non-existent. For example, if the cost of a handset to the reseller is, say, $500 and the sell price to the public is $300, the $200 difference is paid by the operator via a subsidy. The operator will then pay the reseller a connection fee of, say, $65 plus ongoing revenue of, say, 5 per cent of the monthly call charges."

To provide airtime, resellers must be aligned with a carrier or service provider. The subsidy which these operators provide on the sale not only reduces the end-user cost but it also provides the reseller with a margin and some ongoing revenue. The handsets are typically sold with 15-month air-time contracts; however, Peter Maurer of Advanced Portable Technologies believes that "even bundled this way, the margin can be pretty low".

A light at the end of the tunnel

In order for the reseller to provide customer service in addition to a handset and airtime, a complex billing system needs to be installed. Kate Van den Broek, public affairs executive of Optus, believes that "only an extremely large computer reseller would consider becoming a telephony reseller, as a carrier would look for the ability to undertake considerable financial investment and the ability to set up the infrastructure such as a billing system, customer service and handset supply and servicing". Van den Broek argues that the telephone reseller does not do anything else because so much is involved. In her opinion, computer resellers would not want to commit the funds, the time or the manpower to accommodate all of these services.

Before you decide that the venture is not worthwhile, there is an area where computer resellers could find a profitable niche. Maddern of NEC believes that now that PCs can connect to mobile phones, "the concept of the mobile office will provide many opportunities for the reseller".

The wireless data market provides opportunities for resellers to provide and install data cards and other hardware and to sell a mobile computing platform. This is a market which Maurer of Advanced Portable Technologies says "the phone dealers do not understand".

Ericsson, Nokia and Motorola all offer a GSM data card that provides a data, fax and SMS (messaging) capability from the handset when connected to a mobile computer. Advanced Portable Technologies distributes all three vendors cards.

Maurer claims that even though "data users typically generate larger volumes of mobile phone traffic, there is so much normal voice business on the digital network that there is little requirement to understand the data market."

He goes on to say that "if the user asks for data then the dealer will sell him a card". Typically, he says, "that is the limit of the phone dealer's service".

The opportunity for resellers arises when phone dealers find it too difficult to install the data cards. Maurer says "if you can install a modem along with the communications software under the various operating systems, then it shouldn't be too much of a problem to provide these services. Mostly the difficulty comes with the communications packages and setting up command strings for remote connection to e-mail and other applications. However, it is true to say that it is no more difficult than a normal modem."

If computer dealers can resell the data cards and also provide installation services for the hardware and software on the notebook computer, this service could be more profitable than selling airtime.

Leverage opportunities exist where services can be provided to a company which is looking at setting up its employees with a data facility while on the road, probably using the Digital (GSM) phone network. Even though there is considerable integration work, if the computer dealer can provide the installation services and sell the mobile computing platform, he may overcome the problem of the phone dealer who is prepared to make nothing on the handset and data card hardware in order to close a deal.

For the small reseller, there is an opportunity to contact local phone dealers and find out who installation services can be provided to. The prospect of passing the potential technical problems involved in installation over to someone else may be attractive to them. Maurer suggests that as the phone dealer only really cares about airtime, he may even refer all the data leads to the dealer. In that case, dealers could also sell the data card. For the reseller looking to diversify, this is certainly an avenue worth pursuing.

A dark cloud?

Having established an opportunity for resellers to enter the mobile phone market, is there a future in it? The prospect of deregulation is looming. Maddern of NEC believes that this will bring more phone suppliers into the market as well as a couple more operators. Profitability for the reseller he suggests "will be squeezed".

It is generally assumed in the industry that once deregulation occurs next year, there will be more people around to share the profits. This includes new carriers, new air-time resellers and new product and service types. Still, some computer resellers told us they are already planning new business around what they expect to happen next year.

Fast Facts

- Traditional mobile phone dealers make their money from kickbacks from the air-time providers- It's hard for a computer reseller to make a dollar from selling only mobile phones- The reseller who has the technical resources to provide add-on services such as the "mobile office" can do well- Deregulation of the telecommunications industry in 1997 will increase the number of opportunities, but may not bring increased profitsAny enquiries to Optus from resellers wishing to find put more about selling mobile phones can be directed to:

Craig Macdonald, Optus National Dealer ManagerTel (03) 9233 4934

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