Verizon and Brightpoint Transforming Handset Distribution

Implications: Verizon Wireless’s announced agreement with Brightpoint to support handsets for indirect retail channels appears to be an attempt to separate company-owned direct distribution.

Analysis:

Verizon announcing the agreement with Brightpoint for handset distribution is a turnabout from the previous trends of taking in-house.  AT&T also had originally used the distributor CellStar before developing its own distribution and logistics.  CellStar was acquired by Brightpoint after losing the major accounts of Lock/Line insurance to Asurion and Motorola to Cinram.  Verizon’s agreement is only for indirect channels of agents and retailers.  Verizon continues to distribute for its company-owned stores and direct sales channels.  While announcing open access, Verizon stated that handset sales and servicing had become more varied than a carrier could support.  But by withholding the direct distribution from Brightpoint, Verizon appears to be focused on its own channels to use wireless for promoting DSL and FiOS bundles.

Brightpoint’s CEO commented about his company’s growth because carriers are backing off from subsidized handsets and bundles for the alternative of indirect channels.  On the other hand, it might appear that Verizon wants to differentiate selling standalone wireless through indirect channels versus servicing the higher value customer that bundles wireless, home broadband, and TV through FiOS.  The new focus on selling and servicing the multimedia customer is shown in Verizon’s launch of Evolution stores and AT&T’s rollout of Experience stores with the Microsoft Surface touch-based display.  Sprint Nextel and T-Mobile USA both use Brightpoint, but are more dependent on indirect channels than Verizon and AT&T each having about 2,000 company-owned stores.  

For Brightpoint’s results, the issue is how strong indirect channels will be with the U.S. market close to full mobile penetration. Research studies indicate the global slowdown in handset shipments, with Sony Ericsson showing the difficulty in the mid-to-high priced models.  And Brightpoint is adjusting with its just-announced 10% workforce reduction in the European markets from the Dangaard acquisition last year.  The challenge will be how Brightpoint can support indirect channels for carriers, and maximize fee-based logistics services to offset the slowdown in residual-compensated handset shipments.