In my days in the telecom industry, I dealt with one of the largest former deals of a carrier reselling spectrum branded through another carrier. For a short while, Qwest Communications had a deal with Sprint where Qwest would resell Sprint’s wireless service, branded as Qwest, using the Sprint spectrum. These are my own observations from that situation. Think of this post as a complement to the posts about how entry into the wireless market is very hard.

This was a nightmare (and killed the enterprise) for multiple reasons:

  1. The provision of service, and the perception of branding. Because the service was Qwest branded, people rightfully assumed that Qwest was the company they were receiving wireless service from. This means that Qwest had to invest in support for both technical and billing services. In practice, this was a disaster. Billing wasn’t a big deal, since Qwest had a very large billing apparatus at its disposal (arguably larger than Sprint’s). Wireline carriers have a comparative advantage in billing. However, technical support was a jumble between what Qwest could handle, and was Sprint needed to handle. Not to mention the fact that beyond that, phone manufacturers were another layer of bureaucracy. There was rarely a line drawn, and customers ended up frustrated by the fragmentation.
  2. The handset market. The United States is unique in the world in the way we use carriers as “gatekeepers”. That is, that handsets are carrier specific. This creates very large annoyances by itself, but in reselling service, it becomes a quagmire. Qwest had many problems keeping up with mobile phone demand, even before iPhone Android. The latest phones Sprint was offering would be late or never to arrive on the Qwest network, and would essentially pit Qwest in competition with its own partner. Is the convenience of a wireless bill coupled with your home phone/tv/internet bill really worth it if you don’t have access to the latest technology? Usually not.
  3. Large fixed costs in licensing which couldn’t be offset by the prices of wireless service. Qwest was amazingly ambitious with pricing in the beginning of their wireless enterprise. Pioneering such conveniences as “5% bundled discount”, “unlimited minutes at 7” and “unlimited data”. This was a very large mistake that went out the window very quickly. These plans were arguably great for consumers, but they couldn’t be sustained in the arrangement Qwest had, because the costs of licensing the spectrum were too large. Qwest wanted to make a large splash, and they didn’t do a bad job…but the PR after they had to rescind these deals was very damaging. People just didn’t flock to Qwest Wireless, for obvious reasons of the cellular market being very sticky. It was a brilliant marketing move executed at the wrong time by the wrong player. They were expecting a larger migration…but large migrations are not characteristic of wireless service because of the fact that it is a rather fixed investment in the US.

Qwest (or CenturyTel) now resells Verizon, but simply deals with billing. That is, they include Verizon on their own bill, and offer a slight discount for bundled service. This is a much better arrangement given the realities of number one. However, Qwest was really done in by artificial scarcity of wireless spectrum and to a lesser extent the market structure. Licensing Sprint’s network was phenomenally expensive. The costs didn’t allow Qwest to differentiate their product, and make even a tiny splash in the broader wireless market. This could have been different had the costs of owning spectrum been lower…as they probably would be in a market, especially for higher frequencies.

It is interesting to note that US West owned a portion of very low frequency spectrum that they built out in certain markets for wireless service. US West used to offer cell phones that, in the 14 markets they covered, offered the best service anywhere (remember, this is the late 90’s). That spectrum was sold to Verizon.