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Retailers Grow Business with Cell Phones

NEW YORK -- When 7-Eleven Inc. started its own mobile phone service last year, stocking handsets on the shelves along with its other convenience items, it became one of a number of companies, many with no experience in the phone business, making a new sideline of selling mobile communications, The New York Times reported.

"You no longer have to be a technology company to be in the technology business," Kevin Elliott, vice president of merchandising for Dallas-based 7-Eleven, told the Times. In June 2004, 7-Eleven introduced the service and now offers six models of phones at 5,500 stores, with hopes that the service will drive up customer traffic. "You pull it out of the box, turn it on and start talking."

In years past, only corporations with billions of dollars could afford to buy radio spectrum and build complex networks to deliver phone services. Now, companies with an advertising budget and a market to pursue can start their own service by ordering phones from Nokia or Motorola and reselling network capacity leased at wholesale rates from carriers like Sprint or Cingular, the Times stated.

Many of these providers -- known as mobile virtual network operators -- also offer a cheaper alternative to traditional calling plans by selling prepaid minutes at a flat rate, such as 20 cents a minute. The minutes do not expire and customers pay for more time only if they use up their supply.

The prepaid model is one way virtual operators have won over budget-conscious users, younger customers and people who use their phones infrequently.

Other companies planning to enter the market include Virgin Mobile, a division of the entertainment and travel empire, which has three million cell phone customers, and both Disney and ESPN plan to offer phone services next year, focusing on families and sports fans. Even Sean Combs, the music and clothing entrepreneur, may start his own phone service, according to the report.

Companies like 7-Eleven are hoping to sell to the nearly 35 percent of all Americans who do not have cel lphones. They are also trying to attract pockets of consumers that they say are underserved by the major phone carriers.
In all, as many as 13 million Americans out of 182 million users nationwide got their mobile phone service from a virtual operator at the end of last year, according to Adventis, a telecommunications consultant, and the number of new subscribers to virtual phone sellers is expected to jump 42 percent by the end of 2006.

Even though the barriers to entry in the business are relatively low, these new entrants face some big hurdles. The major mobile phone carriers are themselves fighting to keep subscribers and stay profitable. Since margins are thin, companies need hundreds of thousands of users to make a significant profit. There is also a limit to how narrowly the cellphone market can be sliced.

"This is a very hard business," John A. Garcia, a senior vice president at Sprint who works with companies that lease space on Sprint's network, told the Times. Garcia noted that companies that want to start their own branded service still must buy the phones, set up billing systems and provide customer service.

"There are a lot of people we're discouraging," Mr. Garcia said. "We've got a list that would shock you," he said, of businesses eager to become virtual operators.

At the same time, mainstream national carriers are introducing their own prepaid phone services. Nextel offers Boost, a service aimed at young consumers who want a pay-as-you-go plan. The company has attracted 1.7 million customers to the plan in the 18 months since it was started.

But there are still opportunities for growth. For example, Movida focuses on selling to Hispanic consumers, including those who do not speak English or cannot get a phone plan from a major carrier because they lack a credit record.

Since April, Movida has been selling its phones in Wal-Mart stores in California and the Southwest, tailoring its service to its customers by offering Spanish-speaking customer service agents as well as Spanish and English information on its phones and bills.

Movida phones also include "all sorts of tidbits that make them Hispanic," said Enrique García Viamonte, the company's chairman, like gossip about Hispanic entertainers and a religious feature called "saint of the day," which users can download onto phones or read via the Web.
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