Cellular Agents-Dealers - Cash Cows
Really Effective Compensation
The Agent Agreement allowed the small business entrepreneurs to solicit customers for the cellular carrier for which the Agent was paid an "activation commission" for the "number" issued for the customer's cellular phone. The Agent was responsible for procuring, setup, programming, and installing the cellular phone. This activation commission paid for a new number subscriber was $300.00 to $600.00.
In addition, the Agent Agreement was a long term agreement, usually five or more years and also paid a handsome residual commission on the recurring monthly billings to the customer of four to six percent, as long as the Agent's customer was a subscriber customer of the carrier (named carrier company.)
One hell of a cash flow
This double commission structure was highly motivational. Even a dull pencil could calculate wonderful proforma cash flow documents. The Cellular Market Simulator spreadsheet software by this writer projected every "what if" for any sales volume situation, any activation commission, any residual commission, any activation commission and residual commission depletion (churn), for any reasonable time element to future value.
The market simulator’s hypothetical financial projections proved out the spectacular cash flows available – and this highly motivated many to become agents, dealers and retailers. Plus, these individuals were encouraged to invest their own assets and money in the ground floor opportunities, promising they too could travel along with the coming booming cellular phone industry, which, of course, was the darling of Wall Street. Carriers needed only to hold out their hands for millions of investment dollars to fall into their pockets.
In these early days, a typical gross profit on a phone sale and activation was a number commission plus profit on the phone, $600.00 to $1,600.00. In 1985, the car dealer agent profited more on the cellular phone added to the Cadillac than on the Cadillac itself. Subscribers paid hefty usage charges of $.25 to $.75 per minute. Bills would range up to several hundred dollars a month.
In start-up situations, the aggressive agent sales operation would activate 400 to 600 numbers a month – producing terrific activation commissions plus quarterly residual commissions on subscriber billings. Activation commissions, phone, and installation profits produced a spectacular cash flow of around $400,000 per month almost immediately.
The simulator software residual commissions on billings projections for two years out, even with severe depletions rates applied, would project residual commissions checks of $450,000 per quarter. How’s that for cash flow?
And sure enough, small business people, experienced, inexperienced, entrepreneurs, paging people, two-way radio companies, existing older technology mobile radio companies just could not resist this apparent road to wealth.
The Pie Was In The Sky And The Contract
The Agent agreement was like a wet noodle, very flexible. It’s purpose was to get the Agent to sign and to invest in his new industry – and to begin producing subscribers. The carrier would promise almost anything to keep the Agent motivated. Some features of the contract included:
Increase activation commission without performance factor
Normally 100+ higher. Make all high.
Activation commission chargeback time period.
Normal 90 to 180 days. Adjust to 30 days.
Normal $25.00. Adjust to $60 to $100 per new subscriber.
Subscriber credit approval
Normal Excellent. Adjust to good or fair orjust eliminate.
Market development funds
Normal none. Negotiate - development or leasehold build-out funds,
maybe $50,00 per location.
Normal none. Offer phones at carrier cost on credit secured
with accrued commissions.
The carrier had piles of cash from Wall Street to expedite market development, and they did. Often before the cellular system was actually ready to provide services in the market.
Roll Out The Wealth
The carrier's motivation plan – using mountains of cash and future wealth – worked really well. Agents, dealers, and retailers invested and set up efficient sales-producing facilities. This built up subscribers rapidly. Federal Government licensed monopoly / duopoly was booming.
The "A" carriers – who received their cellular licenses and building permits one year after the "B" Ma Bell types – ironically, in most markets, had their local entrepreneur cellular
"non-wireline" or non-Bell type systems up and running before the Ma Bell types. The result? – they were adding subscribers before the "B" system.
One reason for this was that these guys were not hampered by the pool of bureaucratic mud that the Bell types were continuously mired in. Generally, the "A" non-wireline carriers hired the best engineers, builders, managers and skills in the RF or wireless and radio industry. Many of these experienced people came from the Bell type companies.
Chomp is a good word to describe the eagerness with which small business people approached these new opportunities to make money. Conditions were ripe for a new industry to emerge. In 1983, the Oil industry worldwide was in a depression. The manufacturing of drilling and production equipment and products all over the planet went from 100% to 10%. Just enough to furnish maintenance and repair request.
The cellular industry, rolling into build out in 1984-85-86, had many entrepreneurs, like this writer, who had been champions in sales and marketing in the Houston manufacturing industry. And they were aggressively seeking new opportunities as relief from depressed industries.
Agents began chomping at the cellular carrier cash flow. Carriers would pay a number commission of several hundred dollars to anyone who brought a subscriber to them. If it looked like more would come, they followed up with a starter Agent agreement and some of the offerings and benefits mentioned earlier.
As the Agent sold more, bolted more cellular equipment in the cars, and added more sales people, the carrier marketing and sales people reacted with even more motivations for expansion. New Agent agreements, more cash, longer terms, big residual commissions, resulted in more and more profits for all.
And, the real incentives were the ancillary fat payments: advertising allowance, not reimbursement for actual expense of cash payments $50 to $100 per activation. Fat funds for market development funds, big cash for new locations, signage, retail remodeling and leasehold build out. Also available were funds to move into another market if you were really good at growing the carrier's numbers and presence and name.
In a matter of months, the Agent agreements were renegotiated with added cash incentives, adjusted terms – and much stronger language not so agreeable to the Agent. For example:
Customer/subscriber was re-defined as property of the carrier if Agent agreement went away for any reason.
Agent could not activate numbers to flip customer/subscribers to any other carrier.
Agent geographic (other Agent close by) same carrier competition protection missing from agreement.
After a year or so, top out evolved. Agent's business had really boomed with high growth with a nice array of six to 20 locations, most in good high traffic retail situation. The Agent had become content with his market share – that is, what he could handle without putting on new partners, or entrepreneurs to grow much bigger. He had reached the growth demographics plateau of the carriers business plan.
Carrier sales people didn't really understand or have complete knowledge of the carrier's overall marketing or operations plan or strategy for this Government licensed, mandated, and guaranteed monopoly business. For the most part, they actually believed what they were told by bosses about how to deal with Agents. They were motivated and guided by their carrier management people in the same spirit as the Agent.
The market grew fast and big. Other entrepreneurs, Agents, and new comers were constantly being cultivated by the carriers along with the existing Agents. Some Agents built out multi-store operations in dozens of locations and became complacent.
They Topped Out. Topped-Out