Head to Head: Wireline and Wireless Agency Contracts

Telecom Lawyer's Ben Bronston explains the intricacies of agent wireless contracts.

Channel Partners

July 7, 2011

5 Min Read
Head to Head: Wireline and Wireless Agency Contracts

By Ben Bronston

Wireless services are still a mystery to many telecom agents. The question that many agents have not been able to answer is how to profit from wireless. They know that its ubiquitous and they sense that its lucrative, but they dont know how to tap into it, and theyre not sure how to figure out what theyll be paid.

One thing seems certain in the wireless world demonstrating a rapid rate of net subscriber additions is king. Growth is measured in net new subscribers, including postpaid cellular, prepaid cellular and broadband wireless modem (aka aircard) activations. Upgrades of existing services and handset sales, as well as subscriber churn (particularly for postpaid services), are also the focus of many so-called stock market experts.” Even traditional metrics (i.e., top-line revenue, EBITDA, free cash flow and net profit) come into play. And, of course, analysts love anything containing the word data,” such as growth in data revenue, data usage, data aircards, etc.

So why do I mention all of these different valuation metrics? Because, together, they form the fundamentals underlying how agents are compensated in the wireless world. This, in turn, influences the types of provisions contained in a typical wireless agent agreement. The following sets forth a brief comparison of the major provisions found in most wireline and wireless agent agreements:

Upfront vs. Residual Payments. In a typical wireline agent agreement, residual income is the name of the game. Aggregate monthly net recurring revenue of all accounts procured by the agent is the primary metric used in determining the agents overall commission percentage. Conversely, agent agreements with the major wireless carriers tend to be much more granular in nature, providing for upfront payments based on such statistics as the number of new activations per month, the price of each monthly service plan sold, the number of phone upgrades sold during the month and any data features or add-on services sold during the month. While these upfront payments certainly can add up, residual commissions in the wireless world if offered at all usually are nominal, often totaling only a few dollars per service plan.

If residual commissions are your primary goal, you may consider contracting with a mobile virtual network operator (MVNO) or wireless reseller. Their compensation plans often are more similar to the typical wireline providers plan, with commission percentages based on aggregate monthly recurring revenue, etc. But dont discount the value of upfront commissions, which can provide a much-needed injection of cash that you can use to invest in your growth. Upfront payments also can help you mitigate your exposure to the primary risk of every agents business model namely whether the carrier will be around to pay you the residual commissions you covet. For example, if the carrier goes out of business or cancels its partner program, you already would have received all or a majority of the compensation youre owed.

Evergreen Commissions? As previously mentioned, most wireless agent agreements call for upfront payments rather than residual commissions. Even when residuals are offered by the major carriers, they usually are very small and last for a finite period of time. For example, one major wireless carrier offers whats called a Continuing Service Award,” or CSA,” which ranges from $1 for service plans priced in the range of 99 cents to $29.98 per month to as high as $4 for service plans in excess of $69.99 per month; the payout lasts for a maximum of 36 months. Wireless resellers and MVNOs are much more likely to have an established evergreen payment plan. One prominent MVNOs standard agent agreement states, Agent will continue to receive commissions payable under this agreement for as long as an account remains active and agent is not in breach of this agreement.” On the surface, this looks great but when you dig a little deeper you realize it comes with a corresponding minimum monthly recurring revenue commitment.

Device Drawbacks. In the world of wireless handsets, its impossible to separate the service itself from the devices that run it and, in the case of smartphones, the myriad applications that have become commercially available over the last several years. Some providers may require you to maintain a device inventory, but in most cases, wireless carriers are willing to drop-ship or use third-party fulfillment and logistics providers. Beware, however, that the compensation paid for devices shipped directly to the customer can be substantially less than what you would be paid if you maintain your own inventory. Theres also the confusing matter of discounts and rebates on wireless devices. Rarely do such considerations enter the wireline world, so make sure to read the provisions dealing with these issues very carefully.

Common Clauses. Most of the other clauses one would typically find in a wireless agent agreement are similar to those found in a wireline agreement. You can bet youll see a host of provisions giving the provider the right to terminate the agreement for cause; these can range from breaches as innocuous as inadvertently failing to comply with a civil ordinance to much more egregious behavior such as forging order forms. Its also standard for a carrier to retain the right to terminate the agreement for its own convenience upon providing you with notice of anywhere from 30 to 90 days. And because of the intense focus on customer churn, most wireless agreements also prevent you from soliciting customers or moving them to another provider.

The bottom line is there are definite distinctions between wireless agent agreements and those governing the sale of wireline services. When deciding whether to sell wireless services you should therefore be sure to prioritize what is most important to you (i.e., upfront payments versus residuals, large-dollar sales versus small ones, etc.). Wireless services should not be viewed as a substitute or alternative to wireline services, but rather as a complementary product to help you realize revenue that may represent low-hanging fruit, and possibly even strengthen your hold on your customers.

Ben Bronston is the principal lawyer at

Ben Bronston Telecom Lawyer.

He has represented agents for more than 18 years and is a regular contributor to Channel Partners. He can be reached at +1 713 778 1000 or

[email protected]

. The opinions expressed in this article are the authors alone and should not be construed as legal advice.

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