IE 11 is not supported. For an optimal experience visit our site on another browser.

RadioShack chooses Sprint, Cingular

RadioShack Corp. has secured new agreements to sell products and services for Sprint PCS and Cingular Wireless, the electronics retailer announced Monday.
/ Source: The Associated Press

RadioShack Corp. secured new agreements to sell products and services for Sprint PCS and Cingular Wireless, the Fort Worth-based electronics retailer announced Monday.

The news sent RadioShack's stock up on the New York Stock Exchange, and was also received well by Wall Street analysts, even as RadioShack cut ties with Verizon Wireless, the nation's fastest growing wireless carrier.

"Over the next decade, we believe these agreements will put us in a position to capture a greater share of a growing wireless market," Chief Executive David Edmondson told analysts.

"If we execute as we intend to, these agreements will put RadioShack in a stronger financial position than we could have ever achieved under our prior agreements."

RadioShack struck an 11-year agreement with Sprint, a long-standing partner in the middle of a merger with Nextel, and a 10-year deal with Cingular, the nation's largest wireless carrier.

The company did not disclose the financial terms, but it outlined four factors that it said will help offset losing Verizon.

The factors are better commissions on new contracts and better margins on phone sales under the new deals; monthly commissions from Cingular beginning next year; more favorable activation and upgrade mix from Cingular and more unit sales.

Edmondson said the new lineup adds depth to a broad spectrum of networks used by the carriers and, with that, greater offering of the new generation phones such as Motorola's Razr V3 offered by Cingular.

He also noted that over the life of the two agreements, there will be 70 million activations annually. Of those, about 28 million will come from third-party vendors such as RadioShack.

Edmondson said that having Sprint and Verizon represents about 9 million potential sales, but the Sprint, Cingular, Nextel combination means a pool of 16 million customers.

"Make no mistake, the wireless industry is a large and sustainable market, and we intend to gain our share of that market," he said.

Gary Balter, an analyst with Credit Suisse First Boston, said in a research note that RadioShack's news, "provides a level of certainty to what had become a very uncertain situation as the contracts with both Verizon and Sprint were coming due within a year."

Verizon's five-year agreement ends in December. On Monday, Verizon referred to itself as a future "vigorous competitor of RadioShack."

"It no longer made sense to continue the relationship given the high cost of this channel relative to other distribution channels and our insistence that growth and profit be balanced," Lowell McAdam, Verizon Wireless' chief operating officer, said in a statement.

For Cingular, however, the agreement could help the company — a joint venture between SBC and Bell South — keep its top spot in the industry with 51.6 million subscribers.

"Today's agreement with RadioShack builds on Cingular's already-strong distribution system," Cingular President and CEO Stan Sigman said in a release.

"RadioShack brings a nationwide network of stores and a team of knowledgeable and helpful salespeople with an unparalleled understanding of wireless products."

RadioShack has 5,000 retail stores and has begun efforts to used additional sales outlets: kiosks in area malls and in Sam's Clubs.

By the end of 2007, RadioShack hopes to have 500 of each kiosk type open, Edmondson said. These kiosks post average annual sales of about $3,000 per square foot, he said. The traditional retail stores average about $350 per square foot annually.

Despite the news and the Wall Street response, the company will maintain its 2005 earnings per share guidance of $1.80 to $1.90.