By now you’ve read the news that RadioShack (RSH) will stop carrying T-Mobile devices on September 14th and start carrying Verizon devices on September 15th. If you missed it you can read more here: (Reuters, TechCrunch, Engadget). How impactful might this be for both Verizon and RadioShack?
Let’s start first with RadioShack. Despite poor results, the stock was up big on the news – closing up nearly 20 percent. Clearly the markets think this is a positive move.
Verizon is the largest wireless carrier in the US with about 31 percent of the market – followed by AT&T with 27%, and T-Mobile and Sprint with about 12 percent each. A shift from T-Mobile to Verizon should give RadioShack access to roughly 17.6M additional households. More, the trend is positive with Verizon enjoying net subscriber additions. Verizon has roughly 85,300 postpaid connections while T-Mobile has about 40 percent of that sum (33,600 postpaid connections). This deal gives them access to over 50K more postpaid connections – an increase of over 50 percent.
About 45 percent of RadioShack‘s revenue comes from their mobility platform which includes postpaid and prepaid wireless handsets, commissions and residual income, prepaid wireless airtime, e-readers, netbooks with embedded network capability, and tablet computers. Nearly 70 percent of this revenue comes from upfront commission revenue and residual income received from wireless service providers.
A rough back of the envelope estimates suggests the stock’s move on Tuesday implicitly assumes RadioShack grows revenue (presumably primarily through upfront commission revenue and residual income) by 10 percent for the full year. Moving from T-Mobile to Verizon increases the addressable market significantly which will clearly help. One potential hurdle is the strong presence Verizon retail stores have in the marketplace.
I won’t go through an entire mathematical exercise for Verizon, but they clearly gain access to additional “showrooms” – which I believe remains important for the next 2-3 years as standard mobile phones owners continue the transition to smartphones. As individuals move to their first smartphone – they will want to see their alternative options first-hand. Verizon operates over 2300 stores. With the addition of the RadioShack footprint, Verizon gains access to over 4400 U.S. company-operated RadioShack retail stores and 1400+ kiosks located in Target stores.
