Retailers accuse Motorola of strong-arm tactics Vendors tempted to turn to other cell-phone makers

September 10, 1996|By BLOOMBERG BUSINESS NEWS

SCHAUMBURG, Ill. -- When Motorola Inc. executives asked Robert Qureshi to meet in a side room at a Dallas cellular telephone conference this spring, he thought they wanted his opinion on a new distribution policy.

Instead, they told him at least three-quarters of the cellular phones he carries in his 50 stores must be made by Motorola. If he didn't meet that quota, Motorola wouldn't supply him with its hot new products, including StarTac, the sleek model that's wowing customers.

"I thought they were crazy," said Qureshi, president of Cellular Concepts, a cellular-phone retailer. "This is going to drive Motorola's market share into the toilet."

Qureshi is not the only one who's concerned. Other retailers are bristling at what they call Motorola's strong-arm tactics as it tries to boost its slumping market share. They say the strategy is backfiring, tempting vendors to turn to competitors and further eroding Motorola's position as the world's No. 1 cell-phone maker.

"There are other good phones out there," said Ujjal Kohli, vice president of marketing at AirTouch Cellular Inc., which offers cellular service using Motorola phones, among others.

Competition from Nokia, Ericsson and Audiovox Corp., who are cutting the prices of their phones, also is hurting Motorola.

In the last half of 1994, Schaumburg, Ill.-based Motorola had an average of 63 percent of the U.S. cell-phone market, said Herschel Shosteck, president of Herschel Shosteck Associates, a market research firm in Wheaton. Md.

Motorola now has less than half, Shosteck said.

Meanwhile, its shares have fallen 9 percent this year. Motorola fell $1 yesterday, to $50.625. Nokia's are up 6 percent this year, and Ericsson's have jumped 26 percent.

Motorola said it doesn't plan to change the policy because it makes good business sense.

"We want a say in how our products are displayed and promoted," said Jim Caile, vice president of marketing for Motorola's General Systems division.

But carriers and retailers are tussling with Motorola over the policy.

"I want to have a good relationship with all my vendors, but I refuse to distribute under Motorola's current terms," said Cynthia White, chief operating officer of Bell Atlantic Nynex Mobile, the nation's No. 3 cellular provider.

Motorola says it wants retailers to carry a full line of its products, not just pick their favorites. It ran into problems about 18 months ago when it made too many phones. That caused a glut, which diminished their cache.

To remedy that, it's asking retailers if they want to be so- called Signature customers. Signature retailers must promise that 75 percent or more of their phones will be Motorola's, or they don't get the company's $1,000 StarTac, the world's smallest cell phone.

"There is supposed to be a choice in whether or not they [retailers] want to be a Signature customer," Caile said.

The problem is, retailers and carriers say, there's no real choice. Bulking up on Motorola phones could mean pushing rivals' models off the shelf. At the same time, not having StarTacs could mean turning customers away.

No other major cell-phone company is trying to tie up their customers the way Motorola is. Nokia, the No. 2 cell-phone maker, has an idea why.

Matt Wisk, director of marketing for Nokia Mobile Phones Inc., says carriers are turning to Nokia because of Motorola's problems with distributors.

"We can [try to] convince people to love us, but we can't force them [as Motorola is trying to do]," Wisk said.

GTE Corp., the nation's largest local phone company, and BellSouth Corp. already have felt the sting. Motorola cut off GTE from StarTacs because GTE sold phones to distributors outside its region, another violation of Motorola's policy. BellSouth has opted not to buy StarTacs rather than live under the constraints.

GTE started looking beyond Motorola for its phones. It now carries 35 percent fewer Motorola phones than it did at the beginning of the year, when the policy was introduced.

George Schmitt, executive vice president of Omnipoint Corp., a wireless telecommunications company based in Arlington, Va., said his company would have bought more Motorola phones if Motorola weren't so difficult.

"For years, Motorola was the leader, but they felt they could force their phones on the market," Schmitt said.

To be sure, some smaller carriers aren't feeling the pressure as much as larger ones.

Tom Prestwood, vice president and general manager of the Carolina region of Vanguard Cellular, recently had meetings with Motorola. Vanguard, which carries 40 percent Motorola phones, approved the policy, in spite of earlier misgivings.

"[It] put them [Motorola] in a position of being more involved in our operations than we wanted any vendor to be," Prestwood said. He wouldn't be more specific, but said Motorola didn't threaten Vanguard by withholding StarTac phones.

In the end, carriers say Motorola has alienated them, turned a deaf ear on consumers, and caused some of its own market share problems.

"Nobody in the industry needs Motorola this badly," Schmitt said.

Pub Date: 9/10/96

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