The Telecom Hangup: Winning Biz to Lose It

CHICAGO Here’s an interesting business proposition: Win a new client in a hot category. Take two years to improve that client’s bottom line and expand its customer base. Then, if you’re successful, expect to lose the client after it’s acquired by another company.

Welcome to the world of wireless telecom.

That scenario is a position several agencies could find themselves in as they enter the space, particularly when it comes to the regional players.

Last week, a group of private equity investors led by TPG Capital and the private equity arm of Goldman Sachs agreed to acquire regional telecom company Alltel for $27.2 billion. Shortly after the news broke, analysts cited several other regional companies such as U.S. Cellular, Dobson Cellular, Rural Cellular and Centennial Cellular as possible future acquisition targets.

“That’s got to be the endgame,” said one agency executive with telecom experience. “Their focus is more on acquiring subscribers [that can be transferred] than on building a brand.”

Through 2005 and much of 2006, few pieces of regional telecom business changed hands, after several clients moved business in 2003 and 2004. But since late last year, the category has become active again. In January, Kansas City, Mo., independent Bernstein-Rein won SunCom’s $25 million account. Martin/Williams in March won Cellular South’s $20 million account. U.S. Cellular last week moved creative duties on its $75 million account to Publicis Groupe’s Publicis & Hal Riney in San Francisco. And sources said Dobson Cellular is reviewing its $30 million advertising account, currently at independent shop Barkley. (Dobson Cellular executives did not return calls; executives with the company’s agency, Barkley in Kansas City, Mo., declined comment.) So far this year, roughly $150 million in regional telecom business has shifted or is currently in review. The last time the category saw such movement was in 2004, when $135 million in business changed hands.

While Alltel officials were not available for comment on possible marketing changes post acquisition—and executives at its creative agency, Campbell-Ewald, said it was too soon to comment—executives with experience in the category said the shop should be prepared for the business to move.

“If you’re working on a regional [telecom] company, you have to be honest with yourself,” said Mike Gray, president of Omnicom’s Martin/Williams Advertising in Minneapolis, who saw the scenario happen with his client Powertel in 2001: After the company was acquired by Deutsche Telecom and became part of T-Mobile, Martin/Williams lost the account. “It’s a sector that’s growing and it just makes sense that it would push the regional into national carriers.”

Or, as one agency executive with experience on a top wireless account put it: “These guys are trying to get as much spit shine on the brand as they can to get in a position to be bought.”

“The industry has been consolidating for some time,” said Michael Hodel, an equity analyst at Morningstar in Chicago. “That will continue as the larger players look to fill holes [in their networks] and gain market share.”

Jamie King, president of Publicis & Hal Riney, said he was aware of the volatility in the category, but felt it was a reasonable risk. “[U.S. Cellular was] with Doner for something like seven years. So I feel secure in the knowledge that they are loyal to effective partners,” he said. “At the outset of this relationship we are mutually committed to a long-term relationship. Obviously, that’s based on results.”

But one agency executive with a telecom client cited an internal study where the average agency-client relationship was two years for a telecom company versus six years for a consumer packaged-goods client. “In the agency business today, there are segments where you realize that the clients could get gobbled up,” said one executive.

Added another: “I would never take on a a regional cellular business and hire a lot of people behind it.”

Still, there are rewards that go along with that risk. “It pays the light bills for today,” said one agency executive with regional telecom experience. And at the end of the day, an agency can have a pretty nifty case study to win more business on.

“We used the [Powertel] case study for years,” said Gray. “It’s retail. It’s customer loyalty and retention, and there’s no stigma to losing the business [in a client acquisition].”

The Minneapolis shop felt the sector was worthwhile enough to reenter earlier this year, winning Cellular South’s account. Gray said he did have discussions with company management about their future plans for the business before taking it on.

For his part, King is also not concerned about potential volatility in the market. “As an agency, if you develop a track record and reputation for building a brand through creative ideas, you’ll do well for yourself in the long run,” he said. “And you’ll be sought out to do it again. And that’s all you can hope for in the end.”—with Gregory Solman