Brightstar benefits from demise in device subsidies

The move away from device subsidies and the longer lifespan of smartphones is creating a booming business for device distributor Brightstar Corp. The company, which was founded by Sprint (NYSE: S) CEO Marcelo Claure back in 1997 and received a $1.26 billion investment from SoftBank in 2014, originally made a name for itself handling reverse logistics and distribution for wireless dealers and some regional operators, but now is at the center of the used phone supply chain. The company claims to have 200 operator customers and 40,000 retail customers.

Key to Brightstar's surging business is the move by wireless operators away from subsidized smartphones and two-year contracts, which have been the hallmark of the industry for years. Brightstar, of course, manages the lifecycle of those devices.

Earlier this year, Claure told The Wall Street Journal that the carrier was planning to move entirely to the device leasing model by year-end and do away with two-year contracts. He also indicated that when Sprint does drop two-year contracts, leasing phones or paying full cost for the devices will be the only way to buy a new phone from Sprint.

Sprint has said that 51 percent of customers who purchased a new phone last quarter used its lease option, in which customers pay off their devices in monthly installments and then trade it in when the lease is done, similar to leasing a car.

Smartphones like iPhones are holding their value much longer, similar to a computer, and that means that there are many more stages for used devices to be part of the supply chain. According to Clayton Bodnarek, vice president of sales, U.S. and Canada for Brightstar's device protection program, there are four ways used smartphones can have a second life and Brightstar plays a role in each step.

First, when a customer trades in their smartphone for a new one, Brightstar typically checks the phone and then certifies it as a pre-owned phone. Those devices are then typically sold though the carrier's sales channel to customers who don't want to pay for a new device.

Second, the used smartphone is repaired and refurbished and becomes part of the device protection and insurance program. In that case, it is issued a warranty and given to customers to replace their insured devices that are damaged.

Third, the used smartphone is sold to prepaid customers either through a carrier's prepaid MVNO or to independent MVNOs that operate prepaid programs. 

Alternatively, it could be sold outside the U.S. to customers in areas like Mexico or Latin America. AT&T (NYSE: T), which spent $2.5 billion acquiring Mexican operator Iusacell and $1.88 billion purchasing Nextel Mexico's wireless assets earlier this year, has said that the company plans to exploit the low smartphone penetration in Mexico by selling refurbished phones through the company's Next equipment installment plan.
Finally, the last step in the smartphone life cycle is reselling it on the commodities market where it will likely be shipped to emerging markets like China. 

Not surprisingly, Bodnarek said that iPhone and Samsung-branded smartphones hold the most value the longest.

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