RadioShack inks deal with Verizon, dumps T-Mobile

RadioShack said it will stop selling T-Mobile USA service and instead will return to selling service from Verizon Wireless (NYSE:VZ), news that helped prop up the retailer's stock despite sluggish quarterly results.

RadioShack said it will sell Verizon postpaid and prepaid wireless products and services in its 4,300 company-operated stores nationwide and on its website beginning Sept. 15. The electronics retailer will stop selling T-Mobile wireless products and services Sept. 14. News of the deal sent RadioShack's shares up 12 percent.

In a statement, T-Mobile said it "decided that to in order to increase the effectiveness of our retail network and in line with our sales strategy," it will end the relationship with RadioShack. "We are currently focused on higher return national retailer opportunities and we expect to announce new channel growth in the coming weeks, which will more than double the number of RadioShack doors currently offering T-Mobile products and services," T-Mobile said in its statement.

RadioShack and T-Mobile have been embroiled in a contract dispute for months, and RadioShack has blamed sluggish T-Mobile sales for its wireless troubles.

The change in wireless partners marks a turnaround for RadioShack, which stopped selling Verizon products in its stores in 2005. However, RadioShack recently added Verizon service to its roughly 1,400 Target kiosks. In June, FierceWireless reported that independent RadioShack stores would begin selling Verizon service. RadioShack currently sells service from Sprint Nextel (NYSE:S), AT&T Mobility (NYSE:T) and T-Mobile in its corporate stores.

In its second-quarter earnings statement, RadioShack said it will book a one-time $3 million non-cash inventory valuation charge as a result of the transition to Verizon. Additionally, the company said that in the third quarter it will recognize a one-time charge of around $23 million relating to a payment to T-Mobile and an additional inventory valuation charge.

Credit Suisse analyst Jonathan Chaplin wrote in a research note that the switch to Verizon could boost Verizon's gross subscriber additions by 5 percent and could cut T-Mobile's gross adds by that much as well. "Implications for Sprint are mixed: they gain a formidable competitor in a reasonably important channel; however, they lose their most direct competitor in the value segment," Chaplin said. 

Overall, RadioShack said net profit for the quarter was $24.9 million, down from its $53 million in the year-ago quarter. Total net sales clocked in at $941.9 million, also down from RadioShack's $962.3 million in the second quarter of 2010. Despite the drop in overall sales, RadioShack noted that it now has opened Target Mobile centers in 1,481 locations as of June 30, compared with 104 locations as of June 30, 2010. RadioShack said its Sprint postpaid wireless sales were hurt by a nationwide change to Sprint's upgrade program, which delayed upgrade eligibility for certain customers. However, the retailer said it expects increased Sprint sales from upgrading customers in future quarters as these customers become eligible for upgrades.   

For more:
- see this RadioShack/Verizon release
- see this RadioShack earnings release
- see this Reuters article

Related Articles:
Independent RadioShack stores to sell Verizon wireless service
RadioShack's contract dispute with T-Mobile is still unresolved
RadioShack losing Sam's Club kiosks, but expanding in Target
RadioShack's Q3 earnings spike 23% on higher wireless sales
RadioShack auction draws private equity interest

Article updated July 26 with an updated statement from T-Mobile.

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