Win Some, Lose Some

Cell phones show room for growth, photo kiosks struggle at 7-Eleven

Published in CSP Daily News

DALLAS -- Two recent service initiatives by 7-Eleven Inc. are getting mixed reviews, but the convenience store giant promises to keep both of themmobile phone service and digital photo kioskson its marketing map.

"You no longer have to be a technology company to be in the technology business," Kevin Elliott, vice president of merchandising for Dallas-based 7-Eleven, told the New York Times while discussing the mobile phone service. "You pull [the phone] out of the box, turn it on and start talking."

When 7-Eleven started [image-nocss] its own mobile phone service last year, stocking handsets on the shelves near the beef jerky and burritos, it became one of dozens of companies, many with no experience in the phone business, making a new sideline of selling mobile communications, according to a report in the Times. The 7-Eleven program started in June 2004 and now offers six models of phones at 5,500 stores.

The emergence of these companies, and the segmentation of the mass market, reflects the ease of repackaging telecommunications services in the digital age.

In years past, only corporations with billions of dollars could afford to buy radio spectrum and build complex networks to deliver phone services. Now, companies with an advertising budget and a market to pursue can start their own service by ordering phones from Nokia or Motorola and reselling network capacity leased at wholesale rates from carriers like Sprint or Cingular.

Many of these providersknown as mobile virtual-network operatorsalso offer a cheaper alternative to traditional calling plans by selling prepaid minutes at a flat rate, like 20 cents a minute. The minutes do not expire and customers pay for more time only if they use up their supply.

The prepaid model is one way virtual operators have won over budget-conscious users, younger customers and people who use their phones infrequently.

Companies like 7-Eleven are hoping to sell to the nearly 35% of Americans who do not have cell phones, according to the report. They are also trying to attract pockets of consumers that they say are underserved by the major phone carriers, partly by personalizing service and partly by offering pay-as-you-go plans.

One 7-Eleven customer in Massachusetts said she moved to prepaid service there late last year because she was frustrated with paying Verizon Wireless monthly fees for a service that she and her husband hardly used. She bought one phone for herself and one for her husband and put $50 of talk time on both handsets. They have yet to use all the minutes, but when they do, refilling the minutes will be as easy as picking up a gallon of milk. "Between my office and where I live, there are 7-Elevens on every corner," she said.

Separately, 7-Eleven's test of Sony digital photo kiosks in five stores in the Fort Worth, Texas, area had less luck, according to a report in The Wall Street Journal. The kiosks, which allow consumers to create prints of digital photos, have found few users, and 7-Eleven pulled the plug on the experiment. A spokeswoman says 7-Eleven hasn't given up on the idea, but needs to put more marketing muscle behind in-store kiosks.

The WSJ report says more than 70,000 digital photo kiosks have popped up on the retail landscape in recent years at locations as varied as drug stores, mass merchandisers, McDonald's restaurants and Kinko's outlets with varying success. Part of the challenge, according to the article, is getting enough people to use the low-margin machines to get a decent return on investment.