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InPhonic Inc (NASDAQ: INPC) is a company that sells wireless services and devices online, both through its e-commerce site Wirefly and through private labeled websites it creates and manages for online retailers. InPhonic was founded and is headed by David Steinberg. Its board of directors includes such notable names as former Vice-Presidential candidate Jack Kemp and technology/marketing guru John Sculley (of Pepsi Co and Apple Computer fame). Inc. Magazine listed InPhonic as the #1 company of 2004.

The company was modeled after sites like Expedia, gathering information from competing companies into a single site, to help customers find the best deals by comparing and contrasting services and prices. A partnership with InPhonic appeals to wireless carriers, because acquiring a customer through InPhonic can be significantly less expensive (by $100 or more) than other marketing approaches (television and radio ads, for example) designed to generate sales at a traditional brick-and-mortar store. InPhonic, in turn, receives a commission from carriers for each new account generated, once the customer meets a number of criteria. In general, this market is expanding; third-party activations now represent nearly 50% of all newly acquired subscribers, industry-wide.

The company's central online storefront, Wirefly.com, has received a number of Internet awards, including Forbes magazine's "Best of the Web" for 2004 and Keynote System's "Best In Overall Customer Experience" in 2005.

In addition to Wirefly, InPhonic operates some 6,000 other private label cell phone sales Web sites, according to company spokesman Tripp Donnelly. In early 2006, the firm claimed that it was the largest third-party online cell phone retailer in the US, accounting for one-third of the market, and that it sold 850,000 cell phones in 2005 alone. In June 2006 the company said that it had completed more than 2.5 million cellphone activations in the past three years.

The company is headquartered in Washington, D.C. and maintains technology and operations centers in New Delhi, India, Largo, Maryland, Long Island City, New York and Reston, Virginia.

Financials

In September 2001, the company closed a $19 million Series D round of capital financing headed by Core Capital Partners. The investment also included new investors McAndrews & Forbes, First Analysis, Spring Capital and Wynnefield Capital. All previous investors -- including Sculley Brothers Investments, CMS Financial Services, and Mid Atlantic Venture Funds -- participated as well. In 2003, Technology Crossover Ventures invested an additional $56 million in the company.

The company went public in November 2004. The company raised $108.9 million through its initial public offering. The IPO was InPhonic's second attempt to tap the public markets; the company filed to go public in 2002 but canceled the offering because of stock market conditions at the time.

Revenues for the company increased from $154.8 million in 2004 to $320.5 million in 2005, while losses grew from $10.2 million in 2004 to $38.2 million in 2005. Core wireless activation revenue was up from $147.5 million in 2004 to $312.5 in 2005, an increase of 112%.

InPhonic had $68.8 million in cash, cash equivalents and short term investments as of the end of the first quarter of 2006.

Acquisitions

InPhonic expanded its business interests in 2001, absorbing several tech companies which specialize in software and content management on mobile platforms. In January, it acquired Reason, Inc. for its expertise with device and management tools; in early October, the company bought a Durham, NC-based company that develops software and services designed to extend large-scale corporate applications to wireless devices; and in November, it added Skyware Group, a New York developer of custom wireless applications, for an undisclosed amount of cash and stock. At the time, industry analysts pointed to all three additions as indicative of InPhonic's plans to grow into a multi-dimensional wireless company.

In 2002, InPhonic continued to build its wireless distribution channels, when it bought Simplexity, Inc. for $20 million in stock and cash. The following year, the company maintained its aggressive acquisition strategy when it bought mobile marketing firm Avesair, signaling a move into mobile ad messaging and delivery.

In January 2005, InPhonic bought rival A1 Wireless for $10 million, and a few months later it purchased VMC Satellite, a player in the satellite TV industry, for $11 million.

Partnerships and affiliates

InPhonic's has established relationships with a range of e-commerce partners to provide wireless activation services. Its partners include high-profile brands such as Radio Shack, and AOL; industry players like Cognigen Networks and Intelisys,; and major U.S. carriers Verizon Wireless, Cingular, Sprint, T-Mobile, and others. InPhonic also runs fulfillment for original equipment manufacturers like the Motorola and LG brands.

A deal signed with Disney in April 2006 was the first deal for the company's mobile virtual network enabler (MVNE) division since the company shed its own mobile virtual network operator (MVNO), Liberty Wireless, in 2005.

InPhonic works with smaller sites through the LinkShare Affiliate Program , paying commissions to these websites when their readers go to InPhonic's site.

In April 2006, InPhonic finalized a partnership with Amazon.com to become Amazon's first third-party provider of wireless products . InPhonic's online retail tools will be integrated into Amazon's web pages, giving customers more flexibility when shopping for both phones and plans.

Cell phone pricing and rebates

InPhonic became popular thanks to its aggressive pricing strategy, including "free cell phones after rebate" or discounts worth several hundred dollars. The terms of some of the rebates ("Customer Loyalty Rebates"), however, require the customer to return the rebate form between 180 and 210 days after the initial activation. This unusual rebate model stems from the fact that the carriers will not pay a commission on a customer who does not maintain service for six months. Because InPhonic sells its cell phones below cost, some consumers try to take advantage of this by purchasing the phone with no intention of keeping the service. . The six-month restriction ensures that discounts go to customers in good standing, who lead directly to a carrier commission for InPhonic. These commissions make up for the loss incurred when the phone purchase is made.

Customer service problems

The strict rebate requirements have fueled outrage among a group of customers who are calling for the regulation of rebate incentives by electronics manufacturers and retailers.

Between 2003 and 2005, of the 2.5 million cell phones activated by InPhonic, 1,500 people filed complaints about InPhonic with the Better Business Bureau, charging that the company had falsely denied their rebate claims worth up to several hundred dollars in some cases. After neglecting to follow up with the BBB regarding many of these complaints, InPhonic's membership was revoked in November, 2005. InPhonic claims to have taken many steps towards simplifying the process and further educating customers.

In June 2006, the D.C. attorney general sued the company, accusing it of failing to deliver on rebates after it incurred more than 2,000 consumer complaints in the prior three years. The lawsuit says that the company imposes "unusually restrictive conditions" on its rebates, making it "difficult or impossible" for consumers to obtain them. As a result of such policies, a majority of consumers who purchase wireless phones and plans through InPhonic either "never receive the advertised rebates" or are able to secure them only after following "onerous procedures," the complaint said.

In July 2006, InPhonic added a new rebate processor and opened a rebate hotline for customers wishing to inquire about rebates. InPhonic agents assisting customers with specific rebate submissions can be reached at (866) 607-9877.

External links

• Wirefly.com
• InPhonic corporate site
• Washington Post profile of InPhonic
• Consumers Irked by Cell Phone Rebates on Hold, MSNBC.com, January 13, 2006
• D.C. Sues InPhonic Over Rebate Restrictions, Washington Post, June 9, 2006.
• FAQs on submitting Wirefly rebates

Below is the email I send to the InPhonic, their auditors, Cingular, Staples (InPhonic latest business partner), Buy.com on 08/14/06

InPhonic called me with in a few days. I received my check in the mail on 08/26/06.

I received a second phone call with in a week. This time it was from Cingular wireless customer care rep. She confirmed that Cingular has received many complaints about InPhonic. She asked me to follow up with her and let her know if I have received my rebate. She was so concerned that even offered for Cingular to give me a $150 credit if InPhonic doesn't mail the rebate.

I suggest you send similar emails to all recipients listed below.

dsteinberg@inphonic.com, rcalder@inphonic.com, jpurcell@inphonic.com, media@inphonic.com, wireflyclassaction@yahoo.com, LWinkler@inphonic.com, FBennett@inphonic.com, BWestrick@inphonic.com, BCurran@inphonic.com

Filing a complaint with NASD / SEC - InPhonic, Inc.

Dear Sirs:

Pls note that I will be filing a complaint with NASD / SEC to investigate InPhonic, Inc.practices in processing Customer Rebates and reporting Rebate Revenue / Commission on your financial statements - i.e. your Revenue Recognition policy stated on your most recent 10-Q: "Our wireless revenue is reduced for estimated deactivations of customers prior to the expiration of a time period that ranges 120 to 180 days from the date of activation, depending on the wireless carrier. We estimate deactivations based on historical experience, which we developed based on our experience with carriers, customer behavior and sources of customers, among other factors, allowing us to accrue estimates with what we believe is a high degree of certainty. If we determine that we cannot accurately predict future deactivation experience, we may be required to defer 100% of our carrier commissions revenue until the expiration of the appropriate chargeback period. Our reserves for deactivations are included in accounts receivable and deferred revenue on the accompanying balance sheets. In addition to receiving commissions for each wireless subscriber activated, we earn performance bonuses from the wireless carriers based on negotiated performance targets. The most significant bonus we earn is the quarterly volume bonus, which we bill wireless carriers for on a monthly basis, based on current month activations. We record these bonuses as deferred revenue at the time of billing until we achieve the quarterly targets. We also earn other quarterly bonuses from certain carriers for maintaining low customer churn and signing up customers for certain additional monthly “features” such as text messaging or data service. Wireless carriers also periodically offer bonuses for achieving monthly volume and other performance targets. We recognize these monthly bonuses as earned in accordance with the provisions of Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition in Financial Statements . Revenue is recognized only when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been"

On 04/21/06 I received an email from CellPhoneRebates@cs.rebatestatus.com, stating that my rebate was received and is currently being processed. Four months later and many unsuccessfully phone calls, I still have not received my rebate. On 07/07/06, a recording was posted at 866-800-4303 that due to recent problems all rebates have been re-processed. I have filed a complaint with BBB Metropolitan Washington DC and Eastern Pennsylvania office - Complaint tracking number 0C213-204D8-834AD-581AA-26EA6-05B35-A3

D.C. Sues InPhonic Over Rebate Restrictions By Annys Shin Washington Post Staff Writer Friday, June 9, 2006; Page D04 http://www.washingtonpost.com/wp-dyn/content/article/2006/06/08/AR2006060801810.html

On June 8, the Attorney General for the District of Columbia informed InPhonic that it filed suit against the company because of certain advertised rebate offers. http://www.wireflyrebates.com/rebatestatement.html

There is evidence that the foregoing is a common practice of InPhonic, Inc. and a class action seems imminent - http://reviews.cnet.com/5208-7817-0.html?forumID=74&threadID=149735&messageID=1668489

Yahoo Finance - Message Boards: InPhonic, Inc. (INPC) http://messages.finance.yahoo.com/mb/INPC

http://messages.finance.yahoo.com/Services/Communications_Services/threadview?m=tm&bn=24859&tid=3824&mid=3861&tof=-1&rt=2&frt=2&off=1

Cc: - the following have been Cc as follows as they maintain current business partnerships with InPhonic,Inc

   * Outside Auditor Grant Thornton LLP

Grant Thornton Ed Nusbaum CEO ed.nusbaum@gt.com Grant Thornton Kara McFarland Manager, Public Relations kara.mcfarland@gt.com

   * Buy.com (b/c I purchased the phone from Buy.com)

Buy.com, Inc Scott A. Blum Chairman scott.blum@buy.com Buy.com, Inc Neel Grover CEO neel.grover@buy.com Buy.com, Inc Roger Andelin CIO roger.andelin@buy.com

   * Cingular (b/c I purchased a Cingular Plan)

Cingular, Inc. Kathy Dowling VP Customer Kathy.Dowling@cingular.com

   * Staples (b/c they signed on 07/13/06 today announced that they have signed and launched a multi-year agreement with Staples, Inc. to be the exclusive provider of cellular products and services on Staples.com. )

Staples, Inc. Owen Davis Manager, Public Relations owen.davis@staples.com --

Thanks, (Name) (Phone Number)

• Mobile phone companies of the United States