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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

• Mobile phone companies of the United States