RadioShack partners with Verizon, dumps T-Mobile

RadioShack said today that it plans to drop T-Mobile USA and start selling Verizon Wireless products and services in its stores beginning in September.

The switch allows RadioShack to tap into Verizon Wireless's customer base, which is currently the largest in the nation. It's also a calculated move to detach itself away from T-Mobile, which is going through the process of being acquired by AT&T. T-Mobile, however, said it was the one who decided to stop working with RadioShack.

"This is a substantial win for our customers, as this relationship with the nation's largest wireless provider will further enhance our position as a leading multi-carrier wireless retailer," RadioShack Chief Executive Jim Gooch said in a statement.

The announcement is a rare bright spot for a company still struggling with its business model. The company also reported a second-quarter profit that fell by more than half from a year ago, as revenue also slipped. Part of the decline was attributed to clearing out T-Mobile inventory and closing a manufacturing plant in China, but the results were still ugly.

In addition, the company said it recognized a $3 million charge dealing with the transition to Verizon in the second quarter. In the third quarter, it will recognize a one-time charge of $23 million related to a payment to T-Mobile and an additional inventory charge.

RadioShack is hoping for a boost from Verizon. The company plans to sell its products and services on September 15, a day after it stops selling T-Mobile products. RadioShack already sells products and services offered by AT&T and Sprint Nextel.

Credit Suisse analyst Jonathan Chaplin said the deal marks a modest positive and a negative for T-Mobile and AT&T. For Sprint, he said the development is mixed; while it loses a low-cost competitor in T-Mobile, it gains a high-end rival in Verizon.

T-Mobile said today that it working on new national retail opportunities and said it will announce "new channels" in the coming weeks that will more than double the number of RadioShack locations currently offering its products and services.

"After careful consideration, we decided that in order to increase the effectiveness of our retail network and in line with our sales strategy, T-Mobile will exit RadioShack retail locations, effective September 15, 2011," said Hernan Daguerre, a spokesman for T-Mobile."

Over the past two years, RadioShack has worked to rebrand itself as "The Shack" and place its focus more on the mobile business, something other electronic retailers have also done. RadioShack has an advantage because of the large number of stores it runs, making it an attractive distribution outlet.

RadioShack accounts for about 5 percent of handset sales to AT&T, T-Mobile, and Sprint, Chaplin estimates. As a result, T-Mobile losing RadioShack would equate to a loss of 690,000 net subscriber additions each year, which is worrisome since it lost 56,000 net customers in 2010.

But RadioShack's ability to push T-Mobile products had waned over the past year. In the third quarter of last year, T-Mobile raised the credit standards on customers who signed up for its service through RadioShack, hurting the retail chain's ability to sign up contract customers. T-Mobile saw a higher decrease in customer growth there than at other outlets, leading to the decision to split with RadioShack.

RadioShack and Verizon previously had a partnership but split in 2005, pushing RadioShack to sign deals with then Cingular Wireless and Sprint PCS.

Updated at 11:43 a.m. PT: to include comment from T-Mobile and additional background.