Grey matters work for gsmExchange

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Grey trading may be a controversial subject in the mainstream mobile industry, but it is helping wholesale B2B marketplace gsmExchange and its 60,000 members to flourish. Jasper Jackson talks to the company to find out how it started, who its members are and how it operates

In 2011, handset manufacturers shipped 1.55 billion devices globally. The majority of those devices reached end consumers through a network of operators, major retailers and indirect channel supplied by distributors.

However, it is estimated that between 20 and 30 per cent of handsets – around 460 million – are sold through what is commonly known as the grey, or parallel, market, in which handsets are predominantly sold into unauthorised channels – typically international.

And while grey trading is not an illegal act, it is a subject few distributors in the UK will speak about openly – although many are understood to have used this method to hit targets and boost margins.

But while grey trading remains a murky subject in the traditional mobile ecosystem, Dublin-based company gsmExchange thrives on it.

The firm has been providing a global platform for the buying and selling of parallel market stock, phones and accessories for more than a decade.

It was set up in 1999 by CEO Essam Bishara (pictured centre at this year’s CeBit), who claims the company operates “the world’s largest” wholesale platform for the buying and selling of mobile phones and accessories – with around €1 million (£826,000) of stock offered for trading every hour.

Bishara says: “I saw an opportunity 12 years ago during the dot.com boom. B2B exchanges were popping up all the time, and I thought for mobile phones, we needed one too.

“Mobile trading works like a commodity and you need an exchange for a commodity.”

gsmExchange only provides a platform for international traders and does not own stock. Instead it makes most of its money through membership fees. Membership grants access to the site and enables customers to interact and display or request stock. Each member pays €1,288 (£1,076) per year, and gsmExchange currently has more than 60,000 subscriptions.

Bishara says memberships account for around 75 per cent of the company’s revenue, with the other 25 per cent coming from on-site advertising and “special projects”, such as internal exchanges built for operators.

Customers for the exchange range from one-man bands to operators and distributors – although the names are strictly confidential.

Markets
The firm’s largest market is the mainland EU, which accounts for 29 per cent of memberships. This is followed by the Middle East, home to international trading hub Dubai, which accounts for 17 per cent.

North America accounts for around 15 per cent of memberships, followed by the Far East, which hosts another major trading hub in Hong Kong, accounting for 12 per cent of members. Eastern Europe accounts for nine per cent, Latin America two per cent and New Zealand and Australia around one per cent.

Only a “very small” percentage of gsmExchange’s members are based in its home market of Ireland, but Bishara, who is originally from Egypt but has spent much of his life living in Switzerland, chose Dublin due to the high availability of multilingual staff – as well as low corporation tax.

UK presence
Significantly, 15 per cent of gsmExchange’s customers, around 9,000, are based in the UK – a market reported to have fewer than 1,000 active mobile dealers.

gsmExchange business development manager Dilyan Boshev (pictured left) describes the UK market as the most diverse and varied – those engaged in trading range from one-man box breakers to distributors with an international presence.

He says the UK is also a sought-after market because of the high-end handsets that typically arrive here before they appear in many other markets.

Markets such as Dubai, and emerging markets such as in Asia and parts of Africa, continue to provide a lucrative business for UK international traders.

“The US is bigger, but the UK is the only market that has absolutely everything from box breakers to official distributors with a well-structured international presence,” Boshev says.

“There are some very good traders in the UK; there are some very international-minded traders who have been there for a long time.”

He adds: “The UK market has been known on an international level for operator stock. It is an export market – they buy here and then they export it.

“They have very close ties with Dubai, and a large number of companies have offices there.

“Operator stock, or seven-day or 14-day return stock, is very popular in emerging markets – such as countries in the Middle East – simply because it is not new, but it is like new.

“They want good stock for a cheap price. Europeans are a bit cocky now: unless it is brand new, sealed in a box, they are not happy about it. That’s why they prefer SIM-free stock.”

However, the strong international presence of UK traders is one of the reasons why gsmExchange sees a lot of volatility in its membership, with as much as 20 per cent of it churning each year.

“There is a big percentage that drop out every year, but at the same time more are coming in,” Boshev says.

“Traders are very opportunistic, which makes them very fragile; they can hold very little angle trading-wise, especially if you depend on a local market where the operator begins subsidising everything.

“It has always been like that, and it is complicated by the fact that a lot of traders are general traders, who decide to get into mobile phones.

“They have the connections, they have the staff, but they do not take into account that it is a completely different business.

“The well-established traders, who had the highest volume, were known for years to buy the surplus stock from the likes of Phones 4U, Carphone Warehouse and the networks, and they were extremely strong in the market because of that.”

Full article in Mobile News issue 511 (April 9, 2012).

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