As the cellular marketplace prepares to shift from a duopoly to a business where more than a handful of providers may offer service, industry analysts agree competition for wireless customers is likely to ignite. Key cellular carriers that won big in the personal communications services auctions hope to distinguish themselves through nationwide service, in-building coverage and video offerings. Meanwhile, cellular resellers could benefit from this new, more competitive world.
Prevailing in the new wireless market will depend on a company’s deep-pocket staying power, said AT&T Corp., a major player in the new PCS market.
“Not everyone will survive,” said Bob Ratliffe, vice president of corporate communications for McCaw Cellular Communications Inc. and spokesman for AT&T Wireless Services, the long-distance carrier’s PCS arm. “This is not a business that will be profitable overnight.”
Two or more PCS licensees will set up systems, some as early as next year, in markets that have been dominated for a decade by two cellular operators per market. One Federal Communications Commission goal in opening new spectrum was to create competition for the cellular duopoly. Although there will be new entrants in each market, most players are current cellular operators that have been allowed, through the PCS auction, to expand their present footprints into adjoining markets.
For instance, AT&T holds about 100 cellular licenses gained through its merger last fall with McCaw. AT&T Wireless then won 21 PCS licenses at auction. Ratliffe said the company intends to hook the cellular and PCS systems together through the use of dual-band phones; enabling AT&T Wireless to cover 80 percent of the U.S. population.
“The customer doesn’t care if it’s analog or digital, but how the service performs and what it costs,” Ratliffe explained. Nor will customers even have to know whether their phones are operating on 850 MHz or 1.9 GHz. The phone and network will acquire the correct frequency; it will be transparent to the customer.
A nationwide presence is important to PCS carriers so they can advertise nationally and garner stronger name recognition, said Tom Ross, a cellular director for Economic & Management Consultants International Inc.
“Major companies see it as a challenge, a way to dominate and control the industry. The goal is to offer nationwide, end-to-end telecommunications service, and I expect four companies to finally dominate,” Ross said. Success is likely for AT&T, PCS PrimeCo L.P., Sprint Wireless Telecommunications Venture and possibly MCI Communications Corp., he said. A future merger between regional Bell operating companies could create another viable entity, Ross commented.
A more specific prediction was made by John Ledahl, director of wireless programs for Dataquest Inc., a market research and consulting firm. “I expect AT&T will get 50 percent of the market. They will be out there with a brand name, offering long-distance discounts to customers who go wireless with local service. They’re going to blast away at the market and it’s going to get brutal,” Ledahl said.
Cellular carriers, in general, have a few advantages that could help them compete, Ross said. “They’ve already penetrated the high-end users. Those who spend hundreds of dollars a month aren’t as likely to switch as the newer users, maybe consumers, who only occasionally use the phone,” he added.
Analysts say PCS won’t fare as well meeting cellular head-to-head as it will by satisfying a new type of customer. Offering wireless local loop-type service is a viable option for PCS and one that EMCI analysts say could eventually bring in 10 percent of PCS total revenues.
Chicago’s two cellular operators, Ameritech Cellular Services and Southwestern Bell Mobile Systems, said they believe they can hang onto their customers even after stalwart PCS providers AT&T Wireless and PCS PrimeCo L.P. come to town.
John Rooney, president of Ameritech Cellular, said he isn’t concentrating on AT&T and PrimeCo.
“You only have so many resources, so you have to pick your fights. We’re concentrating on the customer through pricing, network excellence and good distribution. We’ve gotten our defection rate down to under 1 percent a month and we are well-known in this five-state region. If I’m focusing on the customer, AT&T and PrimeCo will have to worry about what I’m doing,” Rooney said.
It is unlikely that cellular carriers will make any provocative moves to dramatically reconfigure their systems in the face of PCS, said Jonathan Foxman, BIA Consulting Inc.’s director of strategic and business planning.
“More likely, they will do as little as they can for as long as they can. This deferred investment strategy is something of a game of chicken. Those that adapt in time may be able to maximize their cash flows without sacrificing their futures. However, some will act too late or not at all and will suffer the consequences,” Foxman said.
No matter how many players compete, the company that does the best job will stand the greatest chance of being successful, said Walter Patterson, spokesman for Southwestern Bell Mobile. Customers want access to people and information, anytime, anywhere, through an easy-to-use system that is of good quality and reasonably priced, Patterson said.
“It sounds simple, and actually it is. Whether the customer is in Chicago or Dallas, that common thread of needs remains. And while the number of participants in the market will bring challenges, we intend to focus on the customer,” Patterson explained.
Ellen Butler, a spokeswoman for Ameritech, expressed a sentiment heard in both PCS and cellular camps. “We may look at PCS as another technology but the customer won’t know the difference. All they want is a service to provide what they need. Business people will use digital and analog is still available for the average person who just uses phones to call home. If the service works and the price is right, it’s valuable to the customer,” she said.
Ledahl thinks that being regional is a temporary position. “In the long run, these companies will be working very hard to join a consortium.”
PCS players find a niche
AT&T expects to distinguish itself from both cellular and other PCS contenders by offering in-building wireless, said Mike Buhrmann, director of technology and product planning for AT&T Wireless.
The company’s cellular and PCS technology choice, Time Division Multiple Access Interim Standard-136, is good for this task, he said. In-building service gives customers a single phone they can use in their office complex and at home, under both flat and mobile rates.
Wireless service is one way AT&T can get back into local phone service, EMCI’s Ross commented.
AT&T said in-building wireless is a service it doesn’t expect its PrimeCo competitor to offer because “it would be a disincentive for them to displace local service,” according to Buhrmann.
PrimeCo is owned by three regional Bell operating companies-Bell Atlantic Corp., Nynex Corp., U S West Inc.-and former RBOC AirTouch Communications Inc.
The partnership, which is in the process of developing a national brand name, won 11 PCS licenses in markets such as Dallas-Fort Worth, where it will take on the Sprint-cable TV consortium.
While AT&T is targeting in-building use, PrimeCo intends to focus on new wireless customers that seek easy-to-use service, said Joe Woods, vice president and general manager of PrimeCo’s Chicago market.
The four companies intend to eventually link their cellular operations together with PCS, creating a consistent footprint. “Over time, we’d like to create a common look and feel to the service,” Woods said.
While some analysts have said it will be hard for any business to enter the wireless market now with a new name, PrimeCo is undaunted by that idea. Woods said since the wireless market has been growing at such a rapid
rate, there is room for PrimeCo to enter the market strongly and establish a new name.
Ledahl said RBOC PCS operators deploying like technology would be wise to form a consortium for marketing purposes.
The third big PCS carrier, Sprint Telecommunications Venture, believes its offering of video service will set the company apart from other PCS providers. Sprint also is banking on its integrated package of services, saying that customers prefer “one-stop shopping” for all their telecommunication needs.
Sprint already is the nation’s third largest long-distance carrier. It owns various cellular properties. Through its alliance with three cable companies, Sprint will offer local phone service and video entertainment via cable.
That last part of the package may give Sprint some trouble, BIA’s Foxman said. “Success of the one-stop shopping concept is premised on customer familiarity, trust and loyalty. With such negative public sentiment regarding cable companies, this aspect of the business represents the greatest threat to Sprint’s strategy,” Foxman said.
Sprint holds 29 PCS licenses and must divest some of its cellular markets to comply with FCC auction rules. PCS license winners cannot hold more than a 20 percent interest in a cellular provider that serves 10 percent or more of the population in a given major trading area. The licensee can reduce its percentage of ownership below 20 percent or reduce its population coverage to 10 percent.
Sprint must reduce its market ownership by 1.7 million pops in the Dallas, Detroit, Philadelphia and Des Moines, Iowa, MTAs. The company said it will consider selling just those markets, all of its holdings or spinning off its cellular business.
Selling its cellular operations may be risky for Sprint, Ross said. “Why let AT&T purchase the property? At least a spin-off would benefit the stockholders and Sprint can keep it as a smaller company,” he said.
Since Sprint’s cellular holdings primarily use analog technology and are scattered in many areas, it may be less expensive for Sprint to start over with nationwide PCS spectrum to build a wireless network than to try and piece its cellular holdings together, Ross said.
MCI could still be a formidable player in the wireless arena, despite its decision to be strictly a wireless reseller, analysts said. The investment value of cellular resellers has been overlooked, Foxman said.
MCI recently purchased the 275,000 subscribers of Nationwide Cellular Service Inc. for $190 million, or about $690 per subscriber.
“If we reconsider the determination of value and ask what a cellular subscriber is worth to a PCS licensee, the answer is quite different,” Foxman said. PCS hopefuls and licensees are likely to acquire subscribers by purchasing the subscriber bases of resellers, meaning the value of cellular resellers should increase substantially over the next 12 to 18 months, he said.
