NEW YORK – With fixed costs dropping in tandem with an expanding customer base, cellular phone service for the average individual consumer is on an upward trajectory in competitive urban markets in the East, representative for major carriers report.
“It is in this next tier of adopters [retail consumers] where the game will be won or lost,” said Jerry Brennan, vice president of marketing for SNET Mobility Inc., whose customer base is in Connecticut, Rhode Island and western Massachusetts. “The traditional cellular model is out of date.”
Competition is pushing down prices but not profits, he said, echoing the assessment of his counterparts at AT&T Wireless Services, Bell Atlantic Nynex Mobile, Southwestern Bell Mobile Systems and Comcast Cellular Communications. Advances in technology, both for phones and systems, along with broadening distribution channels to supermarkets and other high-volume, low-margin retailers, are reducing out-of-pocket costs for carriers.
Competition isn’t a new phenomenon, and its constant presence has helped propel new technologies and services in cellular, as it has in other industries, said Robin Traum, public relations manager for AT&T Wireless Services of New York and New Jersey.
“Our message is that the system is working as it should be,” said Tim Ayers, who recently assumed the post of vice president for communications of the Cellular Telecommunications Industry Association in Washington, D.C. “There is competition. Prices are going down. As they do, more people are buying.”
Additionally, the high visibility of cellular phones in use by ordinary citizens in a wide variety of settings is a cost-free marketing tool that promotes interest among would-be first-time purchasers, according to Walter Patterson, vice president of corporate communications for Southwestern Bell Mobile Systems. Southwestern Bell is a majority stakeholder in cellular providers for major cities including Boston, Washington, D.C., Baltimore and a good part of upstate New York, including Buffalo, Rochester, Albany and Syracuse.
Pundits who focus on percentage growth year-to-year in an industry that is now more than a decade old are missing the point, said Jim Gerace, public relations director for Bell Atlantic Nynex Mobile. As the customer base expands, he and others said, large additions to it naturally reflect smaller percentage increases. But the net gain in new customers has been tremendous during 1995, according to company spokesmen.
“Granted, with a duopoly, margins were ridiculous,” said Anne Schelle, vice president of external affairs for Sprint Spectrum, a personal communications services provider that entered the Washington, D.C./Baltimore market Nov. 15. “I think the growth will continue, with more providers and more talk rate by users. The high prices in the [Federal Communications Commission’s] C-block auction testify to a widespread belief in an even bigger marketplace.”
Schelle said Sprint Spectrum’s PCS system is based on digital technology that costs carriers half to a third as much per customer as analog systems now in widespread use by cellular carriers. (AT&T now is the only provider of digital cellular service, according to Traum.)
“We’re 10 percent to 40 percent cheaper than cellular, depending on what price plan customers choose,” Schelle said of Sprint Spectrum’s pricing. “But we’re not yet seeing competitive pricing in our markets.”
Cellular service is a unique phenomenon in the history of American capitalism, since it is a duopoly rather than a monopoly or an environment of pure competition. “Customers are used to monopoly pricing or deregulation (of monopolies) and price wars,” said David Standig, vice president of marketing for Comcast, whose service territory includes Philadelphia, Wilmington, Del., and many New Jersey cities, including Trenton, the state capital.
Although Standig said he doesn’t anticipate price wars, the key to staying competitive is customer education, in his view. “The consumer public doesn’t fully understand what to look for because they are used to focusing on the hardware, the phone or the television set,” he said. “But in cellular, the key is the (invisible) network and what choices it offers, although you have to buy the phone to get into the category.”
Pricing flexibility is important to the new generations of consumers, who want a variety of options from which to choose. Bell Atlantic Nynex Mobile and other carriers have offered reduced prices for customers who want more limited services tailored to their specific needs.
Standig predicts, however, that what he calls “giving a lot less for a little less money-once people understand what they’re getting-will lead to a growing future base of upset customers.”
As the new generation of first-time cellular customers becomes more educated, Standig said he believes, “price differences will become less relevant, as long as prices are competitive and deliver a service.”
