NEW YORK-When it comes to bundling wireless and landline telephone services, AirTouch Communications Inc. will pursue two different strategies, one domestic and one European, key executives said at a Sept. 11 meeting with the Wall Street investment community.
On the home front, “we plan to go into the wireline business by taking their minutes, not by running wires,” said Lee Cox, president and chief operating officer of AirTouch Cellular and vice chairman of domestic business for AirTouch Communications, San Francisco. He predicted that wireless communications will continue to account for an increasing share of the growing number of all telecommunications minutes, in this country and abroad.
“Too much has been said about the power of (corporate) branding on bundled services,” Cox added. “Sprint (Corp.) has been around for 10 years and has gotten 10 percent of the market share; we’re not concerned if they get 10 percent of our market. We already compete with AT&T (Corp.) in 60 percent of our U S West area, and AT&T hasn’t gotten a significant share.”
Cox cited a report released earlier this summer by Donaldson Lufkin & Jenrette Securities Corp., New York, that projects cellular service will reach 47.5 percent penetration in the United States by 2005, a quadrupling of the current number of subscribers. “DLJ has never been wrong at projections. In fact, they’re usually a bit conservative, so there’s plenty of business to go around. It’s really a bigger pie,” he said.
Net AirTouch Cellular units in service reached 2.55 million at the close of the second quarter, and net gains in subscribers are at record levels, Cox said. The trend is expected to continue at this pace through 1997, he added. Furthermore, costs per subscriber are dropping faster than average revenue per subscriber, leading to operating cash flow margins slightly above 45 percent, “the best in the industry,” he said.
Arun Sarin offered a contrasting strategy in AirTouch’s European markets. “We think fixed wireless will come on line in Europe in the next few years … but there are no standards yet (for it) in Europe,” said Sarin, president and chief executive officer of AirTouch International and vice chairman of international businesses for AirTouch Communications.
Already a long-distance reseller in Germany, AirTouch International “is in the process of rolling this out elsewhere,” Sarin said. Within the next year, it also plans to introduce “home cell” pricing for wireless local loop service that “mirrors landline rates” when the cellular telephone is used as a cordless phone inside the home.
In many European and Asian countries where AirTouch now operates, it is one of only two or three competing providers. In Europe, where federal governments now own the primary cellular license holders, Sarin predicted, “they won’t flood the market with a spate of new licenses like in the U.S., but will stage the entry of new licenses.”
However, he also acknowledged that governments in South American and other countries, “have wised up and started to auction off licenses … so it’s getting harder and harder for us to get value for the licenses with more competitors.”
Sarin advised the investment community to keep an eye on AirTouch. “We’re getting partners and using our powerful machine to extract more value from our partners,” he said. “We’re getting more creative in the kinds of deals we’ll be doing in the next six months.”
Asked about Code Division Multiple Access technology, a recent American newcomer to the cellular scene, Sarin said AirTouch’s Samsung-brand CDMA phones have gained acceptance in its South Korean market. China, whose Global System for Mobile communications network is nearing capacity, has available CDMA spectrum and is likely to use it, he said. And in Brazil, which is considering CDMA, Sarin said all the equipment heavyweights there are advocating it, including: Northern Telecom Ltd., Motorola Inc., Lucent Technologies Inc. and Qualcomm Inc.
In the United States, AirTouch Cellular’s commercial launch of CDMA in Los Angeles May 15 now has more than 200 customers, all high-end users. Only one person has churned off the system and did so “because he didn’t like the Sony (Corp.)-Qualcomm (Inc.) phone,” Cox said. “Starting today, we’re adding the next thousand customers in L.A. No special deals are or will be given.”
By January, AirTouch Cellular will have 80 percent CDMA coverage in Los Angeles. “All markets will convert by year-end 1998, the big ones by the end of 1997,” Cox said.
