There won’t be many big-time losers among the A- and B-block carriers, wireless analysts say.
“They’ll probably all make it, but the question is how well will they make it,” said John Bensche, equity researcher for CS First Boston’s wireless communications division.
More than a half dozen personal communication services networks are commercially active today. PCS operators have spent hundreds of thousands-even millions-of dollars on site acquisition, tower construction, network equipment, distribution channels and marketing.
The costs cut deep into balance sheets. InterCel Inc. reported an operating loss of $4.3 million for the third quarter ended Sept. 30, compared with operating income of $2 million in the third quarter of 1995.
“Our operating expenses more than doubled since the third quarter of last year, primarily as a result of costs related to the launch of our PCS operations,” said Allen Smith, InterCel president and chief executive officer.
PCS operators need to recoup their money, but getting into a price war with cellular carriers isn’t the way to do it, advised David Kerr, director of mobile communications for Strategy Analytics Inc.
“There’s no compelling need to price it that low right now. They just need to get some customers on and build cash flow. Even if they wanted to get into a battle, their networks aren’t built up enough. Competing on prices now is a recipe for failure,” Kerr said.
PCS operators still are testing their back-office support systems, launching new billing systems and making sure over-the-air activation is functioning correctly.
“That’s one of the greatest myths, that PCS will radically cut cellular. The real reduction in pricing is about three years away,” Kerr said. The current slowdown in growth will continue until price wars stimulate new growth.
Building cash flow with a manageable number of users is one way to replenish the ledger. Most of the A- and B-block players have an existing business with an established customer base.
For example, InterCel has 44,000 cellular subscribers in Georgia, Alabama and Maine. It reported a 26 percent increase in subscribers during the third quarter, leading to a 14 percent increase in revenue.
Leveraging the additional customer base is important. Having an established wireline service that can be bundled with wireless also can take wireless operators beyond the goal of geographic expansion, Kerr said.
For instance, PCS operators that offer only wireless may have trouble capturing corporate accounts from cellular providers, Kerr said. Corporate telecom managers look for consolidated packages of offerings, such as landline voice and data, along with wireless service.
“Existing cellular operators with PCS licenses are in a strong position. The cellular carriers are all well positioned, and there is a move to about five supercarriers,” Kerr said.
Outside of that, companies can survive if they control their costs, manage churn and reduce the cost of customer acquisition, the analysts say.
“And their speed of response is important, how flexible they can be,” Kerr said. If a billing system doesn’t work, there’s a short time window that customers will tolerate it, he said. Winners have to keep looking to the future and building for that vision now.
