Marketing may be everything.
The technical properties of cellular and personal communications services-some similar, some different-balance out when vying for customers. How carriers decide to exploit technical advantages to win customers is another issue.
“PCS carriers are making a conscious decision to go after certain types of customers and not other types of customers,” stated Mark Lowenstein, director of mobile/wireless communications for the Yankee Group, Boston.
Overall, PCS companies are trying to establish relationships and are not as promotion-oriented as cellular service providers, said Lowenstein. “It’s a commitment, not contractually but financially,” because users cannot just switch to other carriers because of different network technologies.
The cellular industry is still selling to low-volume users on price deals, free phones and other promotions. “The lowest of the monthly access plans is still mainly in the province of cellular,” commented Lowenstein. This tier “is where an inordinate amount of growth has been for cellular in the last few years.”
The entry price to PCS is higher because users pay for the phone. But generally speaking, PCS’ overall monthly pricing is about 15 percent below cellular, said Lowenstein.
About 75 percent of PCS sales are coming through operators’ branded stores, said Lowenstein. PCS operators are using fewer indirect selling channels than do their cellular counterparts. The indirect sales channel is where most of the promotion-oriented price structures are offered. The remaining 25 percent of PCS sales are happening “through a carefully selected group of retail channels.”
Many of the branded stores are in mid- to high-income shopping areas where people “are not necessarily looking for the best deal. They are expecting a better experience and more features,” said Lowenstein.
PCS has a 30 percent lead compared with cellular service for average minutes of use per month, said Lowenstein. He noted that part of this big margin could be the novelty of a new service.
PCS is making three main pitches oriented around value propositions, said Lowenstein. PCS says it is offering better value for the money, that more enhanced features and services are bundled into the price which generates higher traffic for the carrier), and that call quality is much better, including improved voice quality, fewer dropped calls and less call blocking than cellular service.
The targets for PCS include both non-users and existing cellular subscribers. Within these two groups, however, PCS is being selective, said Lowenstein. PCS is targeting non-users who plan to use the phone and its bundled features.
“PCS operators are not offering plans attractive to those who don’t want to use the phone very much. The safety and security pitch is not coming from PCS.”
Existing cellular customers attracted to PCS are the high-volume users. PCS is offering value-oriented plans with a host of bundled features. A chief target among current cellular customers is the multiple device user, since PCS offers integration of voice, paging and short message services.
For cellular operators to hold on to existing customers, they must offer more favorable upgrade programs, said Lowenstein. Many carrier promotions for new customers, which include a new phone and low rate, beat any upgrade programs offered by the same carriers, he added.
Generation “X” could be one of targets for cellular and PCS, according to the Strategis Group, Washington, D.C.
Fewer than 7 million of the 60 million people between the ages of 18 and 29 currently subscribe to wireless services, but more than half of those 7 million expressed interest in using a wireless phone, said Strategis.
“The driving force behind future wireless subscriber growth will be these younger users,” said Thomas Ross, cellular consultant at Strategis. “Their acceptance of wireless technologies surpasses that of older age groups, and their reasons for wanting wireless service will increase carrier revenues.”
The Generation X age group wants wireless service to keep in touch with friends and family, while older groups subscribe to wireless services for safety.
Strategis also found the 18-to-29 age group is willing to pay more for wireless than wants wireless service to keep in touch with friends and family, while older groups subscribe to wireless services for safety.
Strategis also found the 18-to-29 age group is willing to pay more for wireless telephony than other age groups. The group represents only 15 percent of all wireless users, but accounts for the highest average monthly bills.
Challenges
While PCS carriers want to steal away some of cellular’s highest revenue generators, they are “not chasing after the high-end mobile professional who travels a lot, because of coverage issues,” explained Lowenstein. Users that roam frequently are likely, at least in the near term, to stay with cellular service. Lowenstein said coverage is currently PCS’ major shortcoming.
The cellular industry is capitalizing on the coverage issue. Shortly before Sprint Spectrum L.P. launched PCS in Denver, AirTouch Cellular ran a newspaper ad showing a cartoon: one goldfish is in a bowl with the headline, “PCS” and a group of goldfish are swimming outside the bowl, under a headline, “cellular.”
“Digital is not about technology, but about marketing prowess and brand names associated with those advocating the technologies,” commented Herschel Shosteck, of Herschel Shosteck & Associates Ltd., Wheaton, Md. “No matter what digital flavor, the quality of reception is always inferior to that of conventional analog.”
Shosteck noted that all digital technologies produce echo, metallic voice, clipping and rain barrel effects at the outer limits of networks.
“In order for digital to live up to its advertised quality, it is mandatory that network density-how close the cell sites are-be sufficient.”
“The bottom line is this is devastating for PCS,” continued Shosteck. “This is why APC lost subscribers in February. The network failed to provide the quality of service they advertised.” Cellular carriers can always fall back to analog service, which is nationwide, he noted.
PCS pioneer American Personal Communications launched Sprint PCS service in Washington D.C./Baltimore without requiring a contract. Users paid for the phones, service included the first minute of incoming calls free and a number of enhanced services were bundled in.
However, many of these original marketing differentiators no longer hold water. APC’s original marketing package set an industry trend many PCS and cellular carriers have followed. Bell Atlantic Nynex Mobile has launched digital services in competing Sprint PCS markets using the same general format as APC.
“They undercut the only advantage PCS had,” said Shosteck, noting the cost for 150 minutes on Bell Atlantic Nynex’ digital cellular networks is less than on APC’s network.
Good news for all
No doubt competition among cellular and PCS carriers is and will continue to be fierce, but carriers are not just scrambling for a predetermined set of customers. The market itself could be getting bigger.
Dennis Foster, president and chief executive officer of 360
