If your customer was also your neighbor, or someone you ran into often, it might change the way you treat them. That is the reason some rural cellular carriers say their customer service is better than their larger counterparts.
“To a larger carrier, customers are just numbers on a printout,” said Jackie Dukes, president of the Rural Cellular Association and vice president of La Ward Cellular in Texas. “In our markets, customers are the same people we go to Sunday School with.
“We have to work harder at customer service,” continued Dukes.
Customer service is just one area where second-tier and rural cellular carriers are succeeding. While their urban market counterparts are struggling with the effects of competition from personal communications services carriers entering their markets, many carriers serving smaller markets have enjoyed little competition from emerging wireless carriers.
Toronto Dominion Securities (USA) Inc. created a model of competition that it updates with each new launch. According to the model, second-tier and rural carriers generally face competition from the other cellular incumbent plus no more than one other wireless carrier.
Of the group, 3607 Communications Co. on average faces the most competition, primarily because of its Las Vegas market, said Jonathan Atkin, an analyst at Toronto Dominion. Atlantic Cellular, Dobson Cellular Systems Inc. and Rural Cellular Corp. each still operate under a cellular duopoly.
That contrasts with larger cellular carriers, including the regional telephone companies and AirTouch Communications Inc., which face between one and three competitors in addition to the other cellular carrier in each market. PCS carriers average even higher competition indexes, with Omnipoint Communications Inc.’s index topping the list at 5.14.
The movement of PCS carriers into these second-tier and rural markets may not be all bad for the cellular carriers there. Perry Walter, a telecom analyst at Robinson-Humphrey Co., said rather than trying to attract customers in smaller markets, most of the activity of PCS carriers in those markets consists of building out interstate highways and selected cities to provide coverage for urban customers. Factor in the dual-mode strategy of many PCS carriers trying to expand coverage, and rural cellular carriers may earn extra roaming revenue.
Cellular carriers in smaller markets stand to be the “substantial beneficiary of competitive battles in the cities,” said Glenn Powers of Cruttenden Roth. There are more phones on the street, he said, and lower prices will cause more people to use their phones while roaming.
“There is a lot less competition compared to urban markets,” said Robinson-Humphrey’s Walter, who noted that with penetration rates of less than 10 percent, many rural carriers have high potential for growth.
Rural Cellular, for instance, reported during the first quarter that its market penetration is around 8 percent, which is typical for rural carriers, according to analysts. The company’s stock has been trading as high as $17, about double its 52-week low of $8.63.
Smaller carriers are the ones that “everyone laughed at early on and said there were more cows than people in those markets,” said Thomas Wheeler president of the Cellular Telecommunications Industry Association. Those same companies, said Wheeler, now are showing “great penetration growth potential.”
The lack of competition and the potential for growth may be helping drive up the stock prices of those rural cellular carriers, many of which are trading at double what they were a year ago.
“They are all … trading right at their highs,” said Powers.
That success also is attracting attention from potential partners. Since the beginning of the year, several deals involving second-tier and rural carriers have been announced, including the tie-up of 3607 and Alltel Communications Inc. Some analysts say more consolidation is likely.
Centennial Cellular recently announced it is exploring strategic alternatives, including the possible sale of the company. Despite lackluster third-quarter results, a Toronto Dominion report suggests Centennial could take in more than $40 per share in the event of a sale of the entire company. The company’s stock has been trading in the low- to mid-$30 range.
The first wave of consolidation among rural cellular carriers, said Powers, mainly consisted of carriers acquiring properties that fit with their footprints and ridding themselves of properties that didn’t. The next wave of consolidation, he said, will be carriers trying to fill in larger regional and even national footprints.
Large cellular carriers continue to use coverage as their weapon of choice against PCS carriers who still are trying to catch up. Those cellular carriers could look to purchase a rural cellular carrier for a relatively small amount and make their U.S. footprint look much more filled, said Powers.
Despite their recent success, small carriers face challenges different than larger carriers.
Ann Elliott, manager of corporate communications at Rural Cellular, said one of the obstacles rural carriers face is that they have a larger territory over which to build a network and less people in that area to help recoup those costs. Smaller carriers also can’t afford to spend as much money on brand advertising. On the other hand, said Elliott, smaller carriers like RCC have a more loyal following and higher retention rates because of their focus on customer service.
Rather than attributing rural carriers’ success to a lack of competition, RCA’s Dukes prefers to attribute the success of smaller carriers to plain, old hard work.
“In the beginning, everyone underestimated the pent-up demand in rural areas,” said Dukes. “Smaller carriers have had to be more innovative and creative in securing financing, building out their networks and marketing their services to customers.”
