Many people have claimed the success of the Internet really took off once service providers implemented one-rate plans for unlimited usage. The plans allowed computer users to surf all they wanted without having to worry about a surprise bill at the end of the month.
A few wireless operators have taken the same approach to wireless service, introducing service plans allowing customers to call all they want for one price. Sure, the calling plans only include local calls in the rate plans, but for many people, local calls make up a majority of their wireless airtime.
The industry standard for these types of services has been Leap Wireless International Inc., which has launched its Cricket service in 22 markets across the country. But a few traditional wireless operators have pushed forward with their offerings, in spite of concern about how they might affect overall operations.
The latest to launch a local unlimited wireless calling plan is Alltel Corp., which launched its “Boomerang Powered by Alltel” service in 10 of its wireless markets: Albuquerque, N.M.; Charlotte, Greensboro and Hickory, N.C.; Lincoln and Omaha, Neb.; Phoenix and Tucson, Ariz.; the Tri-Cities of Kentucky, Virginia and Tennessee; and its home town of Little Rock, Ark.
“We have been real pleased with the launch and the reception we have received,” said Frank Guido, vice president of strategic marketing for Alltel.
Alltel said it tested the service in a select number of its markets before introducing the service. The trials were not only used to test the viability of the service, but Alltel also was trying to figure out what to call the service. While the Albuquerque and Tucson markets were trying out the Boomerang service, Little Rock, Charlotte and Greensville were trialing the same service under the MetroTalk brand name. Those former MetroTalk markets have been converted to the Boomerang name for the launch.
“Customer response during the trial has been tremendous,” Guido said. “Our successful trial indicates there is a growing segment of customers who need a local-only calling plan.”
Customers who sign up for the Boomerang service are required to purchase an Audiovox 130 digital phone, even if they are current Alltel wireless customers. Roaming service is not offered, though long-distance calls can be purchased using prepaid cards. The service runs between $30 and $35 per month for most of the markets, with caller identification, call waiting and voice mail as options.
Guido said that in addition to being an effective service for customers, it has proven to be a good stepping stone for getting customers onto the carrier’s network, and possibly upgrading to higher-priced calling plans in the future. He noted more than half of Boomerang customers are new to wireless service and a considerable portion of subscribers are between the ages of 14 and 32.
While Alltel claims its CDMA-based network can handle the additional traffic Boomerang can generate, some analysts fear if Boomerang proves to successful, network quality and the company’s bottom line might suffer.
“I don’t think it’s helping their network,” said Frank Marsala, vice president of wireless research at Robertson Stephens. “If they start adding too many customers, they might have a hard time keeping up their network quality.”
Another concern Marsala noted was the negative effect a rash of low average revenue per user customers might have on Alltel’s bottom line. Alltel reported ARPU during the first quarter of 2001 of $46, slightly below the industry average of $48.
While Alltel is backing Boomerang’s potential to bring in new customers, U.S. Cellular Corp., which operates its MetroZone local wireless service in Knoxville, Tenn., sees its service as a stepping stone to other U.S. Cellular wireless offerings.
The MetroZone service, launched last year, is priced at $35 for unlimited local calling.
“People come to our stores and see that MetroZone is a viable service, but also see the value in our other wireless offerings,” said David Friedman, vice president of marketing for U.S. Cellular. “People often find our traditional wireless service plans offer better value for their needs for little additional costs, or that our prepaid services offer similar if not a better value compared with MetroZone.”
Friedman pointed out that while U.S. Cellular is looking at the potential of launching MetroZone in additional markets, in contrast with Leap, U.S. Cellular’s network is not designed to handle only the local service.
“Leap has a network that has not been filled up with traditional wireless users and has extra capacity for their service,” Friedman explained. “Our network can get loaded with extra customers and we don’t have the luxury of extra capacity to handle that.”
Marsala noted other operators are looking at launching similar services, including Metro PCS, which recently won back its licenses from the Federal Communications Commission in a court case similar to NextWave Telecom Inc.’s, and PrimeCo Personal Communications, which was recently purchased from Verizon Communications by an investment group led by Clarity Partners L.P.
While all of this plays out, Leap continues its own aggressive rollout plans. The carrier’s current 22 markets cover more than 9 million potential customers, with plans to cover 23 million pops in 35 markets by the end of the year. Penetration in those markets has been robust. At the end of the first quarter, Leap reported 339,000 subscribers, nearly 4-percent penetration across all of its markets. By the end of the year, the carrier expects more than 1 million subscribers with penetration reaching 5 percent.
So far, Leap does not appear to be concerned about the influx of competition into the market.
“So far we are flattered to a degree, primarily since we have not seen them in our markets,” said Dan Pegg, senior vice president of public affairs for Leap. “We have a very aggressive launch schedule that we are trying very hard to stick to and have not really had time to worry about the competition.”
Pegg said he thought carriers that were introducing similar services were doing so to prevent Leap from siphoning customers, when in fact more than half of Leap’s new additions have never had wireless service before.
Leap has also been able to brush aside financial concerns by keeping its overhead costs low. Even though the carrier’s average revenue per user is in the low $30 range, Leap reported cost per gross addition of $230 is well below the industry average of $350.
Pegg also noted the carrier’s markets turn earnings before interest, taxes, depreciation and amortization positive within the first 12 to 15 months of launch.
Analysts also have been concerned about Leap’s higher-than-average customer churn levels. While the industry as a whole reports churn in the 2-percent to 3-percent range, Leap’s churn has been in the 4-percent to 5-percent range.
“From our experience, Leap’s early experience with high churn is typical of an early-stage wireless network and should not be used to judge the company’s long-term trend,” Marsala said. “As Leap fills out its network, we feel that churn rates will decline.”
National wireless operators are taking note of the potential in offering unlimited local calling plans. AT&T Wireless offers calling plans with unlimited calls to customer’s homes or between family members in metro calling areas.
