The president of a Colorado-based rural cellular operator “emphatically refutes” claims by analog handset manufacturers that cellular growth is slowing, suggesting instead that low phone prices and the battle for market share are responsible for unwelcome pressure on manufacturing revenue.
“The number of subscribers continues to grow,” said Arnold Pohs of Englewood, Colo.-based CommNet Cellular Inc. The rural operator reported a 47 percent increase in subscribers during 1995. The company added a record number of new customers in the December quarter.
“The absolute numbers are larger and the demand is there. There’s just a reduction in the [manufacturer’s] overall percentages that have been in the 50 percent range but are now in the 40 percent range,” Pohs said.
Last fall, Motorola Inc., Audiovox Corp. and Nokia Corp. released third quarter reports that disturbed Wall Street-cellular phone sales were lower than expected. Some manufacturers blamed the results on low pricing due to excess inventory. Motorola suggested that the cellular subscriber base was growing more slowly than in previous years. Cellular carriers, however, claim they are signing people up at record numbers.
The price of analog handsets is actually being squeezed by cellular carriers who have pooled their purchasing power and now buy in massive bulk through business alliances, said cellular analyst Tom Ross of Economic & Management Consultants International Inc.
For instance, the merged cellular duo of Bell Atlantic Nynex Mobile now reportedly can purchase a million and a half phones at a time. BANM also is part of a cellular alliance that includes U S West Cellular and AirTouch Communications Inc. When the four carriers buy phones under a single bulk purchase deal, the price of the phone can be brought down quite a bit, said AirTouch spokeswoman Amy Damianakes.
“AirTouch used to sell more Motorola phones, but our vendor mix has changed. We’re not buying as much from Motorola and are looking for whatever is in the market,” Damianakes said.
The number of manufacturers in the market has changed in the last few years, Ross said. “Market share is being consolidated by the top manufacturers and the smaller handset manufacturers are dropping out. There used to be 10 to 20 different manufacturers, but now there’s a top three or four. The same thing is happening on the carrier side with consolidation.”
Toshiba America and Fujitsu Network Transmission Systems Inc. both have said they will quit the U.S. analog cellular market to concentrate on other areas. Digital service-which requires digital phones-will lead to a different business model than that used by today’s cellular operators, said Ed Horner, assistant vice president of marketing and distribution for GTE Mobilnet PCS Group. Ten months on a service contract may not be enough to recover the cost of a $400 digital phone considering the cost of commissions, residuals, network operation and marketing, he said. Personal communications services operators are expected to sell digital phones rather than subsidize them, he said.
