Posted: 04/1999
Is Wireless Service Telecom's New 'Air'
Apparent?
Will New Creative Pricing Schemes for Cellular, PCS
Services Threaten Landline's Reign?
By Jennifer Knapp
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For more than 15 years, competitive providers of cellular service have competed fiercely against their wired cousins. Convenience has been their trump card. And while anywhere communications have won converts in droves, wireline long distance providers have defended their market share with higher quality of service (QoS) and increasingly lower rates--from near-zero per-minute pricing to per-month plans and even advertiser-supported free service.
In the past two years, the wireless market has engaged in a price war of its own. Aggressive discounts from new providers of Personal Communications Services (PCS) were met by cellular operators' migration to digital technology and equally low prices.
As a result, wireless carriers have begun to challenge the wireline long distance industry's attractive rate plans with some creative schemes of their own, such as all-inclusive roaming and long distance packages promising free minutes of use (MOUs). An AT&T Digital One Rate package, for example, starts at $90 and includes no roaming fees and no long distance charges and 600 free minutes.
These rate plans, which have eliminated high roaming charges and geographically defined pricing, have drawn in subscribers in record-breaking numbers. Total new subscribers to AT&T's Digital One Rate, introduced in May 1998, for fourth quarter 1998 was 445,000, an increase of 90.1 percent compared to the same quarter in 1997. Certainly, these numbers speak to a strong contender for wireline services, but is it more?
Wireless carrier AT&T would have consumers believe wireless is unseating wireline; its recent billboard ads for Digital One Rate read, "This could be your only phone." Indeed, some industry observers suggest, with price and convenience in its corner, wireless services could supplant wireline services or, at least, put a serious dent in its market share.
"We believe as the wireless premium falls, there will be a substitution effect that drives up wireless usage as subscribers migrate their voice usage," says Crispin Vicars, program manager-wireless and mobile communications, The Yankee Group, Boston. "We believe this wireless displacement of wireline voice traffic is largely a function of utilty-- that as the wireless premium is reduced, the value-added functionality of mobility will help shift an increasing amount of voice usage over to the wireless network."
Others' predictions are far less fatalistic. What is more likely, they say, is that wireless technology will adopt the data and enhanced communications market, leaving the public switched telephone network (PSTN) to voice.
Falling Prices
The average consumer's monthly bill has dropped every year since 1988 when the Washington-based trade group Cellular Telecommunications Industry Association (CTIA) started tracking wireless billing trends. According to CTIA, the average wireless phone bill has dropped $55 over the last 10 years (see Chart 1, "Average Consumer's Monthly Wireless Phone Bill," below). Boston-based The Yankee Group's Wireless Price Index tracked a 5 percent drop for wireless prices in 1998 alone. These decreases reflect the evolving wireless rate structure, analysts say.
Chart 1, Average Consumer's Monthly Wireless Phone Bill
"First, [carriers removed] the distinction between peak and off-peak rates, and then, we saw the implementation of flat roaming and long distance charges," says Mark Lowenstein, senior vice president, The Yankee Group. "Now we see the growing popularity of all-inclusive rate plans, which include roaming and long distance charges."
When the cellular market was forming, the Federal Communi-cations Commission (FCC) licensed two blocks of spectrum, one to a local telephone company and one to a competing, unaffiliated company throughout more than 700 U.S. markets, says Dr. Robert Roche, assistant vice president for policy and research for CTIA.
Pricing plans for original analog services were highly structured and often confusing.
"You paid a monthly fee, and were given X number of minutes," Vicars explains. "Pricing was pretty highly structured, with peak and off-peak tariffs. You had a specific area in which you could use your phone, and there were various incremental charges for roaming and long distance."
In the early 90s, some states required wireless carriers to file tariffs for rates and entry. The FCC determined, however, that "there was evidence that rates had fallen faster and that the rate of subscribership was higher in states where rate and entry regulation had not occurred," Roche explains. States were therefore pre-empted from practicing rate and entry regulation.
Simultaneous to this event, the FCC determined that restricting wireless providers' abilities to bundle services and equipment, a practice upon which some states frowned, was anticompetitive, and the FCC allocated more spectrum for PCS, Roche adds.
The combination of new bundling possibilities and extra capacity from PCS freed up providers to experiment with pricing packages.
Since then, there has been "a real ramp up in the number of minutes of use (MOUs) that subscribers now get for the same price plan they would have paid for a few years ago," Vicars says. "And, a lot of carriers now have started to eliminate the roaming charge, depending upon the actual coverage of the provider's network."
Like AT&T, the introduction of Sprint PCS's all-inclusive roaming and long distance package brought the carrier very favorable results. In fourth quarter 1998 alone, Sprint PCS signed on 836,000 new subscribers. Sprint PCS pricing packages start at $30 per month with 120 free minutes and no long distance or roaming charges.
It's not only the major carriers that are using streamlined pricing and free MOUs to entice subscribers. Smaller carriers are embracing this model as well. Amica Wireless Phone Services, a subsidiary of Iowa City, Iowa-based BRK Wireless Company Inc. and holder of 13 C and F block licenses in Illinois and Iowa, has put a new twist on wireless pricing plans with an offering that allows subscribers to build up to increasingly lower per-minute rates and greater volumes of free usage. The plan starts with a $25 service charge, which includes 100 free minutes. The next 200 minutes cost 20 cents each, and the next 100 minutes are free. The 30 minutes above those are 15 cents per minutes followed by another 200 minutes free. All additional minutes cost 10 cents each. Long distance calls are 20 cents per minute, and the roaming rate is 40 cents per minute inside the state and 60 cents per minute outside Illinois.
Another small carrier, Cellular South, Jackson, Miss., announced Feb. 3 its support of the all-inclusive roaming and long distance charges model with the elimination of these charges for all calls within Mississippi.
All That Glitters
During 1999, voice communications usage is expected to migrate further from landline networks to wireless networks as competition continues to intensify, analysts say. "Landline displacement stories are becoming more than an occasional anecdote, as these roam- and long distance-free price plans compare quite favorably to some payphone, calling card and even landline intraLATA (local access and transport area) long distance rates--especially considering the added convenience of mobility," says The Yankee Group's Lowenstein.
While the wireless industry may be leveling the playing field a bit with its new pricing plans, it still suffers from high rates of fraud and churn.
About 5 million mobile phone subscribers were intent on changing carriers due to cheaper pricing packages between November 1998 and February 1999, according to The Strategis Group, Washington. In addition, Strategis found that subscribers who intended to switch were among the most attractive, having higher than average monthly bills compared to all subscribers--$74 vs. $61.
According to The Yankee Group, 10 percent of current wireless subscribers say they have switched carriers during the past year. This represents a significant increase from 7 percent in 1997. Nearly 23 percent say they have switched wireless carriers at least once since they first became subscribers, with 5 percent having switched more than once, The Yankee Group found.
Fraud also is a major threat to ubiquitous acceptance of wireless services as carriers face increasing revenue losses, which are expected to reach $677 million by 2002, according to International Data Corp., Framingham, Mass. And subscription fraud is up, with losses projected to reach $473 million in 2002.
Helping stem the tide of rising fraud, Little Rock, Ark.-based ALLTEL, a wireless and wireline carrier, teamed up with Corsair Communications Inc., Palo Alto, Calif., to deploy Corsair's Phone-Print in ALLTEL's Virginia markets. PhonePrint uses radio frequency (RF) fingerprinting to detect and disconnect cloned phones.
"Because of PhonePrint's extensive network, it is even more difficult for thieves to use cloned phones in the United States," says Skip McDowell, vice president of sales for Corsair.
The PhonePrint area incorporates 130 U.S. markets, Mexico and the Caribbean. As subscribers in these regions roam to other PhonePrint-protected markets, the system moves the phone's RF fingerprint in real time, ensuring that the serving area and the home markets have both the signal information and the fingerprint on file.
Subscription fraudsters also have a new enemy with Burlington, Mass.-based Lightbridge Inc.'s Feb. 8 release of @Risk, the newest addition to Lightbridge's fraud prescreening and analysis tools. With @Risk carriers can screen or match against suspect information gathered during prior fraud investigations.
If You Can't Beat 'Em
As technology and fraud-prevention techniques improve, some landline carriers are embracing wireless technology and introducing it into their product portfolios.
Sprint Corp. jumped into the wireless segment with a facilities-based plan for its Sprint PCS Division, but smaller carriers have used the agent route to introduce wireless products. UniDial Com-munications Inc., Louisville, Ky., contracted with Sprint at the end of 1997 to become a Sprint PCS agent. "We introduce customers to Sprint PCS and provide the phones," says Kent Lanum, director of brand management at UniDial. "We use it in our sales tactics, too. We not only are providing long distance services and Internet services, we are also providing a total communications solution."
Wireless carriers are making agent programs much more attractive for resellers now, Lanum adds. Not only can an individual just sell the phones and earn a one-time commission from those sales, but also some companies are starting to offer residual commission on usage, as is common for long distance services.
"Right now, wireless is such a new product that they do not have to offer these kinds of commissions," Lanum says, "but I think as market competitors start to expand to each metropolitan area, we are going to see more and more aggressive moves to garner market share in that industry just by offering better commission."
While UniDial chose to introduce wireless services to its portfolio through the agent channel, in 1994 Frontier Corp., Rochester, N.Y., engaged in a joint venture with former NYNEX Corp. to create a cellular super system in upstate and western New York.
Although Frontier still operates its venture with NYNEX/Bell Atlantic Corp., Philadelphia, the carrier has migrated away from being facilities-based to being a reseller, as owning its facilities was no longer feasible, a Frontier spokesperson says.
The forerunners in bringing wireless into the services mix, these companies are still few in number. The Washington-based trade group, the Telecommunications Resellers Assoc-iation (TRA), notes only 15.7 percent of its membership offers both a wireless and landline product. That percentage should grow as several TRA reseller company members, such as Network Plus, Quincy, Mass., and Justice Technology Corp., Culver City, Calif., build their wireless programs.
The Data Side
These companies say they are not adding wireless in fear that their landline services soon will be moot. "I think wireless is another means of access that people are going to explore and use, but I do not think it is going to replace wireline," UniDial's Lanum says.
Instead, wired carriers see the wireless space as full of opportunities. As one of the three top regions in terms of cellular revenues, the U.S. market promises to bring in $76 million by 2002, a growth of $35 million over the next three years, according to Ovum Inc., London. Moreover, the global forecast for wireless services predicts major growth in wireless revenues, with an increase from $195 billion in 1998 to $361 billion by year-end 2002, Ovum reports (see Chart 2, "Global Wireless Revenues: 1998-2002," below). And, Ovum research shows that Western Europe will offer carriers the richest competitive market with cellular connections expected to reach 183 million by 2002.
Global Wireless Revenues: 1998-2002 |
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World by Region |
1998 |
1999 |
2000 |
2001 |
2002 |
| Total Revenue ($m) | 195,185 | 237,952 | 280,337 | 320,112 | 361,527 |
| North America | 41,212 | 46,985 | 61,209 | 70,255 | 76,434 |
| South and Central America | 11,378 | 14,115 | 15,314 | 18,933 | 24,422 |
| Western Europe | 58,046 | 70,690 | 82,030 | 95,831 | 111,200 |
| Eastern Europe | 3,930 | 5,220 | 6,490 | 7,474 | 11,112 |
| Africa | 1,527 | 2,441 | 2,993 | 3,329 | 4,055 |
| Middle East | 5,439 | 6,611 | 8,035 | 9,594 | 11,905 |
| Central Asia | 17,749 | 30,459 | 33,185 | 37,643 | 38,215 |
| Asia-Pacific | 55,276 | 60,565 | 69,951 | 75,559 | 82,379 |
| Tiny Countries* | 628 | 866 | 1,191 | 1,493 | 1,804 |
* Tiny countries are those with a population less than 1 million people. |
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Source: Ovum Inc., London |
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In addition, wireless technologies are promising to take the global data services market by storm in the next 10 years. "By and large, the current PSTN is at or near capacity, and what I think we are going to see is a migration of enhanced services from the PSTN to wireless," says Bob Rini, communications attorney for Rini, Coran and Lancellotta, a telecommunications law firm based in Washington.
Wireless is expected to be the No. 1 data access platform by 2003, according to The Datacomm Research Co., Chesterfield, Miss., and satellite technology will corner that market. Subscribers of broadband access services will rise from 470,000 in 1998 to 48.33 million in 2007, according to Pioneer Consulting, Cambridge, Mass. "Broadband satellites are forecast as a leader in North America by 2007, though in the near term, cable modem and xDSL (high-speed digital subscriber line) solutions will fight closely for market leadership," the firm reports. "Cable modems will win the race in the next five years because of their ability to address the residential market effectively, but Pioneer believes that broadband satellites will prosper over the long term because of their ability to address the demand of broadband users throughout North America over a common infrastructure" (see Chart 3, "Global Broadband Access Subscribers Summary, 1998-2007," below).
Chart 3, Global Broadband Access Subscribers Summary, 1998-2007
Market Makeover
The continued adoption of wireless services by landline carriers ultimately will lead the telecommunications industry to integrate the two technologies seamlessly on both the end user and carrier levels. AT&T's Personal Network announcement in late January introduced a new packaging trend that bundles both wireless and landline service onto one bill and under one price.
"This type of bundled offering is the direction that other carriers will need to go in order to compete on a national scale in the residential market," says Jilani Zeribi, research analyst, network services, for Current Analysis, Sterling, Va.
Not only will pricing schemes blur the lines between wireless and landline services, but Cisco Systems Inc., San Jose, Calif., and Motorola Inc., Arlington Heights, Ill., joined forces Feb. 8 to create a new world framework for Internet-based wireless networks. The companies intend jointly to invest as much as $1 billion over four to five years to deliver a wireless Internet. This collaboration will deliver the first all-Internet protocol (IP) platform for the wireless industry that will unite different standards for wireless services worldwide and open Internet-based platforms for integrated data and voice services over cellular networks.
Also bringing the PSTN together with wireless technologies is Columbia, Md.-based TECORE's AirCore platform switching system. The AirCore platform supports all major wireless technologies--including global systems for mobile (GSM), time division multiple access (TDMA), code division multiple access (CDMA) and advanced mobile phone service (AMPS) for cellular and PCS operators--providing an integrated prepaid package, and offering tandem switching and wireline service for interexchange carriers (IXCs) and competitive local exchange carriers (CLECs).
Message Express Co., Delton, Mich., began integrating the AirCore system last September into its network to interface GSM wireless and GR303 wireline technologies to launch both wired and wireless services to its customers by the end of the year.
These recent developments, however, are mere hints at a possible new face of telecommunications that, someday, no longer may make any distinction between wired and unwired services.
Jennifer Knapp is news editor for PHONE+ magazine.
