Seeking a bigger slice of the telephony pie, Cybertel Cellular is slashing prices for its new digital cellular service in Hawaii.
Cybertel, a subsidiary of Ameritech Cellular Services, is offering customers airtime rates as low as 3.7 cents per minute in Hawaii Rural Service Area 1, which covers the island of Kauai.
After paying an activation fee of $22.50, customers who sign up for the company’s Platinum service plan can buy 400 minutes of airtime for $18, 600 minutes for $22, 800 minutes for $35 and 1,200 minutes for $44, the company said. Platinum uses Time Division Multiple Access digital technology.
“We started selling (the digital service on Oct. 24) and have over a thousand subscribers already,” General Manager Hollis Crozier said, noting that half of the sign-ups were new subscribers and half were converted from the analog system.
“If airtime is less than that, I don’t understand how you can make money at it.”
The company reports a total subscriber base of more than 4,000 users out of a population of only 45,000. “I’d like to say (the high penetration rate) was from brilliant marketing, but we were the only telecommunications system that survived the hurricane,” Crozier said.
Kauai was hard hit by Iniki, a Force 5 hurricane, on Sept. 11, 1992 (RCR, Sept. 28, 1992, p.1). Both the landline telephone system and GTE Mobilnet’s cellular system reportedly were knocked out.
Despite the high cellular penetration rate in this RSA, Crozier said the company did not implement TDMA because of capacity constraints on the analog system. “We felt we needed to do this in order for us to continue to grow, to get a bigger piece of the pie,” Crozier said.
The “pie” to which he refers includes landline telephone customers. GTE Hawaiian Telephone Company Inc. filed a complaint with the Hawaiian Public Utilities Commission about the rate cut.
GTE protested “a drastic reduction from the current rates” that would “make Ameritech’s digital service a potentially viable alternative to the residential and business services that the company provides to its landline customers on Kauai.”
But the Hawaiian PUC confined its review to issues of service dumping and requested confidential information “for all costs associated with provision of that service,” according to PUC engineer Rich Vandrunen. He concluded that “in total, the costs were less than the price,” and the path was clear for Platinum’s rollout.
Although TDMA technology may reduce the long-term costs of infrastructure, questions remain as to whether Cybertel can really cover all of its costs of operating the service with this pricing plan.
“From what I’ve heard in the industry, 10 to 12 cents per minute is the break-even point to cover the full costs of providing service,” noted industry analyst Herschel Shosteck, president of Herschel Shosteck & Associates Ltd. “If airtime is less than that, I don’t understand how you can make money at it. It doesn’t pass the `insanity test.’ “
One favorable factor in Cybertel’s cost structure is that the company does not subsidize the price of the dual-mode phone for the customer. For example, the company offers a Motorola Inc. mobile phone for $450 compared to a Shosteck-estimated industry average of $398. Cybertel does offer a 6-month, interest-free payment plan.
For its part, cellular competitor GTE Mobilnet seems in no hurry to respond to Cybertel’s aggressive moves with a digital rollout of its own. While declining to comment on pricing strategies of its competitors, GTE spokeswoman Susan Asher said, “We price based on coverage and quality.”
She noted that “(Cybertel’s competition) is limited in its purview” while
“our footprint covers all of Hawaii with several rate plans for many market segments.
“We could implement TDMA at any time, but we’re waiting for all the digital cards to be in the deck. We’re not going to change our digital plans by reacting to events in one market. We will implement digital when the time is right for the customer and the business,” she stated.
