WHEATON, Md.-The threat of personal communications services encroaching on the cellular telephone industry and a good economy with an expanding consumer market led to accelerated growth in the cellular phone industry last year, according to a report by Hershel Shosteck Associates Ltd.
Shosteck recently released the firm’s review and evaluation of 1994 U.S. cellular industry measurements compiled by the Cellular Telecommunications Industry Association. The report includes a forecast of the “true costs” of owning a cellular phone.
The nation increased its cells by 5,115, or 40 percent, for a total of 17,920, reported Shosteck. “This is double the new cells built for each year from 1991 to 1993.”
The surge is evidence that cell growth represents growth of all cellular systems. Perhaps more important, cellular carriers have been improving their systems’ reception quality to parry impending PCS competition.
However, Shosteck doesn’t believe PCS will fare well competing head-to-head against a more mature cellular market. “PCS in the U.S.-if introduced solely as `head-to-head’ competition with cellular-will prove exceptionally difficult.” By the time PCS is activated, Shosteck predicts, cellular penetration will exceed 13 percent. In comparison, personal communications networks in Germany and the United Kingdom were activated when cellular penetration was less than 3.5 percent.
The study compares investments per cell and per new cell from 1985 to 1994. Costs per new cell gradually increased until 1989, peaking at $1.26 million, and have gone down steadily since then, save for a slight rise in 1993. In 1994, the cost fell to $976,000, down 22 percent from 1989. Shosteck said the advent of digital transmission in 1992 contributes to this trend.
Nonetheless, cell site equipment costs and cell sizes are decreasing and will continue to do so, according to the firm, meaning manufacturers designing products for smaller cells will maximize profits.
Revenues per subscriber have declined between 6 percent to 11 percent per year, most dramatically between 1993 and 1994. “This reflects two phenomena,” explained Shosteck. “The contracting in cellular use which has typified each new tier of subscribers and-less well recognized-an accelerated decline in cellular carrier tariffs.” Shosteck predicts the latter is a competitive measure against PCS.
Despite declining per subscriber use, in 1994 new subscribers increased by almost 51 percent to 24.1 million users. Economic and market expansion were key contributors, said Shosteck. Heavy consumer sales were achieved “through greater advertising, greater retail distribution and consumer oriented tariffs,” Shosteck said.
Subscriber growth will continue throughout 1996, believes Shosteck, and then begin slowing. He predicts subscriber penetration will reach 12.8 percent by year-end 1995, up from 9.3 percent at year-end 1994.
True costs of owning and using a cellular phone have decreased, according to the report. In 1983, it cost an average of $229 to own and use 250 prime time minutes per month, compared with only $71 last year. The average low-priced terminal cost $2,600 at year-end 1983, reported Shosteck, and only $79 in 1994.
Shosteck calculated average tariffs for the cost of 250 prime-time minutes fell by 14 percent from 1989 to 1994. Yet average tariffs for “access only” service increased by 57 percent, attributed to “carrier recognition that `security’ motivated consumers will pay $30 to $40 per month.” Thus, Shosteck concludes, carriers increase access charges to consumers “level of indifference.”
According to Cellular Market Forecasts, new telephone sales have surpassed net subscriber gains by 34 percent to 37 percent since 1990. As replacement sales increase, this percentage will grow, especially for 1997 and beyond, Shosteck predicts. He estimated there were 10.8 million new telephone sales in 1994, up almost 60 percent from 1993, the highest percentage increase since 1989.
