YOU ARE AT:Archived ArticlesDIGITAL SERVICE PRICES ARE LIKELY TO REMAIN LOWER TO ENTICE USERS

DIGITAL SERVICE PRICES ARE LIKELY TO REMAIN LOWER TO ENTICE USERS

Cellular operators may have to continue to price digital service lower than analog to capture and keep customers until digital service matures and can offer advanced features, said cellular phone analyst Herschel Shosteck. But digital service has been accepted by users more quickly than analog service was at its inception.

“In 40 to 50 percent of the markets, digital (service) is being offered for less than analog,” Shosteck said. “TDMA digital will be working fine in another two or three years, but they’re pushing it before it’s ready. Analog didn’t work well until about six years after it was introduced.”

Time Division Multiple Access technology now is offered as an option to analog in markets throughout the United States and Canada. U.S. carriers Southwestern Bell Mobile Systems and AT&T Wireless Services have the most TDMA systems rolled out.

TDMA Interim Standard-54 was adopted by the industry in 1991 and was introduced in 1992. Operators supporting the technology say it provides them with capacity savings in the network, and gives users encryption protection and safety from cloning.

“Our customers say it has benefits,” said Southwestern Bell spokesman Walter Patterson. “Some want the greater privacy if they are discussing things on the phone with clients. And it’s a clear signal with no static.”

Southwestern Bell has switched on IS-54 TDMA in Chicago, St. Louis, Dallas-Fort Worth and Washington, D.C.-Baltimore, Md. When the company completes the installation of Boston’s TDMA service, almost 80 percent of all Southwestern Bell customers will have access to digital.

Unlike other carriers, such as AT&T, Southwestern Bell doesn’t price its digital service lower than analog. They sell it as a premium service, Patterson said.

Shosteck said his company, Herschel Shosteck Associated Ltd., last December surveyed 113 dealers and carriers who sell digital service and found that 48 percent believed the quality of digital was worse than analog.

“Analog systems haven’t degraded. They are better than they were. Many carriers are not allowing a maturation period for digital technology. It takes time for the quality to improve,” Shosteck said.

AT&T Wireless Services said it hasn’t seen digital customers switching back to analog service.

“We’re adding 50,000 to 70,000 new digital subscribers a month,” said Todd Wolfenbarger, a spokesman for AT&T Wireless. AT&T is selling digital for less than analog in some markets.

AT&T Wireless has rolled out TDMA in 23 of 30 markets, covering about 88 percent of its population base. About 500,000 of the company’s 4.8 million cellular subscribers are digital customers, Wolfenbarger said.

The technological maturation that Shosteck speaks of takes time, but cellular carriers aren’t sitting still. Several are testing the advanced TDMA IS-136 standard, which offers text messaging, sleep mode, over-the-air activation, extensive battery life and the possibility of other advanced features.

Operators say digital cellular will win marketing points when IS-136 is deployed. IS-136 will provide the kind of attractive features that will give digital cellular the marketing advantage it has lacked against analog cellular.

“Customers are interested in cost savings but features are very important,” Wolfenbarger said. “With IS-136, there are features that won’t be possible with analog. People will love the sleep mode, and battery life will increase up to 10 times.”

Digital cellular probably will be embraced by the public, Shosteck said, but it’s being oversold to the industry.

“It’s counterproductive to hype digital because you’re setting up a false expectation. But there’s so much vested interest that there’s hyperbole all over the place,” Shosteck said.

The price of TDMA and analog handsets have been dropping through the years. The retail cost for digital phones dropped 44.2 percent since March of 1993, according to Shosteck.

And each year, the number of TDMA handsets sold in the United States has increased. Shosteck said the initial take-up of digital has been twice as fast as that of analog. In 1993, only 1.2 percent of U.S.-sold handsets were TDMA. By 1994, it was up to 3.6 percent, at 400,000 handsets, according to Shosteck’s statistics. By the end of 1995, an estimated 1 million TDMA handsets will be in the hands of U.S. customers, reflecting 7.6 percent of total phone sales, quite a jump from the 0.1 percent, or 3,300 TDMA handsets sold the first year of service, 1992.

BellSouth Corp. has switched on TDMA in its large Los Angeles market and plans to offer TDMA in all its markets by 1996.

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