Personal communications services developers-both veterans and rookies-are preparing to gorge themselves on the mass market for anytime, anywhere communications. It certainly is a time of high hopes, great expectations and crazy energy coming before an eventual and inevitable industry shakeout. Such a shakeout may force developers back to the original vision of what PCS is all about and finally benefit the object of all this competition-the consumer.
“It was intended to be a low-tier service offering,” said Peter Nighswander, director of PCS market research at Economic and Management Consultants International Inc. “In the early days it will probably only displace a small fraction of cellular users. Over the long term, I think PCS will try to wiggle into the local loop by taking a hybrid approach, providing both in-office use and personal use out of the office.”
EMCI believes the impact of PCS carriers, including lower pricing and improved marketing and distribution for the mass market, will increase underlying demand for mobile services by about 13 percent penetration.
New subscribers will be attracted to the mobile market due to the increased competition, and PCS carriers will capture 80 percent of that expansion market by 1999. Indeed, EMCI said PCS carriers will enjoy a much steeper demand curve through the year 2000 than did cellular companies over the past decade because mobile radio is no longer a new product. PCS growth will reflect rapid penetration into an established and rapidly growing product category.
“The market has been primed for PCS,” the company said.
But based on the demographic usage trends the cellular industry already is experiencing, the average PCS subscriber will be a very different animal from the one the wireless industry is used to, returning lower and lower revenues for ever increasing costs of acquisition.
“Cell phone giveaways are causing consumers to sign up in droves for the convenience of placing occasional and emergency calls,” according to Forrester Research Inc. “The industry blossomed 45 percent last year driven by this trend.”
In the face of this shrinking revenue-per-subscriber trend, PCS will have to play an expensive game of catch-up.
“Seriously burdened with the task of construction, the PCS challengers will wrestle with short reach, money worries and expensive communicators,” the company said.
At the same time, “Some cellcos will try to win customers by recasting existing, low-cost technologies while the PCS buildout proceeds. For example, GTE Mobilnet’s Tele-Go home phone unit automatically switches to cordless in the kitchen and cellular on the street-and already has racked up 120,000 customers in its first year,” Forrester said.
“We think that a new PCS operator-whether a new company or a telco-going head-to-head with an existing cellular carrier is on a course to suicide,” said industry analyst Herschel Shosteck, president of Herschel Shosteck Associates Ltd.
“Demand for PCS must be evaluated in terms of its competition against established cellular and conventional copper wire service. Proponents of PCS have paid little attention to this. Many have assumed that PCS will provide `next generation’ cellular-like services and that demand will be sufficient to warrant high value for PCS licenses. However, the entrenched positions of cellular carriers preclude success for PCS operators which attempt to compete with `look alike’ cellular,” he said.
Shosteck notes the cellular carrier’s 13-year head start gives them greater network coverage, better distribution, brand recognition and a larger share of prime subscribers as well as an easily expandable wireless network and the willingness to cut prices to fight off competition.
“To succeed, PCS operators must develop means of attracting new market segments,” he said. “PCS operators will not be able to provide the coverage of established cellular carriers. Marketing strategies must account for this limitation.”
Shosteck believes PCS operators should pursue alternative “private access” markets such as hospitals, airports and shopping malls that can use wireless networks not connected to the public switched telephone network, with “public access” perhaps added at a later stage.
But returning to such a low-tier service strategy could be difficult after all the hype and high expectations generated during the rounds of spectrum auctioning when the PCS concept was nearly hijacked by federal budgetary goals and bidders had to verbally justify the cost of getting onto the playing field.
But Forrester predicts, “In the year 2005…a wireless call will cost half of today’s cellular rate and about one-third of the population will carry wireless devices.”
“With wireless prices falling, wireline will be forced to maintain a constant price advantage or risk being bypassed by PCS. Plus, roadblocks to new service installations-like two-week delays, security deposits and usurious setup charges-will get wiped off the books.”
Perhaps in the end, by providing the kind of product that drives down the cost of telecommunications while improving service, PCS will achieve the larger benefits that the policymakers envisioned at the beginning. Just don’t expect the same players to still be on the field. EMCI’s Nighswander sums it up, “It’s a dynamic situation. The landscape’s going to look a lot different in the future than it does today.”
