In Chicago, where cellular penetration is highest and rates are lowest among the nation’s 10 most populous markets, Ameritech Cellular Services and SBC Communications Inc. are fighting it out for customers.
And competition stands only to intensify once challengers in personal communications services, including the mighty AT&T Wireless Services Inc., PCS PrimeCo L.P. and the forthcoming C-block auction winners, blow into town.
The portion of Chicago’s population using cellular phones is expected to approach 18 percent this month, according to Herschel Shosteck of Herschel Shosteck Associates Ltd. Trailing Chicago are Houston with an expected penetration of 16 percent, Dallas at 14.8 percent and Washington, D.C./Baltimore at 12 percent. However, March penetration forecasts for New York and Los Angeles are only 4.5 percent and 10.5 percent respectively, said Shosteck.
Why such variation? “Chicago has the lowest rates in town,” said Shosteck. In fact, the city has provided the lowest rates for the last six years, tied with Detroit in 1993, said Shosteck. In cities like New York and Los Angeles, access and service charges are extremely high. Tariffs are between 50 percent and 70 percent responsible for a market’s penetration rate, and sometimes more, according to research conducted by the Wheaton, Md.-based firm. To note, each market’s penetration figures reflect variations between the boundaries of its metropolitan statistical area and U.S. Census Bureau area. The metro population figure for New York City includes people not included in the city’s MSA and as such shows lower penetration.
Handset prices also are low in Chicago. “It’s generally a free phone market,” said Gina Macchitelli, director of advertising and promotions for Cellular One (SBC) in Chicago.
Chicago’s low service costs, high usage and heated competition are fueled by other factors as well. For one, the city was first to offer commercial cellular service, remarked Jay Ellison, Ameritech’s regional vice president and market manager for Illinois/Northwest Indiana. “The Chicago market is starting to mature. It is a very literate audience in wireless communications,” added Ellison. Also, the city is home to congested freeway traffic, and many people commuting between the city and suburbs. This has “created a natural terrain for the product,” Ellison added.
Macchitelli reiterated that the commuter population accounts for a large portion of business. Included in this group are women who want cellular phones for safety, which also is SBC’s fastest-growing market segment, Macchitelli added.
Shosteck said income level is positively correlated with penetration. In Chicago and other large U.S. cities, income is higher than the average for the nation, he said.
Shosteck’s firm predicted SBC will claim 53.5 percent of the market share this month and Ameritech, 46.5 percent. Despite SBC’s sizable advantage, its market share has been slipping slightly over time from 54 percent in September 1995 to 53.7 in December of last year. Only SBC currently provides digital cellular service. The network uses Time Division Multiple Access technology.
Ameritech users can talk 10 minutes-half peak, half off-peak-for $20 a month. Four more dollars earns users 30 minutes a month. At $30, users earn an hour of airtime, half peak and half off-peak. High volume users can pay $220 a month for 675 peak and 145 off-peak minutes.
For $15 a month, senior citizens receive 5 minutes of airtime through SBC. For $25, all subscribers can receive 30 minutes; for $35, users receive 30 prime minutes and 300 non-prime minutes; for $250, users earn 1,000 minutes. Perhaps SBC’s best deal is the Digital Edge plan. Customers with digital phones can pay $35 for an hour each of prime and non-prime use. Also, SBC customers receive a 50 percent discount on airtime when talking to other SBC cellular customers.
By the end of the decade, however, those rates may seem high. “As PCS carriers come on late in 1996, that will put pressure on cellular carriers,” Shosteck said. “Cellular rates will drop another 20 percent at least,” said Shosteck referring to the country at large. “There’s no economic reason that precludes carriers from dropping charges to $9.95 a month.” In 1990, access was $7 in Chicago, Shosteck added.
Shosteck said he expects Ameritech and SBC will respond to PCS as Bell Atlantic Nynex Mobile responded to Sprint Spectrum’s PCS launch in Washington D.C./Baltimore, by introducing area-specific tariffs that “will be purchased by new tiers of subscribers and that will lower the entire cost structure nationwide.” Shosteck predicts that in 1996 and again in 1997, between 8 million and 10 million people will become subscribers of mobile phone service-chiefly cellular, as PCS coverage won’t be as extensive.
The future market will be highly competitive, acknowledged Ellison of Ameritech. However, he believes his company will fare well against competitors by pursuing its current strategy of providing customers with value, which he said builds loyalty. Ameritech recently received the J.D. Power Satisfaction Award, Ellison noted.