Personal communications services providers aren’t radically undercutting incumbent cellular providers’ prices as they enter markets, according to a quarterly survey of wireless pricing in markets where PCS operators have begun service.
The survey, conducted by Atlanta-based Robinson-Humphrey Company Inc., found that the PCS pricing discount relative to cellular service is on average about 4.6 percent to 6.3 percent in the Southeastern region of the United States, 7.5 percent to 20.2 percent in the Northeast and 5.2 percent to 8.3 percent in the West. The survey included 33 markets where at least one PCS carrier has launched service, said the firm.
PCS carriers’ efforts to gain market share and establish brand awareness along with PCS subscribers’ inability to roam nationwide and the partial coverage of PCS in distant areas all are factors that contribute to the modest discounts, said Robinson-Humphrey.
“PCS carriers have been fairly rational about pricing,” said Perry Walter, vice president and telecommunications analyst with Robinson-Humphrey.
“If we look at what is going on with wireless stock, there’s so much concern about how much competition is going to affect things… It’s expanding the wireless pie. That’s what we are seeing. After listening to some of the initial earnings for the first quarter, we’re seeing very strong net adds where PCS operators have begun service. Churn rates are under control and lower.”
The firm attributes the high discount rates in the Northeast to considerable discounts relative to cellular service in New York and Cincinnati. For instance, GTE Wireless, which launched PCS in February, is offering significantly lower prices than its cellular competition in Cincinnati. The firm noted that cellular carriers may have been caught off guard by the launch or had not adjusted their pricing by the time the survey was conducted.
The key distinctions between successful cellular carriers and those that may suffer in the marketplace is how much they have prepared for the entry of PCS carriers, said Walter. Existing carriers need to adjust their pricing and make sure they have enough coverage plus the features PCS carriers can offer, he said. Customer care also will be important.
The survey noted that Montgomery, Ala., appears to be the market where cellular carriers have made active decisions to match or outshine PCS price reductions offered by InterCel Inc. Alltel Communications and Palmer Wireless Inc. are pricing their service well below PCS for all plan levels. Four months ago, PCS was priced at an 11.6 percent to 15.6 percent discount in that market, according to Robinson-Humphrey.
The firm observed that promotional pricing is a significant factor in many PCS markets as many carriers are offering large or unlimited packages of local usage minutes for a single price ranging from $40 to $65 per month. Many PCS carriers said they offer promotions to “encourage quicker buying decisions.” Others stated they are compensating for lack of coverage, creating brand awareness or simply are studying the usage patterns of potential customers, said Robinson-Humphrey.
Walter said he is concerned about what precedent promotional pricing may be setting in the marketplace. “We need to make sure that carriers don’t underprice their services or set expectations that [customers] are going to continually get many minutes for one low price,” he said. “Carriers need to be careful not to give away the added value of the mobility factor.”
The firm said it studied carriers’ pricing plans between March 1 and March 15. Even though carriers have several different pricing plans, Robinson-Humphrey said it was able to detect a pattern of three general levels of business pricing plans targeted as low-end, mid-priced and high-end user plans. The firm compared each PCS plan or plans to the wireline and non-wireline cellular plans.
