NEW YORK-Despite economies inherent in population density for the wireless telecommunications industry, rural cellular carriers are sitting pretty during the advent of personal communications services competition.
“If you take all of the C to F (block) winners, except maybe for some of the 10 megahertz wild cards, we don’t get touched until they’ve covered 75 percent of the population,” said Arnold Pohs, chief executive officer of CommNet Cellular Inc. Headquartered in Englewood, Colo., CommNet’s territory covers 3.5 million people in nine states, most in the Great Plains and the Far West. Average population density is eight people per square mile.
The cellular carrier recently asked Northern Telecom Ltd. to estimate the cost of overlaying its analog system with a digital system in its Iowa market, which has 354 cell sites. “It would cost well over $100 per pop to duplicate the coverage we already have,” Pohs said. “This is indicative of what a PCS player would have to spend.”
With Iowa’s terrain being relatively flat, digital overlay costs there are comparatively cheap, said Donald Guthrie, chief financial officer of Western Wireless Corp., headquartered in Bellevue, Wash. “The cost to build out Montana would be well over $150 (per population equivalent),” he said.
Guthrie and Pohs spoke May 8 at Lehman Brothers Inc.’s 1997 Telecommunications and Media Conference.
Population density averages 12 people per square mile in Western Wireless’ service territory, which covers eight Midwest, Great Plains and far West states, including Iowa and Montana. The carrier also owns PCS licenses in many of its cellular markets. With universal telephony service requirements on the horizon, Guthrie said, “one of the reasons we bought PCS licenses over our cellular licenses may have nothing to do with mobility service.”
Omnipoint Communications Inc., the PCS carrier that entered the New York City metropolitan area market late last year, also owns PCS licenses in less populous areas like Wichita, Kan., Amarillo, Texas, and Pine Bluff, Ark., said George Schmitt, president. Population densities in the New York, Boston and Philadelphia areas-Omnipoint’s initial rollout focus-average 1,000 people per square mile and buildout costs average $15 per pop. By contrast, suburban area buildout costs average $20 per pop and rural area buildout costs average $35 per pop, he said.
“We’ve moved away from building out Amarillo because we lack the manpower,” Schmitt said. “It’s hard to justify the buildout because its hard to determine if there are enough people with enough income to give you revenues of $40 per month.”
Omnipoint has an alternative plan for PCS network construction in some of the smaller areas where it is a license holder. “In some of these markets, you’ll see us partner with local telcos (local landline telephone companies) who want to get into wireless but didn’t have the wherewithal to buy licenses,” Schmitt said.
The price disadvantage of network buildout by new carriers, especially in less populated areas, isn’t the only factor in the competitive equation, however. Dual-band carriers may be able to avoid at least some network buildout expenses and be able “to come in and steal your customers,” said John Bensche, telecommunications analyst and panel moderator for Lehman Brothers.
Bell Atlantic Nynex Mobile, a Bedminster, N.J., cellular carrier, has a coverage area of about 57 million people, mostly on the densely populated East Coast. But 17 million of its pops are in rural markets, said David Benson, chief financial officer. “The best strategy is to have a diversified portfolio,” he said.
The success of the PCS players going into commercial operation during the next year will depend in good measure “on the robustness of their network when they come on line,” Benson said. “They can do themselves more harm than good if they come on with less than a robust network.”
The success of the incumbents will depend on the appropriateness of their response to competition, both on the basis of prices charged customers and on the strength of their networks, he said.
