The wireless telecommunications industry has grown up more quickly than many other industries in the United States. The industry likes to boast of its relatively quick acceptance in the marketplace, comparing its acquisition of 50 million customers in just less than 15 years to the wireline, television and radio industries’ much longer wait to reach the same amount of customers.
But the original players-800 MHz cellular carriers-are beginning to experience the first slowdown in subscriber addition growth figures, causing some industry watchers to question whether the market is maturing.
A recent report published by Salomon Smith Barney forecasted overall cellular net additions to decline by 33.5 percent year-over-year during this year’s first quarter, compared with a 22 percent year-over-year decline during the fourth quarter of 1997. Cellular net adds actually declined by 34 percent during the quarter, said Thomas Lee, an analyst with the company.
The report suggested weak subscriber trends of cellular carriers and strong net gains by personal communications services carriers are caused by a growing demand by new customers for digital services with added features, no contracts and lower airtime rates, as well as an ongoing migration of existing analog customers to digital networks. That trend, said the report, favors PCS carriers because of their digital capacity and flexible pricing.
“During the first quarter, PCS carriers grew subscribers and revenues better than expected,” said Lee. “Cellular continued to decelerate pretty rapidly.”
AirTouch Communications Inc. was the exception to the rule, said Lee. The company reported it added 171,000 proportionate U.S. cellular customers, compared with about 147,000 additions during the first quarter of last year, representing an increase of 16 percent. Second-tier carriers Alltel Corp., United States Cellular Corp. and Price Communications Corp. also reported gains in net additions.
Most other carriers, however, experienced a decrease in net additions. AT&T Wireless Services Inc., for instance, added 195,000 cellular subscribers during the first quarter, compared with 251,000 during the first quarter of 1997, a decrease of about 22 percent. SBC Communications Inc. and GTE Wireless experienced the sharpest declines in subscriber growth at 79.3 percent and 77.7 percent respectively, according to a Bear, Stearns & Co. Inc. report.
“The growth for very urban carriers is going to be slower over the next few years,” said Perry Walter of Robinson-Humphrey Co. “Their attractive subscriber base is under pressure from PCS carriers, and they need to have good customer-loyalty programs. They need to be careful or they will lose those customers to churn.”
Although cellular carriers are experiencing a slowdown, analysts stop short of calling the market mature. While most carriers’ net additions declined, they continued to experience double-digit growth in their overall subscriber bases. The overall wireless subscriber base grew 25 percent last year, while cellular carriers experienced an 18 percent growth in their subscriber bases, said one analyst.
“The absolute percentage gain will go down, but the absolute number of subscribers will remain strong,” said one telecom analyst. “I wouldn’t call a market with 18-percent growth mature.”
Becky Jackson, director of strategy and planning for BellSouth Cellular Corp., said although net additions are declining, the total wireless market is continuing to grow. BellSouth, she said, promotes its better coverage and customer service as well as reasonable pricing plans to attract customers.
“Most wireless carriers are reporting that 45 percent to 50 percent of their net additions are people who have never subscribed to wireless service before,” said Robinson-Humphrey’s Walter. “We consider this very strong evidence that the `wireless pie’ is in fact growing, not just being cut into smaller pieces. Many carriers have noted that the increased promotional activity in a particular market has led to better performance by all competitors.”
Lower rates resulting from competition from PCS players will stimulate overall subscriber growth, said Jane Zweig, vice president of Herschel Shosteck Associates Ltd. Wireless carriers also will begin attracting subscribers and minutes of use from wireline telephony, she said. A Peter D. Hart survey earlier this year suggested 44 percent of users with multiple phone lines in their home are interested in switching their second line to a wireless one.
David Freedman, a wireless analyst at Bear, Stearns & Co. Inc., said slowing growth is a result of gross customer additions remaining relatively flat while churn has grown, leaving the number of net adds lower each quarter. Carriers also are focusing money on migrating customers from analog to digital networks, he said.
The fact that cellular carriers are experiencing a slowdown in growth can be viewed as a positive because it means they have been successful at penetrating the marketplace.
“The average penetration rate into the U.S. population has reached 20 percent and therefore the sheer size of the installed base makes it difficult to maintain growth rates of 40 percent or more,” said a report published by SoundView Financial Group Inc. Cellular penetration has grown from 9 percent in 1994 to about 20 percent in 1997, and during the same time, cellular growth declined from 45 percent in 1994 to 25 percent in 1997, according to the report.
Thomas Wheeler, president of the Cellular Telecommunications Industry Association, compared U.S. wireless penetration rates with some international countries that have even higher penetration rates to suggest that the U.S. wireless industry has plenty of room to grow.
Whether the cellular industry is experiencing a slowdown while PCS is booming may not matter in the long-term. Increasingly, say industry watchers, the distinction between cellular and PCS will blur. The wireless market already is beginning to be seen as a whole, and less emphasis is being placed on the distinction between cellular and PCS, said Peter Nighswander a telecom analyst with the Strategis Group.
“It’s hard to look at the cellular and PCS markets in isolation,” said Nighswander. “They both seem to stimulate each other’s growth.”
Indeed, many carriers who operate both cellular and PCS networks don’t break out subscriber figures for each, preferring instead to count the two together under the classification of “wireless” subscribers.
