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DIGITAL SUBSCRIBERS ON THE UPSWING

The number of digital wireless subscribers is expected to increase rapidly this year as more cellular carriers begin to push digital service aggressively.

While many cellular carriers last year offered digital service as a way to offer products similar to what their personal communications services competitors were pushing, many did not make their digital offers appealing to wider segments of customers. Now, economies of scale on the digital side are falling, and more PCS carriers threaten to significantly erode cellular operators’ existing customer base.

Recent statistics from Strategy Analytics indicate some 12 percent, or 7 million, of the total wireless users in the United States were digital users in 1997. David Kerr, director of wireless programs with Strategy Analytics, predicts a rapid acceleration of digital users this year with 25 percent, or 16 million, of the entire wireless installed base using digital service.

Several cellular operators have indicated their intentions to migrate analog minutes of use to their digital networks aggressively this year. Time Division Multiple Access operator SBC Communications Inc. said its goal is to migrate 30 percent of its high-volume customer minutes to its digital network. BellSouth Mobility aims to have 40 percent to 45 percent of its total traffic comprised of TDMA users by the end of the year. Digital traffic has increased on BellSouth’s network about 5 percent each month, expected to reach about 20 percent this month, said BellSouth spokesman Jeff Battcher. AT&T Wireless Services Inc. has been aggressively migrating analog customers to digital service since 1997 and is no longer actively selling analog service. About 2.6 million of its 8.37 million customers were digital customers at the end of the first quarter. AT&T Wireless does not distinguish its 1900 MHz subscribers from its 850 MHz subscribers.

The conditions are favorable for Code Division Multiple Access cellular carriers-which have been slower than their TDMA counterparts to add new digital customers-to aggressively push digital service. The large number of CDMA handset vendors entering the market this year should drive the price of handsets down quickly and produce a greater variety of handset models, said Kerr. While digital is supposed to give carriers greater cost benefits in terms of capacity, that savings has been offset by high CDMA handset subsidies.

“The CDMA leaders, AirTouch and Bell Atlantic, have focused on the conversion of volume users and volume minutes,” said Kerr. “It’s really only been in the second half of 1997 that we’ve started to see any expanded focus in the consumer arena … Very large subsidies on CDMA handsets have been one constraint, and handset appeal has been very limited.”

In the fourth quarter, AirTouch Communications Inc., which has a significant analog customer base, began migrating about 15 percent of minutes of use to digital in key markets, and in the first quarter added 75,000 digital subscribers-a record number.

Bell Atlantic Mobile in March redefined its digital service for its business and consumer markets, lowering per-minute rates at an average of 15 percent and eliminating landline charges and peak/off-peak distinctions. Bell Atlantic said the move had an immediate impact with March posting the company’s best-ever month for digital additions.

Cellular digital service has generally been limited in its appeal to mass-market customers because of the higher prices of handsets and service. Analysts say cellular carriers going forward will have to market more intensely by offering greater bundles of minutes that include a number of enhanced services like voice mail and caller ID.

“People aren’t utilizing the enhanced services,” said Larry Swasey, analyst with Allied Business Intelligence in Oyster Bay, N.Y. “When you’re selling digital voice, you have to justify why they are paying more money for the phone. You have to lower the price overall for the average Joe to become real interested in digital. Pricing will have to be equivalent to what they’re used to paying for [analog service].”

Battcher said BellSouth has geared all of its advertising and branding efforts toward digital service and is offering bundled-minute pricing packages that include caller ID, message-waiting, voice-mail, call-forwarding and call-waiting services. It’s also offering handsets for less than $100.

“For anyone who is a moderate to heavy user, their best deal is on digital,” said Battcher.

Debra Carroll, Bell Atlantic’s vice president of marketing, said the company, which added 55,000 digital customers in the first quarter, now is offering handsets as low as $129. In addition to lowering its digital pricing plans in March, the carrier introduced an unlimited mobile-to-mobile calling option for $10 per month and nationwide roaming for $5 per month. The carrier also includes a number of enhanced services in its pricing packages.

“We made great progress at the end of the first quarter. Fourteen percent of our traffic was digital,” said Carroll. “We’re going to continue to be very aggressive in our advertising and promotional offers and in making offers to our existing customer base to convert to digital.”

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