DENVER, United States-Personal Communications Services (PCS) carriers have made significant inroads into the U.S. wireless telecommunications industry, weakening the entrenched cellular carriers’ net additions and driving down airtime prices.
The total number of PCS subscribers in the States reached 3.1 million during the first quarter of 1998. Major PCS operators blazed a trail throughout 1997, rapidly launching new markets across the United States. Service is available in virtually every major U.S. market, with most markets supporting more than one PCS operator.
PCS carriers’ quick entry into the U.S. wireless market has begun to take its toll on the U.S. cellular industry, which turned 15 years old this year. PCS carriers’ success in both subscriber and revenue growth has surprised analysts.
A report released earlier this year from New York analyst firm Salomon Smith Barney forecasts cellular net adds will decline 33 percent year-to-year going forward. The major cellular carriers experienced significant declines in net additions during the first quarter. AT&T Wireless Services Inc.’s net additions declined 22 percent compared with those in first-quarter 1997, while 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.
Smith Barney said PCS carriers’ strong net gains reflect growing demand by new customers for digital service, no contracts and lower airtime rates, as well as ongoing migration of existing analog customers to digital networks.
Still, cellular carriers are expected to hold the bulk of mobile phone customers for some time. The Strategis Group, a Washington, D.C.-based consulting firm, projects 25.8 million PCS customers by 2000 out of the total 105.4 million U.S. mobile phone subscribers projected. By 2007, PCS subscribers will account for 46.7 million of the 144.7 million total estimated.
Rollout update
PCS carriers still have a lot of ground to cover in the United States to match coverage of their cellular counterparts. Buildout has tapered somewhat now that most of the major markets are launched. Coverage holes remain, and most second-tier markets are untouched. Many carriers plan to sign on affiliate companies that will build out and operate their markets for them under the carriers’ brand names.
Nationwide licensee Sprint PCS capped off 1997 with 134 metropolitan markets up and running. The carrier said it is ramping up for another round of buildouts of its D- and E-block markets between August and mid-1999. It plans to offer service in 100 more markets through its own network and through affiliate networks. The company in June signed affiliate agreements with Louisiana Unwired L.L.C., Meretel Communications L.P., Roberts Wireless Communications L.L.C., Horizon Personal Communications Inc., Georgia PCS Management Inc. and Brookings Municipal Utilities. All were former C-block licensee holders and returned their licenses under the Federal Communications Commission debt-restructuring plan.
AT&T Wireless, which converted all of its cellular markets to digital service nearly two years ago, has been slow to build its PCS markets. The company won 21 major trading area licenses, and has launched service in fewer than half.
“AT&T has been not as aggressive. It has been focusing on capturing the high-end user,” said Peter Nighswander, senior analyst with the Strategis Group.
AT&T Wireless also is using affiliate agreements to build out some of its smaller markets, but has yet to announce any more agreements in 1998. Triton PCS is building out AT&T Wireless’ coverage into Virginia, North Carolina, South Carolina, Georgia and the Washington-Baltimore corridor. Cincinnati Bell Inc. launched PCS using AT&T Wireless’ network in Cincinnati, and will launch service soon in Dayton, Ohio.
Powertel Inc. in the southeastern United States already has begun launching its second-tier markets. The company provides extensive service in 26 metropolitan areas and major highway corridors throughout its 12-state license area. Other major carriers, which picked up some D- and E-block licenses to fill out their footprints, are expected to begin expanding service this year as well.
Stabilized pricing
While the name of the game last year was to sign on a customer at any price, analysts say pricing in the United States has stabilized. PCS companies last year entered the scene offering tremendous discounts such as US$50 for 1,000 minutes per month to attract customers. Now PCS carriers are shying away from such offers and are crafting their offerings around features and short-term promotions. Special short-term promotions include discounts on handsets, free weekend calling and free access charges.
“We’re going to see more handset promotions as new models come out,” said Nighswander. “Carriers are starting to entice the customer by cutting handset prices.”
“I’m looking for ARPUs (average revenue per unit) to go down 5 [percent] to 10 percent this year,” said John Bensche, analyst with Lehman Brothers Inc. in New York. “I’m not looking for any price war. There’s rationality in the market. We’ll still see some random promos running for a couple of months.”
Sprint PCS, once offering some of the most aggressive pricing plans in the country, readjusted its pricing plans for the second quarter in a row during early 1998. AT&T Wireless discontinued its doubled-minutes promotions earlier this year, but introduced in May an aggressive national rate system, called AT&T Digital One Rate, that eliminates long-distance and roaming charges.
Bundled-minute offerings remain popular offerings for PCS carriers and average around 10 cents per minute. Analysts say carriers are hoping subscribers don’t use all of their bundled minutes so they can avoid incurring certain incremental costs such as interconnection fees.
