New studies indicate cellular and personal communications services operators are beginning to segment the market by means of pricing.
A survey from Toronto Dominion Securities in New York indicates cellular carriers such as AT&T Wireless Services Inc. and GTE Wireless in several markets clearly have gone after high-end users, forcing PCS carriers to begin targeting low- and mid-usage customers.
“We found enough of this going on to begin looking at it, but I don’t think it’s a lasting trend,” said Jonathan Atkin, analyst with Toronto Dominion. “It seems to some extent PCS carriers are beginning to target lower-use categories as a way of segmenting the market a bit more finely … Cellular carriers are being tenacious to hang (on) to high ARPU (average revenue per unit).”
“Survival is always dependent on expanding the low end of the marketplace … It is extremely difficult for PCS players to aggressively pursue the business market because of their limited coverage,” said David Kerr, director of Strategy Analytics’ Mobile Communications Service, North America, whose company recently released the “U.S. Top 20 Market Pricing Monitor.”
Strategy Analytics’ study revealed PCS operators are targeting the consumer market, offering price advantages of 15 percent to 22 percent, for plans up to 60 bundled minutes per month, compared with cellular pricing plans.
“What we’re now seeing is an aggressive attempt by PCS operators to target the largely untapped consumer market,” said Kerr. “PCS prices on average remain cheaper, but without such dramatic differences.”
Atkin said cellular carriers aren’t willing to tolerate the lower margins produced by lower-usage customers. However, mid-usage customers have become important to cellular carriers because they not only supply a higher margin business, but opportunity for growth as well. Cellular carriers are relying on low handset prices to attract low-end customers.
For PCS operators, low-end users represent large growth opportunities because they migrate to higher-usage categories, said Toronto Dominion. Powertel Inc., which last fall introduced bucket pricing packages beginning at $20 for 100 minutes, reported a significant number of customers since the beginning of the year have requested an upgrade from a low-end monthly plan to a higher-end plan with more minutes of use.
Warburg Dillon Read L.L.C. believes Powertel’s pricing plans have resulted in ARPU that exceeds the mobile telephone industry’s average.
Many PCS carriers still are experimenting. Aerial Communications Inc. for the first time last quarter targeted moderate- to low-usage customers, but plans to target heavy users this quarter, said Don Warkentin, chief executive officer of Aerial.
“It’s too early to tell if the promotions have been successful for ARPU and churn,” said Warkentin. “We’re monitoring it to really see its profitability … The name of the game is to trade people up to get the ARPUs.”
PCS carriers may want to change their subscriber-target strategies, as the once-high ARPU and average minutes of use enjoyed within the last year begin to fall, noted analysts.
“It’s fair to note that the early high ARPU and minutes of use were not sustainable. The only question was when they would move down,” said Kerr. “After adding volume customers for six months or so, that is the time to go after the low end of the marketplace. Cellular carriers have been dragging their feet because they have been able to sustain growth levels.”
Timothy O’Neil, wireless services analyst with Soundview Financial Group in Stamford, Conn., said as long as costs of acquisition per subscriber continue to fall, carriers can afford to bring in lower-revenue-generating customers.
“If you control the expense associated with acquiring those customers and you still have excess (network) capacity, then you’re OK for the short-term,” said O’Neil.
