Aggressive digital pricing plans are quickly driving the migration of customers from analog service to digital service, say analysts.
“We attribute today’s successful migration directly to rate plans combined with solid products,” said Richard Siber, head of Andersen Consulting’s wireless practice in Boston. “The features are becoming compelling, and pricing is aggressive at 10 to 11 cents per minute.”
In particular, one-rate type service offers-which eliminate roaming and long-distance fees-from carriers like AT&T Wireless Inc., Sprint PCS and Nextel Communications Inc. are encouraging analog customers to migrate to digital service, said Siber. In addition, these carriers have created product awareness, which has stimulated strong demand for digital phones.
“The latest Motorola phone for Nextel along with the Nokia 6100 series for AT&T Wireless and phones like the Samsung voice-activated handset and the Denso touch-point for Sprint PCS have stimulated additional demand,” said Siber. “Consumers are beginning to ask for specific phones combined with digital service.”
To date, AT&T Wireless, Bell Atlantic Mobile and BellSouth Mobility are among the cellular carriers aggressively moving customers from analog service to digital service. AT&T Wireless in May introduced its One Rate plan that eliminates roaming and long-distance charges and today has more than 50 percent of its customer base using digital service.
Bell Atlantic Mobile, which re-adjusted its digital rate plans in March and introduced a family of flat-rate, all-inclusive price options for all categories of customers, now has about 20 percent of its total customer base using digital service and by year’s end aims to have 40 percent of its busy-hour traffic carried on the digital network. BellSouth said about 41 percent of its customer base is digital.
“We are encouraging customers to go on digital with our pricing plans,” said Jeff Battcher, BellSouth Cellular spokesman. “The incoming first minute and enhanced services are generally free. When you line up a (digital) pricing plan next to analog pricing plans, they are generally lower with more minutes.”
For the most part, cellular carriers have an incentive to move customers over to digital service as the economies of scale on the digital side are falling, and pure-digital personal communications services carriers threaten to erode cellular operators’ existing customer base.
“As new competitors launch service with digital, it leaves cellular carriers’ subscribers open to a lot of other carriers that say they have digital,” said Mark Lowenstein, director of wireless/mobile communications with the Yankee Group in Boston. “Carriers can encourage customers to upgrade their phones and sign another year contract.”
“Consumers are looking for more minutes, better coverage and some added features such as voice mail and text messaging,” said Larry Swasey, wireless analyst with Allied Business Intelligence Inc. in Oyster Bay, N.Y. “When an analog carrier puts these features on a digital offering, it makes the consumer look.”
Cellular carriers also are beginning to price their service in such a way that they can generate higher minutes of use and and average revenue per unit by migrating customers. One-rate plans could do this.
“The carriers are beginning to find that customers who are signing up for the digital one-rate plans are signing up for the larger buckets, and therefore, are using more minutes and generating higher ARPU,” said Siber.
Code Division Multiple Access operator Bell Atlantic Mobile is seeing its average revenue per user and minutes of use increase as a result of its digital strategy.
President and Chief Executive Officer Dennis Strigl, at a recent Yankee Group conference in New York, said ARPU among digital subscribers is twice its analog counterpart, in the $80 range. Minutes of use are three times higher than analog, in the 300-minute range.
“Some would argue that phenomenon is because high users are the early digital adopters. I would argue that we’re beginning to see the effect of lower digital pricing creating higher users,” said Strigl. “It’s what I call: Getting the ARPUs out of the glove-box theory. No-use subscribers will become low-use; low users will become medium users and mid- to high-end [users] will use their phones more than ever. I believe it will result in an overall shift up in the make-up of our subscriber base, both existing and new subscribers, that will result in a greater proportion of mid- to high-value subscribers.”
