Intelligent roaming is guaranteed to change the face of the wireless industry, and smaller carriers that
have built their businesses on making money from roaming better pay attention, say experts.
“Intelligent
roaming opens up competition, and will require carriers to work hard for roaming minutes,” said Curtis
Knobloch, head of the Technical Roaming Committee with the Rural Cellular Association. “The industry is
moving toward a new paradigm, and I don’t know if everyone realizes it.”
Last May, AT&T Wireless Services
Inc. changed the dynamics of the wireless industry when it introduced Digital One Rate plans, high-end plans that
eliminate roaming and long-distance fees nationwide regardless of which network customers use. Regional carriers like
Bell Atlantic Mobile, GTE Wireless and AirTouch Communications Inc. have since introduced similar plans, but not as
extensively at AT&T.
The looming risk for AT&T Wireless and other carriers offering one-rate plans is the higher
roaming rates they pay to other carriers when customers move off their networks. AT&T Wireless covers a little more
than 50 percent of the country, and analysts say off-network roaming is cutting into the company’s margins. Average
roaming rates exceed the 10 cents to 15 cents these carriers are charging customers per minute.
AT&T Wireless is
counting on intelligent roaming-the ability to move minutes from one carrier to another in a given market-to quickly
move down wholesale rates. Others will too, as Code Division Multiple Access handsets are expected to have the
capability by the second half of the year.
Nationwide carriers can threaten to build in areas where they aren’t
receiving favorable roaming rates. As such, the pressure is mounting on smaller regional carriers to lower their roaming
fees.
“Over the year there has been a lot of pressure to lower rates,” said Knobloch. “It’s more
challenging for a smaller carrier because larger carriers have a multi-state and coast-to-coast presence. They have more
markets, and that does not tip the scales in your favor … Small carriers can’t afford just to knock the rates
down.”
“We’re not seeing roaming rates fall off a cliff,” said David Freedman, wireless analyst
with Bear, Stearns & Co. Inc. in New York. “It really is a region-by-region basis as to how easy it is for AT&T to
eat down roaming rates.”
AT&T Wireless President and Chief Executive Officer Dan Hesse has told analysts
he would like to see average wholesale roaming rates fall to 10 cents per minute, but doesn’t see them moving in that
direction in the near future.
“We have 10-cent roaming deals now with certain carriers, though the average
rate is higher,” Hesse said in an interview with RCR. “We are able to negotiate new rates with carriers and
move minutes that offer us a better deal. Carriers that don’t bring them down are in peril of losing roaming minutes
from AT&T.”
Rural Cellular Corp., whose TDMA properties abut AT&T’s in the Northeast, is taking that
threat to heart. One of the more progressive rural cellular companies when it comes to negotiating roaming agreements,
the carrier said it is working to bring rates down in a way that makes sense with its business plan. Roughly 20 percent
of the carrier’s revenues today come from roaming.
“AT&T has the ability to move minutes to other
carriers,” said Richard Ekstrand, president and CEO of Rural Cellular Corp. “We choose to be responsible
to arrive at a level where we aren’t denied roaming revenue of the larger carriers that will deliver minutes on our
network … We can build a business model that has a rational migration model from where we are today. That is doable,
but it’s not done overnight. It will be done responsibly over a few years.”
But industry insiders say other
smaller carriers are not as progressive, and won’t move rates until they are in jeopardy of losing minutes. If they don’t
act now to gradually move rates, sudden loss of roaming revenue will have a negative affect on their financials, say
analysts.
Rural carrier CommNet Cellular Inc. declined to comment for this story, while United States Cellular
Corp. did not return phone calls.
“For smaller carriers that have half of their revenue stream coming from
roamers, it’s pretty hard to get real excited about having that per-minute rate come down,” said Ekstrand.
“But the fact is, the sophistication of the networks and the intelligence in the networks will require carriers to get
there. I really don’t think they have a choice.”
“Rural carriers will have to work hard not to fight that
downward pressure and find ways to add more minutes to their networks,” said Knobloch.
Chad Holmes,
manager in the communications division of Andersen Consulting in Atlanta, said a trade-off exists for smaller
carriers.
“They have to balance eroding margins on roaming revenues and make sure they have relationships
with carriers that will guarantee traffic,” he said. “You can bet analysts have spent several late nights
crunching the financials on that.”
So far, lowered roaming rates have not generated more minutes on carriers’
networks, said Knobloch.
“Even an increase of 100 percent in traffic will not make up for a cut in roaming
fees by 50 percent,” he said. “You’re not seeing those types of immediate increases. In the long-term, that
may be true.”
Holmes said roaming revenue accounts for 11 percent of overall revenue for the wireless
industry. But as the entire wireless pie grows, roaming will grow, too. And as more users become accustomed to no-
roaming fees, they will become more inclined to give out their phone numbers. Prior to one-rate plans, business
travelers would wait to make phone calls until they reached their hotel. Now they are more inclined to make their
critical calls using their mobile phones, said Holmes.
The competitiveness of intelligent roaming also could spur
alliances between carriers that haven’t done business with each other in the past to help generate more revenue, say
analysts.
“Rural carriers have the opportunity to change the way they do business,” said Bernie
Bianchino, chief business development officer with nationwide CDMA operator Sprint PCS. “We would be very
pleased to talk with carriers about the possibility of distributing to their customers dual-band handsets and allow them
to roam in cities on our CDMA network. That has not been something they have put in their business modeling, but it’s
a viable alternative for carriers. We think we can be very competitive with the rates they pay to current
operators.”
Sprint PCS, say analysts, hasn’t had as much leverage as AT&T Wireless or other cellular
operators when it comes to negotiating roaming agreements with analog providers since its network is fully digital and
operates at 1900 MHz. Sprint PCS today charges customers between 39 cents and 69 cents per minute for analog
roaming. The carrier has a number of automatic analog roaming rates with analog cellular carriers, covering about 80
percent of the nation’s population, says analyst firm Warburg Dillon Read.
Sprint PCS has put most of its efforts the
past two years signing on affiliate companies that will help build out its digital footprint nationwide. This year, it plans
to spend more time forming roaming relationships with analog carriers to encourage them to roam on its PCS network
and to fill out more remote areas affiliates won’t cover.
“We want to form relationships with rural carriers that
have reciprocal roaming, and if they decide to build out digital networks, they could build out CDMA,” said
Bianchino. “We could affiliate with them and do that with our spectrum at 1.9 (GHz). That’s somewhat
complicat
ed by the fact that they own spectrum, but we’re open to those discussions. It makes a lot of sense for rural
carriers.”
Bianchino said in the future, Sprint PCS will have the ability to offer rural carriers a significant
number of minutes as its subscriber base continues to grow at a fast pace. WDR estimates Sprint PCS’ subscriber base
will grow from about 2 million today to about 7 million by the turn of the century. With the changeover from analog to
digital technology, analog carriers won’t have as many users roaming on their networks as they once did, he said.
