While many major cities are supporting up to seven mobile phone operators, cellular carriers operating in small markets aren’t expected to face much competition for many years to come, say analysts.
According to Chris Larsen, senior wireless analyst with Prudential Securities Inc. in New York, in markets that have between 200 and 750 people per square mile, an average of 1.3 personal communications services carriers compete with cellular operators. Markets that support between 50 and 200 people per square mile have an average of .7 PCS operators, while markets with fewer than 50 people per square mile have an average of .2 PCS competitors.
Analysts say that even though PCS carriers plan to build out service in smaller markets, they aren’t likely to heavily market the service there.
“The reality is that larger PCS operators will never have the same kind of footprint smaller cellular operators have,” said Larsen. “They won’t market to people that live in second-tier markets. They want to market to people in larger areas and build out their footprint so customers have a larger area to use service.”
“We have not seen, and we don’t think it will occur where we’ve got someone trying to match our footprint,” commented Richard Ekstrand, president and chief executive officer of Rural Cellular Corp., whose rural properties lie in Minnesota, Massachusetts, New Hampshire, New York and South Dakota.
Ekstrand said Global System for Mobile communications operator Aerial Communications Inc. has built out its network within some of the RCC’s footprint, but has not marketed the service in RCC’s areas.
“The strategy of major operators will be for the rest of this year to improve the coverage they have as opposed to charging in the wilderness,” said David Kerr, director of wireless programs with Strategy Analytics. “Rural America will have a trickle-down economics effect.”
And small PCS licensees are not likely to compete using mobile phone service, say analysts. Kerr believes competition for small cellular carriers will come from licensees looking at niche services like wireless local exchange service. Carriers like Wireless Total Communications of Scottsbluff, Neb., are looking at wireless monitoring systems.
“We’re hearing about smaller niche licensees,” said Ekstrand. “Many of them are looking at a community cordless or wireless local exchange as opposed to a mobile play.”
“The question of who becomes the catalyst for the second-tier markets may be answered by the either small local exchange carriers or the fixed wireless guys looking to take a share on niche markets. I wouldn’t look for the explosion of competition in second- or third-tier markets,” said Kerr.
Though small carriers aren’t seeing much competition, and won’t in the future, many are converting their markets to digital service anyway because the network’s capacity levels save money for carriers in the long-run. RCC is operating a Time Division Multiple Access network in Maine, and testing digital service Minnesota.
“First of all, the feature set you get with digital is appealing to us,” said Ekstrand. “The second thing is that over time you do get capacity problems. Even in the rural areas, there are capacity issues in certain locations.”
Capacity will become more constrained as larger operators like AT&T Wireless Services Inc. and AirTouch Communications Inc. continue to offer one-rate plans that eliminate roaming charges.
“Rural Cellular, Western Wireless and Dobson Cellular are making a killing on roaming revenues,” said Perry Walter, wireless analyst with Robinson-Humphrey Co. in Atlanta.
And roaming is another reason smaller carriers want digital features. Prudential’s Larsen said carriers like Western Wireless and RCC have installed digital control channels in their markets where voice is carried over analog channels, but customers have access to digital features such as voice mail and caller ID. This also allows carriers to implement intelligent roaming, the capability to move minutes from one carrier to another in a given market. Larger carriers are implementing intelligent roaming to drive down roaming rates.
