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Voice as a commodity

Voice services are a tricky subject for wireless operators. While voice is regarded as the one true killer application for wireless carriers, many are forced to nearly give away voice service to keep up with the ultra-competitive wireless market.

While carriers try to differentiate their voice service from the competition, consumers have started basing their buying habits first and foremost on price. A recent Yankee Group report showed 62 percent of wireless customers surveyed said reduced service prices would promote their loyalty to a carrier. Improved sound quality picked up only 18 percent of the vote.

“Voice is definitely a commodity for wireless carriers now,” said Larry Swasey, senior vice president of communications research for Allied Business Intelligence Inc.

The Yankee Group survey also showed 24 percent of customers choose cost of service as the first reason for choosing a carrier, with name brand/reputation appealing to only 5 percent.

“Again, these results may indicate an alarming trend for wireless service providers, as service differentiation continues to dissipate and customers fall back on price and basic service quality as determining criteria,” the report noted.

Some operators have tried to increase the value of their services by adding wireless data services or enhanced services to the mix, though U.S. carriers have yet to post tangible financial returns on such services. Sprint PCS said its wireless Internet service has added about $1 to its average revenue per unit numbers, while Japan’s NTT DoCoMo has seen its i-mode service add as much as $25 per month to revenue.

“Over the next seven years, we’ll see voice services increasingly become a commodity with carriers offering bundled services including voice with enhanced services such as high-speed mobile data,” said Adam Guy, senior analyst of North American mobile wireless research for the Strategis Group, in a recent report. “Carriers will add minutes and features to existing service plans in order to offer a competitive value without cannibalizing service revenues.”

Other carriers have found ways to set themselves apart from the pack by offering services that cater to a specific market or economic demographic. These carriers include Nextel Communications Inc., which had targeted the high-end business market; Leap Wireless International Inc., which has targeted the lower-end market with its Cricket service; and U.S. Cellular Corp., which said it has shifted its focus to customer service rather than to offering additional features.

“From the very beginning we set out with a business plan that was different from the other carriers,” said Tom Kelly, executive vice president and chief marketing officer for Nextel. “There has not been another wireless carrier that has claimed to be a business-to-business carrier like we have done.”

Nextel’s business plan has paid off handsomely for the carrier, with the highest ARPU in the industry and one of the lowest churn rates. Kelly noted this was possible because nearly 85 percent of the carrier’s subscribers are corporate customers, so companies pay the bills rather than individuals. Companies also are less likely to churn when compared with typical wireless consumers.

While Nextel’s biggest target audience is the business market, the carrier does provide service plans that appeal to the consumer market, including a year of free calls with a two-year contract agreement and discounted phone offers.

“Sure we have rate plans that appeal to consumers,” Kelly noted. “But, they offer services geared toward business users.”

At the other end of the economic scale is Leap Wireless, which targets its Cricket service at consumers who do not require the roaming capabilities of the larger carriers. The Cricket service allows customers to talk as much as they want in their local market for a fixed rate, usually between $30 and $35 per month.

This has created a unique result for the operator, with lower-than-average ARPU numbers along with higher-than-average minutes of usage. The carrier proudly proclaims its customers use their wireless phones an average of 1,000 minutes per month, resulting in calling costs of around 3 cents per minute. Unlike national carriers, Leap counters the commodity issue by encouraging its customers to use their phones as much as they can.

“I don’t think traditional metrics apply to Leap,” said Dan Pegg, senior vice president of public affairs for Leap. “We are not fighting ARPU. For us, it is subscriber growth that counts.”

Pegg noted while the rest of the market is concerned about the top 30 percent of wireless customers, Leap is happy to market to the remaining 70 percent. This market segment is expected to become increasingly competitive in the near future.

“As the high-end user market gets saturated, carriers will offer increasingly competitive plans to budget-minded and credit-challenged consumers and businesses,” said Guy.

U.S. Cellular’s customer service approach is one many carriers are beginning to emphasize with their customers. David Friedman, vice president of marketing for the Chicago-based carrier, said U.S. Cellular has made customer service a priority for the carrier, noting the wireless service is just a way for the carrier to serve its customers better.

“U.S. Cellular’s customer service is on the opposite side of the spectrum compared with the competition,” Friedman said. “Our product is, in essence, customer satisfaction through wireless communications.”

As an example, Friedman pointed out U.S. Cellular has tested wireless data services, but has not introduced any since the carrier sees more problems for customers than benefits.

While voice may be regarded as a commodity by many in the wireless industry, there are still ways for carriers to differentiate themselves to avoid becoming a “dumb pipe” for voice services.

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