The flurry of consolidation in the wireless industry leads the industry observer to believe a nationwide presence is a necessity to compete in this market going forward.
AT&T Wireless Services Inc. raised the bar in 1998 offering its nationwide plan, the Digital One Rate plan. Others responded. Last week, Bell Atlantic Mobile and Vodafone AirTouch plc announced their new nationwide brand, Verizon, and introduced nationwide one-rate calling plans. BellSouth Corp. and SBC Communications Inc. announced plans to merge their wireless properties so they can compete more successfully for the high-end user.
Economies of scale, cost and revenue generation are requiring companies to create a national brand along with a national geographical footprint.
With this said, can small personal communications services carriers survive? The chances are getting smaller as the regulatory and competitive market increasingly becomes more difficult.
Today, the landscape looks like this: Designated entity companies like NextWave Telecom Inc., Metro PCS, Urban Communicators L.P. and Kansas Personal Communications are in bankruptcy before even launching service. Others gave back their spectrum to the Federal Communications Commission in 1998 because they couldn’t afford the license fees or justify their business plans.
The small operators that want to make a go of it are signing affiliate agreements with national carriers to achieve those economy of scale and advertising advantages. Sprint PCS to date has 18 affiliate carriers. AT&T Wireless has various structured agreements with companies like TeleCorp PCS Inc. to expand service nationwide.
Others are selling out, unable to justify their business cases in an increasingly competitive market. Companies like Radiofone PCS L.L.C. and Chase Telecommunications Inc. have sold their licenses to Leap Wireless International, which has enough financial backing to construct systems. Industar Digital PCS, which struggled to launch its network to primarily serve in-building customers, recently sold its business to AT&T Corp. and TeleCorp, which recently announced plans to acquire another AT&T affiliate, Tritel Corp.
Despite the hurdles, successful small operators do exist, and they are finding their niches, capitalizing on the fact that not all customers want nationwide plans.
“If we represent anything, it’s that the FCC didn’t make a mistake in giving entrepreneurial licensing,” said Edward Horner, president and chief executive officer of SOL Communications, a small Global System for Mobile communications operator in Texas. “We have an affiliate agreement with VoiceStream, but they have given us no cash. We built the business out of nothing.”
D- and F-block operator SOL launched PCS service in south Texas last summer and today supports about 38,000 customers. It’s churn rate is less than 2 percent and average revenue per user is about $53, both exceeding industry norms.
Economies of scale are achieved through its affiliate agreement with VoiceStream Wireless Corp., but it has raised its own financing and markets its own service.
Horner attributes SOL’s marketing success to quality customer care.
“The customer care relationship and the trust of a local player I think still is important in many markets,” said Horner. “They like having that personal touch.”
SOL’s customer care efforts include contacting new customers within 48 hours of their purchase, answering customer service calls within 7 seconds and sending out detailed bills every month. Each customer-care representative is also bilingual and thoroughly understands each product and pricing plan the carrier offers.
SOL offers simple, local pricing plans designed for customers who use their service primarily in the areas where they live and work. But it also can somewhat compete on the national level since roaming rates continue to decline for all carriers as one-rate plans become standard plan. The carrier will soon introduce flat-rate pricing called SOL Texas and SOL USA.
Qualcomm Inc. spinoff Leap Wireless, operating as Cricket Communications in the United States, is busy constructing what it calls “islands” of networks that cater to the local market. The no-frills service is an front flat-free payment of $30 per month that includes unlimited calls within metropolitan areas. Customers can’t roam and don’t receive a bill every month, which is how the company cuts costs rather than reaching great economies of scale.
“Our research shows that customers are delighted with the service,” said Sue Swenson, president and CEO of Code Division Multiple Access operator Cricket. “They are excited about the fact that wireless is now acceptable to them.”
Today, Cricket has launched service in two markets, Chattanooga and Nashville, Tenn. It plans to launch service in 25 more markets by the end of 2001. Today, Chattanooga supports 24,000 subscribers since the service was launched last year, while Cricket added 13,000 subscribers in Nashville during its first month of service. It launched there in January.
“The telecom pie is still very large,” said Swenson, whose company continues to gobble up more DE licenses. “There is still opportunity for innovation and differentiation that will cause smaller players to be successful. I think customers are oftentimes looking for more of a regional and local player because they don’t get satisfaction and aren’t always looking for a suite of products offered to high-end users.”
Another small company, NTCH Inc., known as Cleartalk in the marketplace, last week launched CDMA service in Grand Junction, Colo., offering three simple calling plans to residents who require little or no roaming. Glenn Ishitara, head of the company, acquired nine basic trading areas in the FCC’s re-auction of DE spectrum.
“Our overriding, No. 1 key business culture is simple, simple, simple,” said Ishitara. “The market we’re going to track is the new wireless user and the younger user … We’re going after the part of the market that is looking for value, not a great deal of features.”
Another key focus of Cleartalk’s strategy is to create a strong local presence in each market. Ishitara will create a holding company for the licenses but each local market will make the operating decisions and craft marketing plans.
“The whole idea of a small carrier only works if you are a truly local company,” said Ishitara. “We really focused on emerging ourselves in the community with things like college internship plans and brought only a few people from outside markets.”
Cleartalk already is operating at a profit having chosen to perform much of its own build out work, which allowed it to cover much of its startup losses. Creative business agreements with its vendor Lucent Technologies Inc., American Tower Corp. and ASC Billing Solutions helped the company launch service within seven months of obtaining the license in Grand Junction.
