Wireless service providers offering analog phone service to their subscribers are forced to walk a fine line between alienating established customers who rely on analog service and the increased profitability possible from value-added services offered on digital networks.
As carriers acknowledge, analog service is still the preferred choice for some of their customers. Sure, digital can offer a clearer signal and allow access to wireless data and Internet offerings, but in the rural markets where most analog customers live, these benefits are a hard sell.
Networks in rural markets are usually not as congested as urban networks, so call quality is often acceptable. And if rural customers have Internet access from their homes, they might not be interested in a slower wireless Web connection.
“Analog is a great standard,” explained David Friedman, vice president of marketing for U.S. Cellular Corp. “Everything can default to analog service, so it will always be around. Some people even still prefer the way analog service works and sounds.”
Chicago-based U.S. Cellular serves more than 3 million subscribers in mostly rural markets. Even though the company offers digital service in 85 percent of its coverage area through a mix of TDMA and CDMA, depending on the technology deployed by operators in neighboring markets, the company predicted its customer base was split evenly between digital and analog customers.
“Digital is good because it allows us to offer features and is more cost efficient when compared to analog. But analog still has a place in our markets,” Friedman added.
Wireless analysts at UBS Warburg L.L.C. noted that U.S. Cellular’s management increased its expectations of digital subscribers on its network from 40 percent in mid-2000 to 50 percent by the end of the year.
Verizon Wireless is riding a similar wave, but in a much bigger boat. In addition to being the country’s largest wireless operator with more than 27 million subscribers, Verizon Wireless operates a large analog network left over from GTE Wireless, PrimeCo Personal Communications, Vodafone AirTouch and Bell Atlantic Corp.
Verizon does not release separate numbers for its analog and digital customers, but Jeffrey Nelson, executive director of corporate communications for the carrier, said a minority of its current customers are using the company’s analog services.
“We are aggressively encouraging our customers to make the switch from analog to digital,” Nelson said. “While it’s a great service for customers in certain areas of the country, we can offer them better quality and more features with digital.”
Nelson noted Verizon Wireless plans to offer digital services in all of its markets by 2002.
Cingular Wireless and AT&T Wireless, the second- and third-largest wireless carriers, also offer analog services alongside their digital networks. Both said analog customers make up approximately 15 percent of their subscriber base, but the companies said they plan to move those subscribers onto digital plans over the next few years.
Kris Rinne, vice president of technology and product relations for Cingular Wireless, explained that infrastructure costs associated with analog service are much higher than with digital. Those costs are becoming increasingly important as carriers look for ways to bolster their bottom lines.
“We are providing value for our customers to move to our digital service offerings, but we will continue to offer analog for those customers who rely on it,” Rinne added. “But digital costs are much lower from an infrastructure standpoint.”
Rinne also noted Cingular will continue to offer analog services not only because some customers still want the service, but because the government mandates they continue to designate a portion of their spectrum to analog services.
Another cost concern for carriers trying to convert analog subscribers to digital service are handset subsidies customers have come to expect when signing up for new service. UBS Warburg noted signing up customers for new service can cost a carrier between $300 and $600 per user when factoring in the costs of handset subsidies.
“We have an obligation to our customers who switch from analog to digital to provide digital handsets at a reasonable price,” said U.S. Cellular’s Friedman. “But when you start giving away handsets, it gets cost prohibitive from a carrier standpoint.”
While analog services still offer a valuable service option for customers, wireless carriers hope those customers will see the digital light at the end of the tunnel and eventually make the switch.
“We have a clear goal that everything will be digital in the future,” Friedman added.
