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iDEN's Eye on Consumers

Although business and enterprise users remain the main market for wireless providers that use iDEN technology, there are signs that carriers are close to expanding into the consumer market.

On April 22, Nextel began selling the Motorola i30sx phone, which retails for just $49.99 under a promotion. The phone also accommodates interchangeable faceplates, a feature already popular among Nokia owners.

The i30sx debuts less than a week after Nextel finished testing new software that promises to double its voice capacity for both its telephony service and its walkie-talkie-like Direct Connect service. The new software will be deployed in Nextel's network by the second half of 2003, when compatible phones will go on sale.

Like rivals' next-generation technologies ― CDMA's 1XRTT and GSM's GPRS ― the new software should cut iDEN carriers' capex. The reduced overhead could allow iDEN carriers such as Nextel, Southern LINC and Telus Mobility to cut their rate plans enough to pursue the consumer market without sacrificing their bottom lines.

Indeed, in a November 2001 interview, Peter Aloumanis, director of U.S. market operations for Motorola's iDEN Subscriber Group, told The Net Economy that Motorola was working on reducing iDEN's cost structure to consumer-friendly levels.

"The typical [iDEN] minutes of use is about 400," Aloumanis said. "That's about two times to three times more than on cellular. So if you talk about capex per MoU, we are on par with GSM or CDMA. If you do it on a pure capex per subscriber, we are not on par."

That's one reason why, so far, iDEN carriers have focused on high-margin business users. "Where Nextel doesn't have an edge is on low-tier subscribers, [where] they probably have a 5% disadvantage," Aloumanis said. "That's the area that we're focusing on now and trying to deliver on by the end of next year."

Why the consumer market is attractive

But why go after consumers? After all, business users have kept Nextel's average revenue per user a good $10 or more than rivals' ARPU. Cheap phones and bargain rate plans also tend to attract people who are particularly sensitive to price and thus more likely to churn.

One possible reason is that the business and enterprise markets are saturated, so, aside from upselling existing customers and poaching from rivals, maintaining growth requires a foray into consumer markets. And the consumer market is wide, with multiple sub-demographics beyond investor-scaring low-margin, high-churn prepaid users.

One safe bet is families: Parents tend to be responsible in paying phone bills, and the walkie-talkie service could be a convenient way for family members to keep in touch. (Walk around any mall, and you'll see the popularity of the Family Radio Service walkie-talkies) iDEN's walkie-talkie feature also is a built-in barrier to churn, because for the churning member, switching carriers makes communicating with the rest of that group more of a hassle and potentially more expensive.

Another possible reason is that iDEN carriers are taking seriously the possibility that rival technologies are close to offering a walkie-talkie-like service, which has been a key market differentiator and a hook for enterprise and business users. CDMA, GSM and TDMA all can support a walkie-talkie service, but the fact that they haven't been widely deployed suggests that their current cost structures aren't viable. Any limitations could disappear when CDMA and GSM eventually migrate to voice over IP, which, in theory, could support a walkie-talkie service easily and inexpensively.

Only time will tell whether cheaper phones and lower overhead really will entice iDEN carriers to make a run at consumers. It could be that Motorola is just giving them the tools to cut costs to protect their share of the business and enterprise markets, which rivals covet. Or it could be that execs at Nextel, Motorola and Southern LINC have spent time in malls lately and seen all the kids and parents walking around with Family Radio Service walkie-talkies as a new market.