Cellular phone prepaid wholesale

An MPN survey of wireless analysts has yielded two broad themes for the coming year: an end to the traditional notion of roaming, and increased competition. The intensifying competition, however, will not necessarily be the kind that leads to a bloodletting price war that unseats incumbents.

Like last year's price reductions, changes in the cellular industry-projected by San Jose, Calif.-based Dataquest as generating $27 billion in revenues for 1998, as compared to $25 billion in 1997-are a result of new competition. Say goodbye to the days of $3 per day and 99 cents per-minute roaming. In 1998, the home service area for some users will become as large as North America.

"In 1998, the usual sense of roaming will become history," said Iain Gillott, an analyst with IDC/Link Resources. Gillott added that personal communications service (PCS) providers Sprint PCS [FON] and PrimeCo Personal Communications Service, along with national specialized mobile radio operator Nextel Communications Inc. [NXTL], have forced this on the established cellular carriers. "The logical extension of this trend," said Gillott, "is that you will end with no roaming, period."

Gillott cautioned, however, that such an "end" to roaming will apply to high-end users only. "It's not a feature for low-end users, stay-at-home users, but building a business model around [high-end users'] roaming habits will not be hard at all," he said. "In some cases [carriers] will have to eat some charges, but in the end it will be good for them."

...Advantage: Large Carriers

"1998 will be the year of the wireless 'supercarrier,'" said Mark Lowenstein, lead wireless analyst at the Yankee Group. "And it will be the year that ends roaming as we've known it. All the major players have already started revamping roaming."

Lowenstein said that in this new world, "supercarriers" with large footprints such as AT&T Wireless Services Inc. [T], Bell Atlantic Mobile [BEL], AirTouch Communications Inc. [ATI] and Sprint PCS will derive the greatest benefit because they will not pay wholesale rates for roaming on their own networks. Lowenstein, however, pointed out that Sprint PCS, despite its footprint, has a disadvantage that the cellular supercarriers do not. In some markets-specifically those it hasn't built out yet-Sprint PCS is being charged 70 cents per minute wholesale for roaming. Therefore, it must eat at least 20 cents per minute because its retail roaming rate is 50 cents per minute.

In general, increased PCS roaming will help cellular carriers because it will boost network traffic and thus create more revenue without acquisition costs or handset subsidies (MPN, Oct. 20, 1997).

The expanding wireless voice pie tends to help those that already claim the largest pieces. But it is the rural cellular carriers that may be the big winner in a world where every carrier offers roaming from coast to coast. PCS users-whose promised "national network" comes courtesy of dual-band handsets-will be great for rural carriers' coffers. On top of new roaming revenue, rural carriers do not face the immediate competition from PCS that their urban brethren find.

The issue of network economics also favors rural carriers: PCS carriers, already strapped with building out urban core areas, are not wont to build out in the countryside or even in some suburbs. Though the marketplace changes, RF physics do not. At 1900 MHz, the PCS carriers will need as many as four cell sites to cover the same area covered by one 800 MHz cellular base station. Then there's the mounting political resistance to new cell sites-a build-out hindrance across the board.

...Expect No Cellular Casualties In 'Price War'

Dataquest analyst Tole Hart said that more competition will lead to more bundled minutes-plans pioneered by PCS carriers. "I think you'll see a lot of cellular companies offering bundled packages in the $42 through $100 [average revenue per user (ARPU)] bracket," Hart said. "Those are the customers everyone wants."

This departure from traditional cellular pricing will reduce the overall price per minute, but it remains to be seen whether the actual bills will decrease because minutes of use generally increases in package deals. This has been one of the reasons that PCS ARPU last year generally exceeded cellular ARPU (MPN, Nov. 17, 1997).

To Jerry Kaufman, the bundling plans look a lot like what happened to the long-distance market after the 1984 breakup of AT&T. Kaufman, president of Dallas-based Alexander Resources and a 26-year observer of the telecommunications market, said, "Clearly what I see happening in wireless communications is long-distance deja vu all over again. It's not surprising because many of these same companies that have been fighting in the long-distance wars for many years now with confusing price programs have started to and will continue to employ the same marketing strategies in wireless," he said. "The key for anticipating [1998] and the years after that is, 'Gee, this looks like long-distance.'"

...Shelf Space Crunch, Calls During Dinner

More competition will lead to tighter fighting in retail channels, predicts the Yankee Group's Lowenstein. This will mean carriers pushing each other off the shelves. "With five or six competitors in some markets, there only are so many carriers that Circuit City can put on their [shelves]," he observed. "The successful carriers are on an exhaustive search for different retail channels." Lowenstein said this would-like those sometimes annoying long-distance phone pitches-include telemarketing. "People won't just be interrupted during their dinner by long-distance carriers," Lowenstein said. "This is a scramble for more points of presence."

One product moving like hot cakes in retail outlets is prepaid wireless. Look for this trend to gain momentum this year. Nearly across the board, prepaid plans have exceeded even optimistic projections of the companies that provide them, from resellers to major carriers such as AT&T (MPN, Dec. 8, 1997).

...It's No Joke: '98 Could Be 'The Year' For Mobile Data - Really

Year after year, it seems, mobile data has been subject of pent-up industry humor poking fun at the industry segment's annual claims that 19 (fill in the blank) is "the year." Well, 1998 may be "the year" of mobile data-but not because of any independent "killer" mobile data offering. Rather, this will be because data, more and more, will become a differentiator in an increasingly crowded voice market.

Last month, Cellular Telecommunications Industry Association (CTIA) President and CEO Thomas Wheeler echoed this view in a year-end session with industry reporters. "Voice competition is driving carriers to seek services the other guy hasn't, and wireless data is the key to innovation."

When Microsoft Corp. [MSFT] joined the CTIA last fall, some observers speculated that the software giant would impose standards on wireless data (so far there is nothing to report). The widest application of mobile data on a handset was seen last fall, when AT&T launched its consumer version of the PocketNet phone, which wirelessly taps into some Internet content (MPN, Oct. 13, 1997).

Lowenstein sees the Internet converging on the mobile handset this year. "The driving force behind [greater use of mobile data] is companies' reliance on the Internet," he said. "We're seeing enough activity in the space now that we can start talking positively about it in 1998. It will be the year where the industry starts to see that there is a business case for mobile data and the industry becomes more optimistic about the opportunity...[for] data-integrated cellular phones."