*Wireless Flat-Rate Service Plans Yield Traffic Jams That Fuel Complaints
July 19, 1999
By NICOLE HARRIS
Staff Reporter of THE WALL STREET JOURNAL
NEW YORK -- Gabe Zakarian often spends more than $100 a month
using his cell phone. But when he dials during peak evening and weekend
hours, what he hears nearly half the time is a fast busy signal, meaning his
call can't be completed. "Sometimes I just get fed up and try to find a pay
phone," he says.
The 37-year-old Mr. Zakarian, president of New York consulting firm
Zero Zero Technologies Inc., is in the grips of a classic love/hate
relationship, and he isn't alone. Attracted by flat-rate service plans and
lower prices for products that manage everything from personal calendars
to e-mail, Americans have made cellular phones the hottest single
consumer product of the decade, and many seem unable to put them
down. All that yacking has created a traffic jam on cellular networks in
some of the nation's biggest cities, such as New York, Washington and
Atlanta.
Much of the new traffic stems from a
successful marketing strategy launched in May
1998 by AT&T Corp., the biggest U.S.
cellular-service provider. In a move that roiled
the industry but delighted consumers, the
telecommunications giant introduced a calling
plan that allows customers to use their
wireless phones to place calls to anywhere in
the country for a flat fee.
The Digital One Rate plan eliminated a major drawback of cell-phone use:
steep long-distance charges plus erratic "roaming" fees of up to $1 a
minute that were charged on calls made outside a customer's home turf.
Under the plan, which requires a one-year commitment, subscribers must
purchase a phone from AT&T for about $150 and pay a monthly fee
ranging from $89.99 to $149.99 for 600 minutes to 1,400 minutes of talk
time.
Rivals Follow Suit
AT&T's Digital One Rate was such a hit that its rivals were forced to offer
similar plans. Within a few months, cell phones became the fastest-growing
segment of the telephone business. During the second half of 1998, a total
of more than 45,000 people a day signed up with AT&T, Sprint Corp.,
Bell Atlantic Corp. and other services. Today, about 69 million Americans
use cellular phones, more than the number who subscribe to cable
television, says the Cellular Telecommunications Industry Association, a
trade group based in Washington. And many have forged the same type of
intimate bond with their phones that they have with their cars.
For AT&T and its cellular network, the growth was too much of a good
thing. Beyond increasing the number of users, the flat rates also
encouraged Americans, many of whom had previously limited their
wireless calls to business or emergencies, to use them for casual
conversation, to circumvent high phone charges levied by hotels, or simply
to check in with Mom.
AT&T has publicly conceded that demand initially outpaced its cellular
capacity in the crucial New York area, though not elsewhere. AT&T
executives knew there was a market for the service, but "we
underestimated how fast our Digital One Rate would catch on," says Dan
Hesse, president of AT&T's wireless unit.
Mr. Hesse wasn't the only one caught off guard. Ericsson Inc., which
provides wireless radios and switches for large AT&T markets, admits it
was partly responsible for the bottleneck because it wasn't able to ship
equipment fast enough to keep up with AT&T's demand for capacity. "We
took every effort to ramp up fast, but we couldn't do it fast enough," says
Skip Speaks, vice president of the network operators group at Ericsson, a
unit of LM Ericsson Telephone Co. of Sweden. He adds that Ericsson
now has 250 technicians on the Digital One Rate account to prevent such
a scenario from recurring.
The capacity crunch has taken a toll on Zalmi Duchman, a merchandising
assistant at Worldspy.com., a New York Internet company. Mr.
Duchman, who bought his cell phone in May, says, "I don't think I've ever
received a call or made a call on the weekend because the darn thing
almost never works." Mr. Duchman, who is on AT&T's $149.99-a-month
service plan, says he recently got a bill for $250 because he went above
his 1,400-minute monthly limit. He says that's because he often has to
redial repeatedly to reconnect an interrupted call.
Wireless telephony is simple in theory but demanding in execution. Cellular
networks bounce voice calls from one communications site to the next,
where wireless antennae arranged in cells inside a tower pick up the
conversation. When a phone user moves from one location to another, the
phone system's computer senses the weakening of one signal and "hands
over" the call to the next cell site. This is supposed to allow the caller to
travel or "roam" freely without disrupting the call. But if one of those cell
sites isn't available because it is already at its capacity of 75 to 200 calls,
or if there is no cell site in the vicinity, the signal is "dropped."
The new generation of digital cell phones is expected to alleviate some of
these capacity woes. They operate on digital networks that condense
speech into a stream of zeros and ones, which enables telephone
companies to transmit more calls at the same time. But the networks are
expensive to build and require many more towers than a standard analog
cellphone system. Therefore, owners of the new digital phones may
encounter more coverage gaps.
AT&T, which has grafted a digital network onto its original analog system,
says it is working hard to provide seamless national coverage, but that
doesn't satisfy some customers. Naevus International Inc., a
consumer-products distributor based in Upper Saddle River, N.J., got so
exasperated with AT&T's wireless service that it is seeking class-action
status to sue the telecommunications giant for fraud. The suit alleges that
AT&T should have known its networks couldn't handle the fast-paced
growth of demand.
AT&T, Basking Ridge, N.J., calls the suit frivolous. It says it has invested
more than $2 billion in capital to build capacity this year, double the $1
billion it invested last year in its wireless business, which had 1998 revenue
of $5.4 billion. And Mr. Hesse insists the problems in New York, where
use of the network is growing by 11% to 12% a month, are fixed. "We've
been doing everything possible to improve service levels," he adds.
But try telling that to Niles Morgan. The 49-year-old president of IMC
International Inc., a Murrysville, Pa., engineering firm, signed up with
AT&T nine months ago. "The people at AT&T aren't stupid," he says.
"They have pumped up the marketing to get people to subscribe to the
Digital One Rate service, locking the subscribers into annual agreements to
assure cash flow. They are using our money to build their system," says
Mr. Morgan, who adds that he has had trouble using his cell phone in his
hometown and when he travels. AT&T declines to comment on his
allegations.
Shades of AOL
To some, AT&T's capacity woes are reminiscent of the debacle that befell
America Online Inc. when the Internet giant moved to flat-rate pricing in
1996. Tens of thousands of AOL customers complained of frequent busy
signals, some customers fled, and the company eventually settled a
resulting class-action suit. AOL spent millions upgrading its system, and
has subsequently fixed the problems.
AT&T likewise has lost subscribers; in its case, some of them in New
York have switched to Bell Atlantic, in search of better service. "We've
got plenty of ex-AT&T customers," says Dennis Strigl, president and chief
executive of Bell Atlantic Mobile, Bedminster, N.J., who declined to give
specific numbers. AT&T executives say they haven't seen evidence of
large numbers of customers switching to other providers.
In Los Angeles, Neily Dickerson, the 30-year-old president of Church
Howse Music Inc., a gospel-music record label, is willing to give AT&T a
little time. She signed up for AT&T's Digital One Rate service in February.
"It was comforting to know that I could make calls anywhere and not have
to worry about an outrageous bill," she says.
The downside, though, has been frequent dropped calls and fast busy
signals from noon to 3 p.m. on weekdays. Recently, after being dropped
repeatedly in downtown Los Angeles while trying to check in with her
business manager, "I just said forget it, I'll handle it when I get to the
office," she says. "I get more dropped calls than I want to."
Ms. Dickerson, who spends about $200 a month on her cell-phone bill,
says she will use AT&T for a few more months, and then, "if I don't see
any improvement in service, I'll start looking around for another company."
Overall, the nation's cellular networks may get more crowded in the
months ahead as more consumers take to cell phones. Part of the problem
lies with increasing demand for Internet services. The newest generation of
cell phones aims to provide Internet access for e-mail, stock quotes and
the like, services that are attracting more users. However, these services
generally require more of the wireless pipeline than does a voice call, and
AT&T and its rivals will have to add capacity to handle this new traffic,
says Mark Lowenstein of the Yankee Group, a Boston
technology-consulting firm.
Mr. Lowenstein estimates that cell-phone users will nearly double their
average minutes of use to 253 minutes a month by 2003 from 128 minutes
a month just last year. He also thinks 153 million people, more than half
the U.S. population, are likely to be cell-phone users by that time. "The
carriers didn't forecast this level of growth," he says.
FCC Push
Meanwhile, federal regulators, eager to increase competition among
telephone companies, are pushing for a new rule that is likely to spur
cell-phone usage even more by changing the way wireless customers are
billed. Referred to as "calling party pays," it would mean that cell-phone
owners would no longer be billed for incoming calls.
Federal Communications Commission officials think the rule would lower
cellular rates even further. FCC Chairman William E. Kennard says it
might make wireless available to a whole new category of consumers:
"families on tight budgets and college students, people who would
otherwise turn off their cell phones to avoid having to pay for incoming
calls."
The FCC also is hoping the proposed rule, which is expected to be
approved next year, will hasten the day when consumers view cell phones
as a true alternative to conventional phones. Similar rules are already in
place in Europe, where cellular usage is skyrocketing. In Sweden, for
example, pay-phone revenue has dropped considerably because callers
are opting to use cell phones instead.
Certainly the cell phone has the potential to be as dependable as a
traditional phone. Industry executives such as Andy Sukawaty, president
of Sprint PCS, are confident that the emerging digital systems will be
robust enough to provide consistent service.
'Healthy' Spending
In only 2 1/2 years, Sprint has attracted more than three million
subscribers to its all-digital network. Mr. Sukawaty says his customers are
using their cell phones for an average of more than 300 minutes per month.
And Sprint, based in Westwood, Kan., will spend a "healthy portion" of its
$2.6 billion capital budget this year on building extra capacity, he says.
Building wireless networks is an expensive undertaking. Industry observers
say it costs about $3 to $5 per potential wireless customer to expand
capacity. "The biggest challenge is meeting the demand in a cost-effective
manner," says Tom Sawanobori, director of integrated network planning
for Vodafone AirTouch PLC of London.
New construction, however, takes time, and today customers in some
major cities are singing the system-busy blues.
It's a song that Scott McQueen, 29, a roving salesman in Atlanta, knows
well. Mr. McQueen, who totes around two cell phones to make sure he'll
get coverage in rural locations, says that when he recently dialed customer
service on his AirTouch phone, he waited almost 20 minutes. "You're at
their mercy," he complains.
A San Francisco-based spokesman for Vodafone AirTouch says that long
waits on its customer-service line are unusual.
Such frustrations are inspiring some sniping on the crowded wireless
highway, with some cell-phone users complaining that neophytes are
hogging the networks with trivial calls. Mr. McQueen says he recently
noticed a teenager standing in Hartsfield Atlanta International Airport
cradling a cell phone and checking a pager. "I'm sure he's not that
important," Mr. McQueen hisses.
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