Wireless Flat-Rate Service Plans Yield
Traffic Jams That Fuel Complaints
By NICOLE HARRIS
Staff Reporter of THE WALL STREET JOURNAL
interactive.wsj.com
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.
Sprint Offers New Wireless Plan in a Bid to Compete With AT&T (May 19)
AT&T Cell-Phone Customers File Suit, Cite Glitches Following Rapid Growth (May 13)
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.
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