All Nice article on the wireless fight in Jacksonville.
Jeff Vayda
WIRED AND READY Jacksonville is one of a handful of cities
with a lot of companies trying to lure your wireless business.
Who are the real winners? The customers.
The Florida Times-Union
There are maybe 200,000 wireless phones being
used in Jacksonville-area cars, beaches,
restaurants, the back of movie theaters, in malls,
and on ships waiting for a pilot at the mouth of
the St. Johns River.
That number may triple in the next few years.
The Jacksonville area is home to more than one
million people, and wireless industry seers expect that 600,000 of them will
end up owning a wireless phone.
That means about 400,000 more phones are going to be sold. That in turn
means somebody has to sell them, provide service and maybe even make a
profit.
So how are the providers competing? And what does the future look like in
terms of service, features and how many providers will still be around in five
years?
A TOUGH BUSINESS
Jacksonville is a tough market for the wireless carriers.
Three years ago there were four pages of wireless ads in the Yellow Pages.
This year there are eight.
With Sprint now on the scene, there are seven carriers jostling for
customers.
Why so many?
Strategis Group, a Washington, D.C., research firm specializing in wireless
communications, has found only seven cities in the entire United States with
as many carriers. The other cities are Boston, Denver, Miami, Minneapolis,
Philadelphia and Portland, Ore., said Shea Silidker, a researcher with the
firm.
Having so many carriers duking it out in the Jacksonville area has saved
consumers a lot of money since the two incumbent carriers, BellSouth and
[ AT&T ] , were joined by four new competitors, Powertel, PrimeCo, Nextel
and Alltel. Sprint opens for business this month.
"The rates here are almost 50 percent less than they were when we came
into the marketplace," said Mike Bennett, director of sales and marketing for
PrimeCo Personal Communications, which brought its system up in 1996.
Why so many carriers are in Jacksonville has less to do with the attraction of
the area as a market and more to do with the broader growth strategies of
the carriers involved.
"Jacksonville becomes an important piece, I think, of bigger puzzles," said
Timothy Bernardez, [ Nextel Communications ] ' general manager for North
Florida. Nextel is after the Florida business market.
Then there is Powertel, whose strategy is to be a strong regional carrier in
the Southeast, said Kevin Inda, a spokesman. That means the bigger
regional cities, which means Jacksonville.
In 1995, Powertel bid for licenses to operate in New Orleans, Birmingham,
Memphis, Atlanta and Jacksonville.
Powertel won three of the four licenses, paying the federal government
$47.5 million for them. That works out to $19.43 per Jacksonville resident
for the right to offer them wireless service.
Overlay the strategic growth maps of each of the carriers, each with
Jacksonville in one corner, and the result is seven carriers serving
Jacksonville.
"You can get into the game in Jacksonville for $150 million, $200 million,"
estimates Jim Bugel, BellSouth Mobility's general manager for North Florida
and an industry veteran.
But how the Jacksonville market is divided among the carriers is a mystery.
None of them will disclose that kind of intimate detail, either for competitive
reasons or maybe out of embarrassment at how few customers some of
them have and how much money they are spending to get them.
There is a general consensus among all the players that BellSouth Mobility
and AT&T have 75 percent to 80 percent of the wireless phones in the
Jacksonville area, reflecting their long presence in wireless and the years they
have spent investing in wireless transmission facilities.
Sprint's area vice president for North Florida, Frank Bell, has a vested
interest in knowing as much as he can about his main competition. He
estimates that of the two, BellSouth has the edge over AT&T, with market
share percentages in the "low 40s and AT&T in the low 30s."
That leaves 20 to 25 percent of the market divided among Powertel, Nextel,
PrimeCo and Alltel, which has been in the market only six months.
Using the industry estimate of about 200,000 wireless users in the
Jackson-ville area, that means the four carriers share just 40,000 to 50,000
customers.
AN EXPENSIVE BUSINESS
Walter Pettis, the executive vice president who heads Powertel's North
Florida operation, says that wireless is attracting so many new customers
that all the carriers are benefiting.
About 50 percent of people being signed by Powertel are new to wireless,
said Inda. That means they are not being carved out of some other carrier's
hide.
Powertel's numbers are about the norm currently for the industry and reflect
the huge growth the industry has seen in recent years.
In 1985, the wireless industry had 340,000 subscribers nationwide,
according to the Cellular Telecommunications Industry Association, which
tracks industry statistics.
Improving technology and the opening by the federal government of the
airwaves to competition changed all that.
By the end of 1994, the customer base had swelled to 24 million.
Three years later, by the end of 1997, the base had more than doubled to
55 million subscribers.
That acceleration can be seen in Powertel's customer growth.
It had fewer than 5,000 customers at the end of 1991, its first year of
operation. By September of last year it had 66,000 subscribers, growing to
119,000 by the end of the year. This month, it reported 200,000 customers
in its 12-state area.
But while new customers are pouring in to sign up for wireless service, there
is a flip side: Almost a third are heading out the door again within months.
"About 50 percent of our customers are switchers," said PrimeCo's Bennett.
Powertel's number is about the same.
CHURN
The switching phenomenon is called "churn" and is measured in terms of the
rate at which carriers loose customers each year.
"It's huge," said Bob Siber, associate partner in the wireless consulting
practice of Andersen Consulting, which advises major wireless carriers.
Siber's research shows that about 30 percent of wireless customers will
jump ship during the course of a year, almost a third of them within six
months of signing up for service.
Siber expects the number to climb to 40 percent before it improves.
In the meantime, carriers are spending big dollars to get customers to sign up
for service -- $300 to $700 a person.
The numbers include $100 or so to subsidize the cost of the phone, plus
commissions and promotional costs.
"If you migrate every six months, no one is going to make money on you,"
Siber said. Average payback on the marketing investment in a new
subscriber can take up to three years, Siber said.
The customer acquisition costs do not include the cost of physically building
out the network.
The trick is to give more new customers and existing customers a reason to
stay longer and spend more.
"If they hang around for six months, we're OK," Bennett said.
FIGHTING CHURN
Siber says he is told by the chief executives he talks to that churn is the No.
1 problem they face.
"After the initial price wars what we anticipate happening is that carriers will
start to focus on ways to differentiate themselves from the competition," said
David Berndt, a telecommunications researcher at the Yankee Group of
Boston.
That means offering new services that make owning a wireless phone more
useful, and offering a lot of them.
"In business, competitive advantages never last," said Ron McKenzie, North
Florida general manager for [ AT&T Wireless Services ] .
Wireless phones today have the computing power of a strong desktop
computer of some eight years ago, Bennett said.
In other words, there is a lot of room available now to add features that can
tap into the capabilities of both the handset and the wireless networks.
For example, Berndt expects to see souped-up voice mail and messaging
services being offered, and personal digital assistant services, like Wildfire
and Portico, which use voice recognition technology to navigate voice
mailboxes and read e-mail.
There also will be a greater emphasis on honing marketing skills, Berndt
said.
Siber says every major carrier in North America is reexamining, replacing or
redesigning its billing and customer care capabilities.
He also expects the wireless marketers to copy the airlines and the credit
card companies and offer programs designed to build customer loyalty and
slow churn.
In the same way that credit card companies offer cash back and gift
programs, Siber sees carriers offering catalogs filled with gifts redeemable
for points.
He also sees a big expansion of highly profitable prepaid programs aimed at
the 30 percent of consumers who come in to sign up for service but get
turned down because their credit ratings are not high enough.
Longer term, Siber sees carriers expanding the size of the wireless market
by making it possible for callers to pay for calls to a wireless phone, which is
the system in Europe. In the United States, the wireless subscriber pays for
the incoming call.
In the meantime, with a new entrant -- Sprint -- in the Jacksonville market,
there won't be a truce declared in the price war. This, after all, is an industry
which talks in terms of "buckets of minutes" and "All You Can Eat" deals.
Mark Lowenstein, who heads The Yankee Group's wireless practice, thinks
the average monthly consumer bill during the next few years will hover in the
low $40 range. But consumers will get many more minutes to use -- at least
twice as many by 2002, and more services.
ENDGAME
"You can have seven carriers in a market, but realistically how many of those
people are going to survive?" asks Brian Cotten, telecommunications
industry manager with the research firm of Frost and Sullivan of Mountain
View, Calif.
Cotten likes to think in terms of Darwinian evolutionary biology when he
contemplates the future of the booming wireless industry.
"The idea is that you've got this fertile ground for innovation and growth, but
there is some point in which growth kind of turns in on itself and becomes a
die-off because you just can't support that many competitors," he said.
And the newer carriers, using funds from investors and lenders, are
operating at a loss as they race to capture customers.
No carrier can sell below cost indefinitely in order to capture market share,
[ Bell ] said.
Siber also sees consolidation, with perhaps four national carriers, plus
regional providers, some of which will band together to create a national
network.
But complicating the consolidation timetable are the longterm strategies of
the carriers.
Companies like BellSouth see their wireless properties as one of many
channels available to deliver customers who need such services as local and
long distance, internet, data transmission, pay-per-view TV -- as well as
wireless.
A customer who uses all those services could spend $14,000 during an
eight-year period, as opposed to just $41 a month on wireless service,
estimates Andersen Consulting's Siber.
To get a $14,000 customer, companies like AT&T are willing to heavily
discount wireless charges, he said.
The strategic concept is called "convergence."
Take Alltel, for example, which is looking at offering local "dial tone"
telephone service in Jacksonville sometime next year.
Although Alltel's wireless business in Jacksonville is a start-up, Alltel's
wireless operations elsewhere made an operating profit for the company of
$50 million last quarter.
"We will start with business {customers} first and a potential strong
residential play in certain areas," said Chris Smith, president of Alltel's
southern market for both wireless and wireline, which is anchored in
Jacksonville.
"That would give us a full plate of convergent services," he said, pointing at
long distance, paging and internet services offered by Alltel.
Carriers like Alltel are not looking at today's dollar but rather at tomorrow's
potential.
The Yankee Group estimates that wireless sales in the United States and
Canada will top $35 billion this year and nearly double to $65 billion in the
next four years.
"This is serious business," said Sprint's Bell.
(Copyright 1998)
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