AT&T wireless plan seen triggering industry shift
By Jessica Hall
NEW YORK, Nov 2 (Reuters) - AT&T Corp.'s Digital One
Rate wireless calling plan has shifted growth momentum back
toward the industry's more established players, putting
pressure on once-hot newcomers to adopt pricing strategies that
put even more emphasis on simplicity and value, analysts said.
Competition in the U.S. wireless market has long been
intense, but it stepped up a notch in May when AT&T launched the
Digital One Rate -- a simplified pricing plan that eliminates
separate long-distance, roaming and access charges levied under
most other wireless calling plans.
"It's affecting the entire industry. AT&T wireless has
created a new pricing paradigm ... and other companies have had
to follow suit," said Kevin Roe, a wireless communications
analyst at ABN AMRO.
The AT&T plan, targeted to high-volume users such as
business people, makes it cheaper to make a long-distance call on
a wireless phone than on a conventional phone under some calling
plans. Wireless minutes can cost as little as 11 cents a minute,
compared with a flat rate of 15 cents on AT&T's own wired
long-distance calling plan. Other wired long-distance plans are
less expensive than AT&T's.
Fees for other wireless carriers vary greatly, depending on
monthly contract fees, roaming charges -- applied on calls to
areas outside a carrier's network -- and a host of other factors.
When it was introduced, rivals dismissed AT&T's Digital One
Rate promotion as pure hype, saying their prices, service and
coverage were comparable. Now, six months later, many competitors
are showing slower subscriber growth while AT&T's business is
surging, analysts said.
"The effects are permanent. It has changed the industry
already and those who haven't changed their plans will be
forced to. AT&T Wireless is still building, still acquiring and
is only going to get bigger and better," Roe said.
Over the past few years, wireless carriers such as AT&T and
the regional Bells had faced intense competition and pricing
pressure from the newer carriers such as Omnipoint Corp. and
Sprint PCS , which seduced customers with lower prices and more
flexible plans.
Taking those features a step further, AT&T's Digital One
Rate plan and a similar offer from Bell Atlantic Corp. have
caused the tide to shift back toward the more established players
at the expense of the new carriers, said Fred Moran, a wireless
analyst with Furman Selz.
Salomon Smith Barney analyst Thomas Lee said companies such
as Omnipoint and Nextel Communications Inc. appear to be among
the most vulnerable to AT&T's Digital One Rate plan since about
70 to 80 percent of their markets overlap geographically with
AT&T's.
PowerTel USA Inc. and Alltel Corp. have
less than 30 percent overlap with AT&T's Digital One Rate (DOR)
and seem less likely to suffer, Lee said. Both companies have a
solid presence in the Southeast, never one of AT&T's strongest
regions, analysts said.
"Clearly, DOR is not an equal opportunity competitor,
affecting some carriers more than others," Lee said in the
research report.
Nextel added 375,300 domestic digital wireless subscribers in
the third quarter ended Sept. 30, down from the 400,600 it added
in the second quarter and below the low end of the Wall Street
estimate of 380,000 to 420,000, analysts said.
AT&T's added 325,000 customers in the third quarter, less
than Nextel and Sprint PCS, which added 381,000 customers, but
still up about 74 percent from last year's third quarter.
"AT&T's year-over-year net adds were really strong. They have
to be gaining those customers from someone," said one analyst who
declined to be named.
The most vulnerable are the carriers targeting high-end
business customers and those selling national coverage,
analysts said. The competitive pressure would be more
widespread if AT&T expanded the Digital One Rate into the
consumer market.
Nextel currently faces the more Digital One Rate
competition since it focuses solely on business customers, some
analysts said. Others say Nextel appears to withstanding the
pressure by focusing more on blue-collar companies, such as
construction companies, rather than white-collar corporations,
AT&T's main focus.
AT&T has made the growth of its wireless business a top
priority. Last month it agreed to buy Vanguard Cellular to
bolster its East Coast coverage and to restructure its wireless
partnership with BellSouth Corp. in California and Texas.
AT&T, since its 1984 purchase of McCaw Cellular, has the
largest area of wireless coverage in North America but currently
only markets Digital One Rate in about 52 percent of the United
States. That is expected to expand as AT&T builds up the wireless
licenses it controls, analysts said.
(( Jessica Hall, New York newsroom 212-859-1729))
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