Intelligent roaming to transform industry
rcrnews.com
March 8, 1999
By Lynnette Luna
Intelligent roaming is guaranteed to change the face of the wireless
industry, and smaller carriers that have built their businesses on making
money from roaming better pay attention, say experts.
‘‘Intelligent roaming opens up competition, and will require carriers to
work hard for roaming minutes,'' said Curtis Knobloch, head of the
Technical Roaming Committee with the Rural Cellular Association. ‘‘The
industry is moving toward a new paradigm, and I don't know if everyone
realizes it.''
Last May, AT&T Wireless Services Inc. changed the dynamics of the
wireless industry when it introduced Digital One Rate plans, high-end
plans that eliminate roaming and long-distance fees nationwide regardless
of which network customers use. Regional carriers like Bell Atlantic
Mobile, GTE Wireless and AirTouch Communications Inc. have since
introduced similar plans, but not as extensively at AT&T.
The looming risk for AT&T Wireless and other carriers offering one-rate
plans is the higher roaming rates they pay to other carriers when
customers move off their networks. AT&T Wireless covers a little more
than 50 percent of the country, and analysts say off-network roaming is
cutting into the company's margins. Average roaming rates exceed the 10
cents to 15 cents these carriers are charging customers per minute.
AT&T Wireless is counting on intelligent roaming—the ability to move
minutes from one carrier to another in a given market—to quickly move
down wholesale rates. Others will too, as Code Division Multiple Access
handsets are expected to have the capability by the second half of the
year.
Nationwide carriers can threaten to build in areas where they aren't
receiving favorable roaming rates. As such, the pressure is mounting on
smaller regional carriers to lower their roaming fees.
‘‘Over the year there has been a lot of pressure to lower rates,'' said
Knobloch. ‘‘It's more challenging for a smaller carrier because larger
carriers have a multi-state and coast-to-coast presence. They have more
markets, and that does not tip the scales in your favor ... Small carriers
can't afford just to knock the rates down.''
‘‘We're not seeing roaming rates fall off a cliff,'' said David Freedman,
wireless analyst with Bear, Stearns & Co. Inc. in New York. ‘‘It really is
a region-by-region basis as to how easy it is for AT&T to eat down
roaming rates.''
AT&T Wireless President and Chief Executive Officer Dan Hesse has
told analysts he would like to see average wholesale roaming rates fall to
10 cents per minute, but doesn't see them moving in that direction in the
near future.
‘‘We have 10-cent roaming deals now with certain carriers, though the
average rate is higher,'' Hesse said in an interview with RCR. ‘‘We are
able to negotiate new rates with carriers and move minutes that offer us a
better deal. Carriers that don't bring them down are in peril of losing
roaming minutes from AT&T.''
Rural Cellular Corp., whose TDMA properties abut AT&T's in the
Northeast, is taking that threat to heart. One of the more progressive rural
cellular companies when it comes to negotiating roaming agreements, the
carrier said it is working to bring rates down in a way that makes sense
with its business plan. Roughly 20 percent of the carrier's revenues today
come from roaming.
‘‘AT&T has the ability to move minutes to other carriers,'' said Richard
Ekstrand, president and CEO of Rural Cellular Corp. ‘‘We choose to be
responsible to arrive at a level where we aren't denied roaming revenue of
the larger carriers that will deliver minutes on our network ... We can build
a business model that has a rational migration model from where we are
today. That is doable, but it's not done overnight. It will be done
responsibly over a few years.''
But industry insiders say other smaller carriers are not as progressive, and
won't move rates until they are in jeopardy of losing minutes. If they don't
act now to gradually move rates, sudden loss of roaming revenue will have
a negative affect on their financials, say analysts.
Rural carrier CommNet Cellular Inc. declined to comment for this story,
while United States Cellular Corp. did not return phone calls.
‘‘For smaller carriers that have half of their revenue stream coming from
roamers, it's pretty hard to get real excited about having that per-minute
rate come down,'' said Ekstrand. ‘‘But the fact is, the sophistication of
the networks and the intelligence in the networks will require carriers to
get there. I really don't think they have a choice.''
‘‘Rural carriers will have to work hard not to fight that downward
pressure and find ways to add more minutes to their networks,'' said
Knobloch.
Chad Holmes, manager in the communications division of Andersen
Consulting in Atlanta, said a trade-off exists for smaller carriers.
‘‘They have to balance eroding margins on roaming revenues and make
sure they have relationships with carriers that will guarantee traffic,'' he
said. ‘‘You can bet analysts have spent several late nights crunching the
financials on that.''
So far, lowered roaming rates have not generated more minutes on
carriers' networks, said Knobloch.
‘‘Even an increase of 100 percent in traffic will not make up for a cut in
roaming fees by 50 percent,'' he said. ‘‘You're not seeing those types of
immediate increases. In the long-term, that may be true.''
Holmes said roaming revenue accounts for 11 percent of overall revenue
for the wireless industry. But as the entire wireless pie grows, roaming will
grow, too. And as more users become accustomed to no-roaming fees,
they will become more inclined to give out their phone numbers. Prior to
one-rate plans, business travelers would wait to make phone calls until
they reached their hotel. Now they are more inclined to make their critical
calls using their mobile phones, said Holmes.
The competitiveness of intelligent roaming also could spur alliances
between carriers that haven't done business with each other in the past to
help generate more revenue, say analysts.
‘‘Rural carriers have the opportunity to change the way they do
business,'' said Bernie Bianchino, chief business development officer with
nationwide CDMA operator Sprint PCS. ‘‘We would be very pleased to
talk with carriers about the possibility of distributing to their customers
dual-band handsets and allow them to roam in cities on our CDMA
network. That has not been something they have put in their business
modeling, but it's a viable alternative for carriers. We think we can be
very competitive with the rates they pay to current operators.''
Sprint PCS, say analysts, hasn't had as much leverage as AT&T Wireless
or other cellular operators when it comes to negotiating roaming
agreements with analog providers since its network is fully digital and
operates at 1900 MHz. Sprint PCS today charges customers between 39
cents and 69 cents per minute for analog roaming. The carrier has a
number of automatic analog roaming rates with analog cellular carriers,
covering about 80 percent of the nation's population, says analyst firm
Warburg Dillon Read.
Sprint PCS has put most of its efforts the past two years signing on
affiliate companies that will help build out its digital footprint nationwide.
This year, it plans to spend more time forming roaming relationships with
analog carriers to encourage them to roam on its PCS network and to fill
out more remote areas affiliates won't cover.
‘‘We want to form relationships with rural carriers that have reciprocal
roaming, and if they decide to build out digital networks, they could build
out CDMA,'' said Bianchino. ‘‘We could affiliate with them and do that
with our spectrum at 1.9 (GHz). That's somewhat complicated by the fact
that they own spectrum, but we're open to those discussions. It makes a
lot of sense for rural carriers.''
Bianchino said in the future, Sprint PCS will have the ability to offer rural
carriers a significant number of minutes as its subscriber base continues to
grow at a fast pace. WDR estimates Sprint PCS' subscriber base will
grow from about 2 million today to about 7 million by the turn of the
century. With the changeover from analog to digital technology, analog
carriers won't have as many users roaming on their networks as they once
did, he said.
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March 8, 1999
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