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 THE STAT 26Percentage of wireless customers who use their cell phones to take picturesMore Vitals
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MARCH 18, 2003 SPECIAL REPORT: THE SQUEEZE ON WIRELESS If You Upgrade, Will They Call? The major wireless companies have spent billions juicing their networks for advanced data content. Now comes the hard part: Luring customers
Now, the challenge for the owners of these new networks is to use them to turn money-losing cell-phone businesses into profit makers. Verizon Wireless, Cingular, AT&T Wireless (AWE ), and Sprint PCS (PCS ) have in essence placed a huge bet that they can lure their basic cell-phone customers to use higher-priced services. Part one of this buildout has gone largely according to plan: The new infrastructure has doubled voice capacity at No. 4 wireless carrier Sprint PCS, a prerequisite for offering advanced services to its 17.8 million customers. And No. 2 AT&T Wireless, with 20.2 million customers, says it operates much more efficiently with its new network in place. For one thing, the new phones it buys for its subscribers are cheaper because the technology its network is based on is more widely available. CONVERSION PAINS. Still, getting consumers to sign on is no sure thing. In a slack economy, many are in no hurry to switch to fancy phones and services that would boost their monthly bills any higher than the $53 the average customers now pay for voice and data services, according to Morgan Stanley. In part, that's because the new phones connect callers to the Internet at half the speed originally promised. Taking all of that into account, says Andre Dahan, president of AT&T Wireless's mobile multimedia services subsidiary, it could be several years before most carriers persuade their customers to convert from the old networks to the new -- and during that transition, companies will have to maintain both. That will delay the bonanza for cell-phone carriers. In the interim, average revenue per cell-phone subscriber will fall by 1% to 2% a year, estimates Peter Friedland, an analyst with investment bank W.R. Hambrecht in San Francisco. One big problem for carriers is the revenue-sharing agreements they're having to sign for content and tools that will help get customers to shell out more, says Martyn Roetter, a director at management consultancy Arthur D. Little in Boston. While cell-phone carriers in Europe take a 70% share of each user's data-services fee, in the U.S. they end up with less than 20%. The rest goes to intermediaries and developers, says David Bluhm, executive vice-president for business development at Mforma, the biggest provider of data content for AT&T Wireless and Cingular, the No. 2 U.S. cell-phone company. "PERSONA IN DATA." In Europe, competition between cell-phone companies is less fierce because many of them don't cross borders -- so that one company might provide services in a territory where, in the U.S., up to eight carriers might be competing for customers. That means European carriers aren't as pressed to provide the latest and greatest in content. In the U.S., carriers that go head-to-head every day see an advantage in providing information and services that are reasonably unique -- and that allow them to compete on something other than price, says Mike Dobbs, vice-president for products and marketing at Cingular, which has 22 million subscribers. "Cingular will create more of its persona in data," he says. Every carrier's goal is to boost revenue from data services, which will account for about 2.7%, or $4.3 billion, of the industry's $94.7 billion in sales this year, according to Morgan Stanley. Most of that comes from short text messaging, says Luiz Carvalho, a Morgan Stanley analyst. By 2010, the industry should derive $26.6 billion in sales from data services, or 19.8% of total revenue, which should reach $134.5 billion by then, Morgan Stanley estimates.
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