Before wireless carriers can convince consumers to subscribe to wireless Internet services, they must first demonstrate they can handle voice service. And that’s not an easy thing to do in an environment where revenues decrease as customers increase.
As the average price of a wireless phone call continues to drop, more consumers are subscribing to wireless services than ever before, according to the “2001 U.S. Wireless Industry Services Study” by J.D. Power and Associates.
More than half (52 percent) of the households surveyed in the 25 largest U.S. markets in 2001 use wireless phone service. This is a 93 percent increase in household penetration over 1995, or an average of 12 percent per year. At the same time, the current average reported cost per minute for a wireless phone call is $0.14, compared to $0.56 per call in 1995.
Nearly twice as many subscribers in 2001 (23 percent) report accessing the Internet via a wireless phone compared to 2000 (12 percent).
“While the drop in wireless call rates is a boon for consumers, providers are having a harder time generating the same amount of revenue per customer that they once received,” said Kirk Parsons, director of wireless services at J.D. Power and Associates. “With the cost of acquiring each new customer ranging between $350 and $475, it is imperative for wireless providers to make a serious effort to retain customers with loyalty programs and superior service.”
J.D. Power’s study, which is based on responses from 14,492 households in 25 of the largest U.S. markets, also indicates that the trend of reduced revenue and increased customer turnover may continue in the foreseeable future. Average monthly spending on wireless service has dropped from $66 to $61 per month since 2000 — the largest decline since 1996. At the same time, the length of time a typical wireless user stays with a carrier before switching is growing shorter — from 2.54 years on average in 1999 to 2.40 years in 2001.
“Providing superior customer satisfaction has become critical in the wireless industry to bolster customer retention and increase revenue potential,” said Al Destribats, executive director of utility and telecommunications practices at J.D. Power and Associates. “Companies with higher overall satisfaction scores not only retain customers an average of two months longer, they also generate approximately $11 more in monthly revenue per customer than do providers that have below-average customer satisfaction.”
The bad news for carriers looking to use customer satisfaction as a springboard to more revenue is that wireless users in 2001 are experiencing more problems with their service compared to 2000 (59 percent vs. 53 percent). Customers’ questions about phone equipment and operation are the most responsible for this increase, accounting for 22 percent of the reported problems. In addition, the number of calls it takes to resolve these problems has increased steadily from 1.71 calls in 1998 to 1.90 in 2001 — an 11 percent increase.
Can wireless data services provide the revenue to fill in the gap that currently exists for wireless providers? It’s a possibility, but consumers will likely have to find satisfaction with wireless voice services before they upgrade to data.
According to a study by Atlantic-ACM, wireless data revenue is projected to reach nearly $13 billion by 2006, up from just $164 million in 2000. The study predicts that by 2006, Sprint PCS will continue to have the largest market share at nearly 21 percent, closely followed by AT&T Wireless, Verizon Wireless and Cingular Wireless.
“To attract wireless data subscribers, providers must market services which match the requirements of target customers,” said Judy Reed Smith, CEO and founder of Atlantic-ACM.
For wireless data to be successful, carriers must continue to work on capturing market opportunities among U.S. business customers by developing new applications.
“Applications that will enable business professionals to be more efficient on the road, such as accessing corporate email and databases, will be key drivers of wireless data usage,” said Wona Park, senior project manager at Atlantic-ACM.