Emerging TechnologyMobileWireless Voice Encroaching on Wireline Customers

Wireless Voice Encroaching on Wireline Customers

The number of wireless voice subscribers in the United States has grown from 109 million at the end of 2000 to approximately 128 million at the close of 2001, according to a Yankee Group survey, which means carriers are running out of potential customers.

The number of wireless voice subscribers in the United States has grown from 109 million at the end of 2000 to approximately 128 million at the close of 2001, according to a Yankee Group survey, which means carriers are running out of potential customers.

In order to continue growing revenues, the Yankee Group expects carriers will have to segment the market and offer programs specifically aimed at previously underserved customer groups such as youths, minorities, seniors and the credit-challenged to maintain their growth momentum.

“The days of the seemingly unlimited subscriber growth are gone. Wireless carriers will have to become much smarter in how they conduct business,” said Roger Entner, program manager of the Yankee Group’s Wireless/Mobile Services research and consulting practice. As subscriber growth declines and industry consolidation increases, the wireless industry will have to adapt its business practices dramatically over the next several years.

In Europe, the popularity and affordability of wireless have made it a challenger to wireline phones, and there’s some evidence that wireless is becoming an option inside the home in the United States, as well as for mobile communications.

“The attractive per-minute bundled pricing plans, free minutes and other promotions offered by the highly competitive wireless industry have made wireless calling prices competitive with, and in some cases better than, wireline calling rates,” said Peggy Schoener, a senior analyst for Gartner’s Dataquest unit. “Add the attractiveness of the mobility factor to pricing considerations, and household voice communications contention among family members is being solved by wireless as opposed to wireline calling.”

According to a study by International Data Corp. (IDC), by the end of 2001, 10 million access lines were displaced by wireless, primarily by consumers choosing a wireless service over installing an additional access line at home. IDC predicts that displacement of wireline services is expected to accelerate even more in 2002, resulting in an additional 10 million access lines replaced by wireless by 2005.

There are three basic reasons consumers are increasingly picking up wireless phones:

  • Wireless prices continue to decline, and the number of minutes in landline service plans continue to increase
  • Very large increments of evening and weekend local and long distance calling continue to be widely bundled into consumer calling plans at little to no additional cost
  • Wireless networks continue to improve geographic coverage with continued network build-outs.

“Wireless use is rapidly increasing in traditional wireline environments such as homes and work locations with access lines. The primary reason for this dramatic growth is that wireless service pricing is rapidly approaching wireline service pricing,” said Scott Ellison, program director for IDC’s Wireless and Mobile Communications. “A secondary reason is cultural: Wireless use is now so pervasive that it is seen as a standard and acceptable way to communicate in most environments.”

According to an IDC survey of U.S. households with wireless users, the number of wireless users who reported using their wireless phones at home increased by 40.9 percent from 1999 to 2000. Additionally, the number of wireless users who reported using their wireless phones at work showed an even more dramatic growth, increasing 58.8 percent over the same period of time.

In the United States, price appears to be main factor in choosing wireless providers and plans, but may not always be that way. In Western Europe, the cellular market has matured to the point where it’s no longer price that governs upgrades and purchases, but features. But not just any feature. A Strategy Analytics report, for example, found that that users are willing to pay for a digital camera feature on their next cellular phone, but do not attach as much value to color displays and on-board games.

“The size and weight of the cellular handset is not as important a factor in the replacement purchase decision for Western European cellular users,” says Chris Ambrosio, senior analyst of the Strategy Analytics Global Wireless Practice. “Users are looking for better features on their next handset, and are showing an increasing propensity to churn in order to get them.”

The pursuit of better features was cited as the reason for cellular phone churn by 15 percent of Western Europeans who replaced their phones, up from 11 percent in 2000. Thirty-five percent of Western European cellular users replaced their handsets in the 12 months prior to the survey, up from 27 percent in 2000. Wireless voice users in Western Europe also indicate the strongest interest in Bluetooth functions on their next handset, and would spend an additional 10 percent for a handset with such offerings.

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