With the advent of competition and the maturing of the mobile telephone market, a number of companies are beginning to offer alternatives to traditional cellular service, especially in the areas of price and service.
When cellular telephone service first began, providers sold airtime at different rates depending on when and where the call was made. These rates creating a pricing structure that was often confusing to the average consumer and made it difficult to comparison shop in the few instances where there was true competition.
Since capacity in a cellular network is limited, carriers discouraged use during the busiest hours of the day by charging a high per-minute "peak" rate and a lower, "off-peak" rate during evening hours and weekends. When a cellular subscriber moves beyond the coverage area of the provider, called the "home" system, and uses the facilities of another carrier, the subscriber is said to be "roaming." These customers were almost always billed an extra fee, called a roaming charge, for the privilege of using a different system.
Just like landline service, calls from a cellular phone to numbers outside of the local calling area were billed an additional long distance fee.
With all these variables, and the details explained only in the fine print of cellular service contracts, many subscribers have been shocked to receive large bills after using their mobile phone in non-traditional ways.
Flat rate pricing
Some major carriers have begun offering an alternative referred to in the industry as "flat-rate pricing." For a fixed monthly fee subscribers purchase a certain number of airtime minutes that are used for any type of call, whether peak or off-peak, at home or roaming, and local or long distance.
AT&T Wireless Services started the trend with their Digital One Rate plan, offering a monthly package of minutes that has no extra charges for roaming or long distance. Each plan also comes with voicemail, caller ID, and text messaging. To take advantage of this plan, potential subscribers must pass a credit check, pay an activation fee, sign a one-year contract, and purchase a multi-mode phone capable of operating on AT&T's network of analog and digital service areas.
Besides these hurdles, AT&T has recently come under some fire for the "round up" policy of charging customers in full minute increments. For instance, if a customer makes a call that lasts 61 seconds, AT&T charges them for 2 minutes. Under a 600 minute plan, a customer could run out of package minutes after using only 305 minutes of actual airtime.
AT&T has also introduced flat-rate pricing for their wireless data service, giving subscribers who stay within their local area unlimited use about $55 per month, and national users unlimited use for $65 per month. This "Wireless IP" service is also known as Cellular Digital Packet Data (CDPD), but remains largely unused in most areas.
Last October Sprint PCS introduced their own flat-rate nationwide calling plan, offering three different blocks of minutes for a fixed price. Each of these plans include voicemail, caller ID, call waiting, first incoming minute free, as well as long distance at no extra cost. Contrary to AT&T, no contract is required and there is no activation fee.
Coverage is limited to the Sprint PCS digital network, and normal roaming and long distances will apply when the caller is not on the Sprint network.
Bell Atlantic Mobile
A large wireless provider in the northeast United States, Bell Atlantic Mobile, offers their SingleRate USA plan, selling 1600 minutes of airtime for $159.99 per month. Agreements with other analog and digital service providers give the SingleRate USA plan similar coverage to AT&T's nationwide network. A one year contract is required. Bell Atlantic Mobile also gives subscribers the option of renting a phone for $5 a month rather than purchasing a phone.
Table 1: Comparison of three national flat-rate plans.
Wireless replacing wired
It is no coincidence that flat-rate pricing brings wireless usage closer to the typical residential landline service. Major wireless carriers, especially those with an associated long distance network, would like to see customers move away from landline service and switch all their telephones to wireless. For busy people who are away from home most of the time and use their home phone line for little more than a place to plug in an answering machine, it may make sense to permanently disconnect wired service and use a mobile phone as the "home phone."
A leader in this migration has been Finland, where almost half of all residents have a mobile phone. In 1996 Finnish telephone revenue from mobile and land-based calls were even at 40 percent. Last year, for this first time, mobile calls accounted for more revenue than land-based calls, reaching 46 percent of total telephone revenue.
Although the market in the United States is much larger and more diverse than Finland, the U.S. presently has more than 60 million wireless subscribers and added 12 million in the last year alone. With serious competition, aggressive marketing, and consumer alternatives, expect that number to grow even more rapidly.
Another major change in the wireless telephone arena is the way customers pay for airtime. Traditional wireless service is "post-pay," where subscribers pay for the call after it is made. This almost always requires a credit check and other assurances that the bill will be paid. However, more than 30 percent of all applicants for wireless service are refused due to bad credit or no credit history at all. Other potential customers don't make use of wireless services because a long-term contract doesn't fit their needs.
Prepaid cellular service, popularized in Europe, is gaining ground in the United States. Prepaid allows customers to pay for calls before they're made by purchasing airtime in advance, rather than paying after receiving a monthly bill. This has number of advantages for the carrier, including reducing their exposure to unpaid airtime. It is also very lucrative, with profit margins exceeding 20 percent.
Despite the high price, prepaid is rapidly gaining popularity, with some carriers reporting more than half of all new subscribers are prepaid. Businesses are turning to prepaid wireless accounts to have a fixed, predictable monthly charge with no surprises from unauthorized employee usage. Individuals are finding an additional benefit - many prepaid telephone accounts are anonymous. By paying in cash, these users maintain a certain amount of privacy, especially if the service provider does not retain call records.
There are two main types of prepaid service, the switch-independent and the switch-based. Switch-independent prepaid service requires a cellular telephone handset that has been specially programmed to operate as a prepaid phone. These handsets display the dollar amount of airtime remaining, and allow the customer to enter special codes to add more airtime.
Switch-based prepaid service can operate over almost any cellular telephone, but requires additional software services at the service provider's switch to determine whether a caller has money remaining in their account.
A major player in the prepaid market is Topp Telecom, who sells the TracFone through a number of retail outlets. By mid-1998 Topp had more than 70,000 subscribers and was selling more than five million minutes of airtime each month.
For $149.95 a customer receives a Uniden PCD2000 phone and 60 minutes of airtime. Additional airtime may be purchased, starting at 30 minutes for $30 on up to 200 minutes for $100. Airtime is charged against the phone at three different rates, depending on where the caller is and the type of call being made. A local call in the home system deducts one minute for every minute of airtime. Long distance calls are deducted at a rate of 1.5 minutes for every minute of airtime. Calls made while roaming deduct 2 minutes for every minute of airtime. Although unused airtime does not expire, one airtime card must be redeemed every 60 days (30 days in Los Angeles) to maintain the cellular telephone number.
Although most prepaid cellular services use the traditional analog technology, at least two of the new Personal Communications Services (PCS) providers are offering prepaid plans.
Sprint PCS offers a prepaid account and sells prepaid airtime cards from retail outlets or directly from Sprint PCS. Powertel, a Global System for Mobiles (GSM) operator serving the southeastern United States, has a prepaid plan requiring no deposit, no credit check, and no monthly bill. Calls are charged at a flat rate of 35 cents per minute whether local or long distance, and airtime vouchers are available in amounts up to $90. A Powertel handset is required. Omnipoint, another GSM provider, offers a similar plan with airtime coupons up to $200.
A wide variety of prepaid plans are available from all sorts of companies. Before signing up with any of them, understand the charges and read the fine print. Prepaid certainly isn't the cheapest way to get wireless service, and some prepaid agreements allow the company to charge extra for a variety of things. One plan requires $15 just to process a service request, including the cancellation of an account (no matter what the reason, including the loss or theft of the phone). Many plans have an additional monthly "line fee" or other minimum usage amount on top of any airtime charges. Some prepaid airtime may expire if not used promptly.
That's all for this month. More background information on PCS, cellular, and satellite communications is available on my website at http://www.decode.com, and I welcome electronic mail at email@example.com. Until next time, happy monitoring!
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