Wireless telecommunications: Options galore, but woes mount

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The wireless telecom sector, like the telecommunications industry overall, is a mess and still slogging through a period of post-merger reorganization and shakeout. Seismic shifts in the industry and the evolution of deregulation are spurring telecoms to become all things to all people, striving to be full-service providers of voice, video, wireless and high-speed data services.

Amid slow growth in voice services, a lucrative cash cow for many years, providers have made huge investments in fiber-optic technology and other enhancements to their networks to handle the crush of data traffic. These capital outlays were expensive but necessary investments. In wireless, 3G (or third-generation) networks are said to be the future, as are short messaging services, Web-browsing handsets, games, shopping and location-based services via handset. It's a tall order that hasn't taken yet in North America.

Customer retention (there's a 3% monthly churn) on the consumer and business sides is a major issue that wireless marketers have yet to address in a meaningful way in their marketing and outreach.

Verizon Communications' Verizon Wireless, the No. 1 wireless carrier at 21.2% of the market's total subscribers in first quarter 2002 according to Yankee Group, is far and away the biggest ad spender at $644.2 million in measured media last year, up 41% from 2000, according to Taylor Nelson Sofres' CMR. Verizon Wireless, a 55/45 joint venture between Verizon Communications (the 55%) and the U.K.'s Vodafone, is on pace to spend much more. Its first quarter 2002 tally was $180.6 million in measured media, up 56%.

heavy spending

Spending is inordinately heavy, in fact, among all telecom leaders because of the intense competition and increasingly national coverage among the big players required to just keep market share. Verizon Wireless, despite its huge ad spend, still fell 3.1 points in market share from the prior-year period. Most market leaders in fact lost share as more niche players stymied share growth. Players outside the top 10 (see chart at right) claimed a collective 18.5% share in first quarter 2002, up from 12.1% in the prior-year period.

No. 2 Cingular Wireless, a 60/40 joint venture of SBC Communications (the 60%) and BellSouth Corp., dropped 2.3 points to 16.1% of the market in first quarter 2002. During 2001, it boosted advertising from $3.1 million to $411.3 million, and spent $132.6 million (up 17.2%) in media in first quarter 2002, putting it on target for a company record ad amount for the full year. No. 3 AT&T Wireless boosted 2001 media spending 48.9% to $522.4 billion, according to CMR. Then in first quarter 2002, it added $164.8 million (up 57.4%), much of it in the January launched of the mLife brand platform.

TAKEOVER TARGETS?

The industry continues to be marked by consolidation. Smaller players Sprint PCS, a unit of Sprint Corp., and Nextel Communications are takeover targets, many industry analysts say. While Sprint has been innovative in its products and marketing, it's outflanked by the big guns. Nextel, of late, has made somewhat of a comeback and has new products and marketing, and has stayed loyal to its high-value business niche. Press reports have cited AT&T Wireless and Cingular as possible suitors for VoiceStream Wireless, a unit of debt-ridden Deutsche Telekom.

Aside from the avalanche of offers and fine print, the cost of wireless services, like cable TV, is creeping up. With little guidance on how to read a cellular bill and taxes piled upon taxes, wireless marketers could be in for a backlash from consumer groups. Still, people of all ages remain tethered to their cell phones-a cultural phenomenon that appears to carry no socioeconomic distinction.

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