Late last year, Cingular Wireless spent $300 million on an ad blitz introducing consumers to its takeover of AT&T Wireless. This year, Sprint Corp. merges with Nextel Communications, forming a stronger No. 3 carrier behind Cingular and Verizon Wireless. Some 81% of the market is now controlled by four carriers.
With cell phones at 60% penetration in the U.S. market, carrier consolidation will lead to a broadening battle for share that will mine an overlooked demographic: subscribers who are young, often credit challenged or disinclined to sign up for prepaid wireless contracts.
That makes "alternate payment a huge opportunity," says Marc Lefar, Cingular's chief marketing officer. He adds that alternate payment plans, which took in 26 million subscribers by the end of last year, will grow to 43 million subs by 2007. Cingular's alternate "hybrid" plan requires no contract and allows customers to pick options: pay for minutes on a debit system, rollover minutes, no roaming and long-distance charges, and the ability to get fancier cell phones like Motorola's new Razr.
There are also plenty of new services at wireless companies, such as third-generation (3G) networks. Once fully deployed, 3G will allow customers to access the Internet and on-demand video and music, features likely to provide a revenue windfall and eventually transform the cell phone into a mass medium of its own.
Still, established carriers might find their subscriber base lured by a wave of new carriers known as MVNOs, for mobile virtual network operators. MVNOs ESPN Mobile and Amp'd Mobile are launching later this year on the Sprint and Verizon Wireless networks, respectively.
CONVERGENCE IS EVERYWHERE
Wireless marketing chiefs, however, hope marketing expenditures will slow sooner than later: In 2004, the top seven spent a combined $4.73 billion in media, up 14.8%. Mr. Lefar sees a "deceleration over the next couple of years." Mark Schweitzer, the designated chief marketing officer for the merged Sprint/Nextel, believes marketing spending-more than $1 billion in 2004 combined for Sprint and Nextel-will drop as a merged company. "We're not bringing a spend-more mentality" to the combined operation, he says.
Additionally, traditional land-line companies are vying with cable to bundle all telecom and entertainment services under one bill. That necessitates adding new services: An example is Cablevision's testing of an MVNO. Cable operators are offering little-understood Internet telephone service, or VoIP for Voice over Internet Protocol. ISP's also are in to convergence: Yahoo in June purchased Internet telephony unit Dialpad, and will soon offer voice services.
The pending telecom-cable battle will take on a distinctly different flavor from wireless's big national campaigns. Verizon Communications, building a high-speed fiber network to compete with cable's entertainment offering, must secure local franchises, necessitating a local effort, says Rob Ingalls, president-retail markets group. He also noted in a UBS conference call that Verizon sees the consumer market as "multiple layers" of opportunity.