Wireless resists becoming commodity

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The dreaded federal decision that allowed consumers to port their cellphone number to another carrier was expected to trigger mass switching. It didn't.

Now carriers have to find a point of differentiation or face a future where their once-powerful brands become a mere commodity, part of an indistinguishable bundle of services offering Internet, long distance and local access.

A recent Yankee Group study found that subscriber turnover, or churn, at the nation's top five carriers hit record lows. In the first quarter of the year, Verizon Wireless' rate dropped to 1.3%, and only 1.1% for retail post-paid consumers, an all-time industry low. Even T-Mobile, whose 2.8% churn rate was among the highest of the major carriers, was down from the 5% industry high it posted in the third quarter of 2001.

The decline in churn is a result of a shift in marketing strategy among the carriers. As cellphone service improves, instead of the price war which has plagued the category-and produced media spending of more than $4.7 billion in 2004-marketers are employing family plans and using bigger buckets of free minutes to lure and keep subscribers. "Family plans have certainly had helped to reduce churn," said Linda Barrabee, senior analyst-wireless/mobile United States at research company Yankee Group.

Although price and coverage remain primary factors for choosing a carrier, monthly subscription rates have flattened at about $30 to $40. "They have kept price points steady and played around with the number of minutes," said Roger Entner, VP-wireless telecommunications at research company Ovum.


The marketing-strategy change even filtered to down to sales incentives at the store level. "Carriers in the past were more worried about generating new business than holding onto the old," said Jeff Kagan, an independent telecommunications analyst. But in the past year or so, salesmen have been trained to retain subscribers as well as draw in new ones.

Consumers who are offered bundles of services, moreover, are unlikely to bother to switch carriers if they are all perceived as largely equal by the consumer, much as landlines are. SBC, for example, part owner of Cingular Wireless, offers a bundle with local, long distance, Internet and cellular service. "The commodity issue is always a threat," said Erik Thoresen, consumer marketing analyst, Mintel International Group.

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