Commentary: Beating the Saturation Blues

A new report from the Yankee Group says that U.S. carriers have exhausted their traditional subscriber base --the traveling, twentysomething professional market -- and must now look to alternatives to keep adding users to their rosters.

Yankee says that there are now 130 million wireless subscribers in the U.S., meaning more than 44 percent of the population has a mobile phone. Some analysts gloomily predict that the U.S. market has reached, or is close to, saturation.

To which Unstrung says: “Pah!”

[Ed. note: Not to put too fine a point on it.]

Western European subscriber numbers are approaching 100 percent in some markets, according to U.K. wireless market researcher EMC -- now that’s what we call a saturated market.

With this in mind, Unstrung has decided to look at what can be learned from the European market and how operators stateside can use some of the technological advances coming soon to a network near you to appeal to new customers.

Currently, the wireless operator’s dream customer is a solvent twenty-to-thirty-something professional with a great credit record who travels a lot. Given the current state of the economy, it's no surprise that this kind of user is becoming as rare as a cellphone at an Amish barnraiser.

The Yankee report says carriers must do more to appeal to the youth market, ethnic minorities, and the “credit challenged” [sic!]. However, this will require a significant shift in approach and attitude from some operators.

U.S. operators need to get more creative with their pricing plans and have a better attitude toward prepaid customers in general. AT&T Wireless has been promoting some aggressive pricing plans over the past few months and has reaped the rewards, adding 650,000 customers in the first quarter of this year, well above analyst expectations.

The Yankee Group estimates that about 12 percent of the total U.S. subscriber base is currently prepaid. The firm predicts that this figure will grow to 30 percent by the end of 2006. Compare this with European prepaid numbers: In some countries, over 60 percent of the users are on prepaid plans. The message is clear: Prepaid plans drive subscriber numbers.

Of course, prepaid plans come with their own set of problems. First, prepaid customers are difficult to track. They are also more likely to jump ship if another carrier has a better offer. However, if operators want to attract more of the 56 percent of the population who don’t have phones, then prepaid cards have to be a big part of that strategy.

The youth market is another major component of the European market, and one that has hasn’t really been tapped in the U.S. One of the most noticeable differences between traveling on the tube in London and the subway in New York is that the F Train is distinctly lacking in teenagers hunched over mobile phones checking their text messages, whereas the Bakerloo line in London is crawling with 'em.

Until recently, the short message service (SMS) revolution looked like it might pass by the U.S. entirely, but that has changed now. The Cellular Telecomummications & Internet Association (CTIA) said in March that it has been working with operators since December to ensure that SMS users can send messages to subscribers on other networks. 'Texting,' SMS, instant messaging, call it what you like -- the ability to send short text messages to friends quickly and relatively cheaply is one of the keys to the youth market. Need proof? The SMS market was worth $44 billion last year. The GSM Association says that 75 billion text messages were sent in the first three months of this year. It is now forecasting that 360 billion messages will be sent in total this year, up from 250 billion in 2001. This is before U.S subscribers have learned what their thumbs are really for.

In fact, U.S. operators have a chance to add some new wrinkles to the messaging market before most of the rest of the world catches up -- because of the Federal Communications Commission’s (FCC) requirement that they implement location-aware technology on their networks. The FCC's e911 phase II mandate calls for carriers to put technology on their network that can locate a person making a 911 call on their cellphone to within 100 feet. This was supposed to be in place last October, but many operators got waivers from the agency to delay the launch. Still, carriers are putting this technology on their networks slowly but surely, and when they have it they will want to make money from it.

One way might be to add location capabilities to SMS and instant messaging systems, so that when a user sends a message to friends they can tell where he or she is. Of course, this raises its own concerns about personal privacy, but it might also heighten the sense of being part of the wireless community that many teenage users in Europe and Asia already talk about. Companies like Razorfish have started to trial location-aware messaging systems.

One of the most interesting aspects of new technologies like location-aware systems is the way they force people and companies to think differently about what they offer customers. For instance, carriers could offer something to somebody who wouldn't previously have dreamed of owning a cellphone: What about a wireless location-aware badge or button [Ed. note: or implant?] for kids? For a minimal monthly fee, parents could really know where their kids are. We don’t know of any company doing this at the moment, but surely it’s only a matter of time.

— Dan Jones, Senior Editor, Unstrung
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