For Cellular, A Sudden Hang UpRobert D. Hof
Until recently, Anita Johnson-Clemens was addicted to her cellular phone. The Minneapolis-based magazine advertising director bought one four years ago, and soon was returning all her messages from her car, gabbing with friends on the road--and racking up $400 monthly bills. Finally, after charges rose last year, she disconnected. Now, the cellular company calls regularly to entice her back. "They're very persistent," she says. "But I just can't justify the expense."
Customers such as Johnson-Clemens are giving cellular executives fits these days--and keeping them up nights devising ways to cope with the industry's first slowdown. Until 1990, cellular companies were primarily concerned with outbidding each other for choice markets. But then the recession hit. Signing new subscribers became harder, and revenue growth slowed from 71% in 1989 to 36% in 1990, to a total of $4.5 billion. Suddenly, marketing and customer service have become the bywords as carriers dream up ways to find new customers and prevent others from hanging up on them.
It's not that the cellular industry has tanked, of course. Most industries would kill for the 51% growth in new customers that cellular experienced last year. And with the arrival of digital transmission in a couple of years, carriers can expect a new surge in growth. But for now, revenues are growing more slowly than lenders and investors were counting on when they poured billions into the young industry. This year and next, subscriber growth will be below 40%, predicts EMCI Inc., a Washington-based cellular market researcher. In recession-battered New England, growth is now in the single digits.
What is worse, new subscribers use cellular less: In PacTel Cellular's West Coast territory, monthly revenue per subscriber fell to $91 in the first three months of the year, from $104 a year ago.
'SAVE TEAM.' The carriers' first priority is keeping customers from dropping out. So far this year, subscribers are disconnecting at a rate of about 36% per year, compared with 24% a year ago, says Bear, Stearns & Co. analyst Kenneth M. Leon. Bell Atlantic Mobile Systems says its "save team" now retains 25% of disconnecting customers.Carriers also are trying to get more revenue from existing customers. Since McCaw Cellular Communications Inc. stepped up efforts to sell voice mail in January, the company says that in some cities as many as 60% of its customers have signed up. Using the service increases calling time by 15 to 20 minutes a month, on average, McCaw says.
There's also an emphasis on large corporate accounts. Some large companies have hesitated to use cellular in a big way because carriers offered only localized billing, which makes cost control difficult. So in February, McCaw began offering one nationwide bill for a company's cellular calls.
But many corporations are feeling the economic pinch, too. In Philadelphia, Metrophone says usage fell 10% in March, mainly because of corporate cutbacks. Chicago's Kemper Financial Cos. has cut the number of cellular phones it uses. Meanwhile, competition for corporate accounts is becoming cutthroat. "All of us are chasing the same types of customers," concedes McCaw Vice-Chairman Wayne Perry.
Signing any customer is costly. Analysts say about half of the $600 to $900 in marketing expense for snagging each customer goes to commissions to outside agents. Says Earle Mauldin, BellSouth Corp.'s cellular president: "We need to find a cheaper way." In the past few months, carriers such as U. S. West Inc.'s NewVector Group Inc. have begun to reduce up-front commissions to agents. Instead, they pay residuals based on customer usage.
SWAPPING STOCK. Perhaps most eager to find growth are McCaw Cellular and LIN Broadcasting Corp. McCaw bought 52% of LIN in 1990 and together they are paying interest on $4.8 billion in debt. In addition, they're spending $170 million to replace cellular switches in New York and the Northwest. To deleverage its balance sheet some, McCaw recently sold $360 million worth of cellular properties and swapped stock for some of its debt.
But it will take more than a cleaner balance sheet to deal with the cellular industry's first recession. Instead of simply taking orders for service, carriers are finding that they must offer the kind of service that will keep customers on the air.