PCS Be Nimble, PCS Be Quick to Jump Over Cellular Marketing Tricks

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BOONTON, NJ. May 6, 1997:

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Intense competition from long-established cellular phone companies has already driven one PCS phone vendor to seek bankruptcy protection, and others are likely to follow, says a new market analysis report from Insight Research. Encumbered by high fixed costs and the load of debt they incurred to buy their operating frequencies, many PCS vendors are simply not nimble enough to counter the marketing maneuvers of the cellular carriers, thus Insight predicts several will soon be driven from the marketplace.

According to Insight's The Reality of PCS Networking: The Competitive Threat to Cellular Telephony, PCS provides a short-range, low-power digital wireless phone service which has the advantage of excellent building penetration, security, and both voice and data capabilities. It also has the potential to be profitable at lower price point for a minute of usage than comparable analog cellular service, but Insight reports many PCS service offerings are being sold below costs to attract customers. Meanwhile, at least one major cellular carrier is competing by marketing their older analog cellular phone service along with a messaging service and dubbing it PCS.

"PCS has some real advantages in terms of security, voice fidelity, and built-in messaging capability, and we think its going to be a must for the businessperson who needs to keep private those crucial business discussions," explains Robert Rosenberg, president of Insight. "But you can't run a business for very long by selling at below cost--and cellular vendors can drop prices faster and further than the PCS vendors--so some of these PCS people will dreading the knock on the door from their bankers."

The FCC auctions turned into a feeding frenzy among communications industry giants, and the huge capital outlays forced nearly all the players to revise expectations about break-even. As a result of the auctions, there will be five wireless telephone providers in most major cities; the two current cellular carriers in each city will be joined by three new PCS carriers. Insight's analysis suggests that most markets cannot support five profitable wireless carriers. We expect to see a scramble as carriers seek to establish their service and quickly acquire customers. Severe price competition will follow, and at least one carrier in each area will be squeezed out.

Further forecasts of wireless services, subscribers, and revenues are published in The Reality of PCS Networking: The Competitive Threat to Cellular Telephony.

Wireless Operations Support Systems 2002-2007

WiFi in North America and Europe 2003-2008

Telecom Services in Vertical Markets 2002-2007

Donna Savino

at Insight Research

973-541-9600