Features

LOS ANGELES – The nine telecommunications companies that have filed for bankruptcy in the last 13 months suffered a common problem. They were unable to cover massive debt racked up as they acquired competitors or built vast fiber-optic networks for an expected Internet traffic explosion. 

The wireless industry has managed to avert a similar meltdown, despite piling up its own enormous debt load. 

But the six major U.S. cellular companies are struggling to boost revenue as subscriber growth slows and intense competition fuels ongoing price wars. Nearly half of all Americans already own cell phones. 

Consolidation is widely expected, with analysts betting that there will eventually be just four surviving wireless operators. But the carriers are also hoping that salvation lies in the arrival of new multimedia services for cell phone users. 

For years, the telecom industry has promised high-speed wireless connections that will allow people to access the Internet and send photos, video and other bulky data files over their cell phones. 

The technology has been among the most hyped promises of the Internet age. But major wireless providers finally began deploying an early version of it recently and plan to complete the rollout across the country by early next year. 

“The new services are more important than ever, given the slowing of the customer base,” said Greg Teets, an analyst with A.G. Edwards & Sons. 

Although consumers doubled their wireless talk time in the last six months of 2001, revenue for the U.S. wireless industry increased only 10.4 percent to $34.1 billion in the same period, according to the Cellular Telecommunications and Internet Association. 

Customer acquisition is so essential that wireless operators say they actually spend more to lure individuals to their calling plans than they spend on new capital. 

For example, Verizon Wireless, the nation’s No. 1 mobile operator, spends $200 on average to acquire each new customer, said spokesman Jim Gerace. 

And Sprint PCS, the nation’s fourth-largest wireless operator, recently reported that its customer acquisition cost rose to $350 from $300 a year ago. 

Analysts warn, however, that wireless carriers shouldn’t expect new mobile services to wash away their financial troubles. The companies will likely face a tough sell persuading consumers to pay as much as $100 a month to bring the Web to the tiny screens on their cell phones. 

“Operators basically took what was on the PC and trucked it down to a tiny screen and said, ’Here, you’re going to love it,”’ said Ken Delaney, director of mobile wireless research at Gartner Inc. 

In addition, transmission rates on these developing networks will fall short of basic dial-up speeds reached on today’s wired modems, Delaney said. 

Although carriers are promising transmission feeds of up to 144 kilobits per second, actual speeds range between 15 and 40 kbps, he said, compared with a maximum dial-up speed of 56.6 kbps. 

Verizon Wireless, recognized as a leader in the rollout of expanded services, claims its new Express Network transmits at speeds between 40-60 kbps. Launched in April, the service now covers Texas, the San Francisco Bay area, Salt Lake City and parts of the Northeast. 

A faster generation of services won’t arrive in the United States until 2006 or 2007, Delaney said. 

But some mobile phone users say reliability remains the key issue, not speed or additional services. 

“I liken it to when they put all those computer instruments into the car, but still couldn’t get the clock to work,” said Steve Zirl, a regular cell phone user and technology writer in Los Angeles. 

“There are so many dead spots (in cellular networks). It would be nice to see some bells and whistles, but I’d like to see them get the regular stuff working first,” he said. 

And while Internet users are getting more comfortable giving credit card numbers over the Internet, security concerns remain an issue with new mobile Web access. 

“I wouldn’t use it to do something like a stock transaction,” said Zirl. “I’d worry that anyone with a Pringle can could listen in.” 

A recent survey of 7,200 Internet users by Solomon Wolff Associates, a New Jersey-based market research firm, reported that consumer interest in wireless Internet has waned. 

In January, only 21 percent said they were interested in mobile access to the Web, versus 45 percent in July 1999. Furthermore, nonusers who reported an interest said they would be willing on average to spend only $9.44 a month. 

A typical plan available today ranges from between $35 and $100 a month, depending on time used or amount of data transmitted. 

“There’s a lot of concern that the new innovations haven’t developed in a way that they can electrify the markets,” said Doug Solomon, a partner at the firm. 

But the wireless industry argues that consumers have an insatiable appetite for wireless data. People already send more than 1 billion SMS (Short Message Service) messages a day, said Travis Larson, spokesman for the CTIA. 

SMS represents the simplest form of wireless data. Demand for richer services, like MMS (multimedia messaging service) will be “an evolutionary adaptive process,” he said. 

MMS is rolling out today in parts of Europe, including Britain, Germany, Italy, Portugal and Greece. 

Wireless carriers and handset manufacturers are currently relying on each other to spur additional consumer demand for the service. 

Both Nokia and Sony Ericsson Mobile Communications, a joint venture, are launching phones with detachable cameras that send and receive multimedia messages. Nokia’s version, due soon in the U.S. market, sells for the equivalent of about $750 in Europe. 

Mobile phone operators in Europe are already subsidizing the cost of phones, hoping to make the money back on subscription fees. 

But prices will have to drop into the $200 range in the United States before the mass market starts buying the handsets and the new services from wireless carriers, Teets said.