Converting Wireless Nonusers

Got wireless? That seems to be the big question on everyone’s lips as more and more consumers continue to subscribe to wireless plans, forego their landlines and seek out the latest in cool cell phones and gadgets. Even the stodgiest of consumers are going wireless. It’s likely your grandparent owns a cell phone with a ringtone of the “All in the Family” theme song.

Despite the continued migration to wireless, there remains an untapped market of American consumers who don’t have cell phones and insist they never will. However, recent research is promising for wireless carriers and shows the level of subscribers will continue to grow, with an additional 54 million people expected to go wireless by 2010.

The issue for service providers, then, is not when more consumers will become wireless subscribers, but how they can be targeted and acquired profitably. Carriers and MVNOs will need to be creative about acquiring first-time wireless consumers and then retaining and upselling them over time, without losing them to a competitive scavenger waiting in the wings.

So who are the typical nonusers and what makes them tick? And how are wireless carriers catering their plans to nonusers’ needs?

Click to Enlarge

Nonusers tend to be older, averaging 50 years of age. Nonusers also typically have lower incomes than existing wireless subscribers, with nearly 50 percent living in a household with annual income under $30,000 (see chart, Household Income Distribution of Wireless Subscribers and Nonusers). Considering this, it really should be no surprise that the cost of wireless service dominates their reasons for not subscribing. Consumers who ultimately do plan to get wireless service are waiting for cheaper plans to emerge, while others feel that their landlines are sufficient in meeting their communi-cations needs and don’t want to replace them or add another phone (and bill) to the mix.

Nonusers do have some money to spend, however, and can be addressed profitably by wireless carriers in creative ways that appeal directly to consumer lifestyles and values. Security and communication with family are the primary reasons consumers ultimately subscribe to wireless plans. Other considerations include employment needs or to keep in touch with friends (see chart, Wireless Subscriber Reasons for Getting Service). Carriers must factor these motivations, as well as customer demographics, into their mobile plan development to win the race for new subscribers.

Click to Enlarge

Prepaid and Family plans will be the dominant point of entry for today’s nonusers, but carriers and MVNOs should create programs that enable customers to increase their usage and expenditure over time by graduating them to post-paid plans that accommodate growing usage. Four compelling opportunities have emerged; they are traditional prepaid (“pay-as-you-go”) plans, hybrid/lifestyle plans, family plans and services offered by MVNOs.

Let’s take a closer look.

For the potential subscriber base, lower barriers to entry on traditional pay-as-you-go plans - such as TracFone Wireless Inc.’s free refurbished online-only phone offer (November and December) and 7-Eleven’s SpeakOut phone for $40 (after rebate) - will get them over the hump of adopting wireless service. Prepaid plans make the most sense for potential subscribers who intend to use wireless infrequently.

Compete Inc.’s research shows, however, that as wireless subscribers mature, their usage and expenditure levels increase. New hybrid plans that combine a prepaid structure with a monthly recurring charge have emerged as a bridge between prepaid and post-paid models. Hybrid offerings like Cingular Wireless’ GoPhone, Liberty Wireless services and Verizon Wireless’ InPulse are attractive because they offer the flexibility of avoiding a credit check and committing to a service agreement, yet access to unlimited off-peak and in-network calling.

Family plans are driving an increasing portion of industry growth, contributing 20 percent of overall revenue for some carriers during the fourth quarter of 2004. While family plans are attractive to consumers, they have a tendency to cannibalize ARPU levels as two or more subs spend less on a shared plan than they would on two or more separate plans. However, family plans can have a positive effect on churn, CPGA (cost per gross add) and CCPU (cash cost per user), which can more than offset the ARPU cannibalization on a net present value basis.

MVNOs are companies that buy airtime from wireless companies and sell service under their own brand, typically adding value through some comparative advantage they have over the carrier. MVNOs are likely to profitably attract the remaining untapped wireless market on two levels. First, MVNOs can leverage existing subscriber or marketing channels. For example, an MVNO already selling nonwireless subscribers a landline or cable service can offer wireless very cheaply as an additional service. Retailers popular with nonuser segments, such as 7-Eleven or Wal- Mart, both can market and distribute phones and service without paying for additional advertising or retail commissions. Second, MVNOs can make wireless service more valuable to the customer by customizing it to the needs of specific market segments. One example would include combining wireless service with international long-distance for ethnic groups who call home to other countries.

Providers of Internet, cable and telephone services (which are often the same companies) recognize that there is a strong business case for reselling and bundling wireless services. While the regional players in this category do not enjoy the same branding scale as the larger, more recognized names, they can leverage their existing customer relationships into operational efficiencies around billing and customer care. They also can improve the churn rate on their legacy services by adding wireless services, which increase the “stickiness” of the overall service bundle. As convergence of these services (think Wi-Fi, VoIP, broadband, cable and cellular) becomes a reality, these telco service providers can lock up a quintuple-play to attract and keep loyal customers.

Even though nonusers expressed price sensitivity, service providers can begin to extract additional value from customers and potentially upsell them to other, expanded service programs. Early in their wireless relationship, new subscribers are pricesensitive and view their phones as a “nice-to-have” versus a necessity. Over time, their wireless phones grow into a commonplace utility that emerges as an inseparable component of how they manage their everyday lives. At this point, the benefits of a full-scale post-paid plan become apparent and the consumer’s purchasing orientation shifts from “price-based” to “need-based.” In terms of acquiring marginally profitable new entries and growing them into profitable subscribers, carriers would be well-served in designing lifecycle-centric services to painlessly pull the consumer through this process.

Looking ahead to when the wireless industry’s “acquisition” stage ultimately winds down, there will be a shift from hunting for new subscribers to deepening and strengthening customer relationships. It will be this kind of activity that will drive future growth and success.