Business travelers may soon have one less thing to pack: their cellular phones. The advent of a new billing system that makes it more cost-effective to rent cellular phones is beginning to spur an increase in the rental market by making the units cheaper and more convenient.
Cellular phones have become a staple business tool in the last few years. There are now more than 16 million users in the United States, according to Mike Houghton, spokesman for the Cellular Telecommunications Industry Assn., a Washington-based trade group. In 1993, the industry reached an all-time high of $10.9 billion in sales of cellular services, a 39.7% increase over the previous year. An estimated 14,000 new customers sign up for cellular services every day.
However, the cellular phone rental market has lagged the owner market and currently makes up only a very small percentage of the cellular marketplace, said Scott McGregor, president and founder of Telemac Cellular Inc., the Danville, Calif.-based company that developed the new billing system.
Some car rental agencies, such as Hertz Corp., rent cars with cellular phones mounted inside. However, the market for portable rented phones, which a traveler can put in a briefcase and take anywhere, has been slow to take off.
Whether the phones are mounted in cars or portable, the rental market's sluggish growth has been largely the result of limitations in the industry's billing system, McGregor said. Until recently, there was no way for a company to immediately tell what phone calls a customer had made on a rented phone.
Rental companies had to charge a flat rate to cover their expenses without knowing whether the phone had been used to make local, long-distance or international calls.
In some cases, companies charged as much as $2 a minute for use of a rental phone. They wouldn't know what calls were actually made until a month later, when they received their bill from the cellular carrier.
Customers didn't like the flat rates because they felt they could be picking up the tab for other callers who made more expensive calls.
In fact, disputes over rates were so common that rental companies were losing as much as 40% of their potential revenue because customers refused to pay their bills, McGregor said.
For their part, rental companies didn't like the flat rate system because the rates didn't always cover their bills. Consequently, companies went out of business rapidly, adding to the impression that rental phones were unreliable, McGregor said.
Telemac's McGregor, who used to own a cellular phone rental company, commissioned his son in 1990, then a senior majoring in computer sciences at University of California, Davis, to develop a computer chip that could go into each phone and capture all the calling data within the phone itself.
When the phone is returned to the rental agency, information about where calls were made to and for how long is downloaded into the system's main accounting program.
The system prints out an itemized bill on the spot, allowing the rental company to charge the customer less per minute and still make a profit, McGregor said.
For example, using itemized billing a customer might pay $1.25 a minute for local calls and $1.45 a minute for long-distance calls. Although those charges are still higher per minute than what owners pay when they use their own phones, renters are not paying the monthly access charge owners pay for cellular service.
Telemac formally launched the product in March. So far, 50 of the systems have been shipped to retail outlets that sell phone services, as well as to at least one major car rental agency--Alamo Rent a Car in Ft. Lauderdale, Fla. Telemac is currently negotiating with four of the largest rental car agencies about installing systems nationwide.
In California, the billing system is used by Bay Area Cellular in Monterey and Cellular One in Santa Barbara. Telemac expects to have 55 systems installed in more than 15 states by June.
The change already appears to have had an effect on phone rentals.
"It's definitely a fast-growing part of the market," Houghton said.
Although CTIA currently has no statistics on the size of the rented cellular phone market, it plans to start tracking it in its next market surveys.
American Cellular Rentals in Ft. Lauderdale, for example, has seen a 43% increase in rentals in the last three months, marketing director Gina Jay said. She attributed the increase to the accountability of the new billing system.
"What this allows us to do is meet the needs of the traveling consumer, especially the business traveler who needs substantiation of his bill," she said.
This way travelers can reconcile their bills to expense statements.
They know they are paying only for the calls they make, and they know how much they are paying for each call, which is especially important if the calls are being billed to clients.
American Cellular Rentals has phones available for rent in hotels, car rental agencies, paging offices and at movie production locations throughout Florida, she said.