Beyond the Slump
A little more than a year ago, no one had heard of Cingular Wireless. In fact, it didn’t exist. But after cobbling together more than 11 brands nationwide--including Pacific Bell Wireless in California, BellSouth Mobility and Cellular One--it has become the nation’s second-largest mobile phone carrier, and its quirky orange “X-man” logo has been burned into the minds of an army of consumers.
The company, a joint venture of SBC Communications Inc. and BellSouth Corp., spent heavily to make its name known alongside the newly named Verizon Wireless and longtime brands AT&T; Wireless, Sprint PCS and Nextel Communications. Cingular’s 21.8 million mobile subscribers place it at No. 2, behind Verizon Wireless at 29.6 million.
But after years of historic growth, the U.S. wireless industry no longer is immune to the travails of its telecommunications brethren. Wireless carriers’ stock prices have fallen sharply, subscriber growth is subsiding, and many major cities now have five or more competitors vying for customers.
Cingular and its rivals also are spending billions of dollars on technology upgrades that will pay off in the short term only if masses of people flock to new data services--a big if in this economy.
Talk of industry mergers is rampant, with the most recent rumors putting Cingular in discussions with both AT&T; Wireless Services Inc. and VoiceStream Wireless Corp.
In the meantime, the company marches on. Cingular recently filed paperwork for its long-delayed initial public offering, and this month it launched its always-on data service in California.
Stephen Carter, Cingular’s president and chief executive, wouldn’t comment directly on the merger speculation, but he recently discussed the range of issues concerning wireless today.
Question: What’s behind the downturn in wireless, and do you think it will help spark consolidation?
Answer: At the moment, the telecom sector is kind of down, and there’s a propensity to lump everyone together. But I think the drivers of why things are down are very different for different sectors.
With a stand-alone long- distance company, it’s very hard to see where that goes in the long term. You pick your time frame: Two, three, five years out, will anybody still be buying a certain distance in telephone calls? I don’t think so. I can see why there’s a downer in that area.
When we come to wireless, though, here’s a business that is growing. Yes, the growth is tapering as maturity and penetration take their course, but the business is growing to where pretty much anybody that you ask--who can walk and talk--would like a cellular phone or some sort of wireless device.
[Companies] with strong business plans and the capability of making a return on the investment will survive and prosper. Those that don’t, the economics are going to weed them out, and they’ll either be taken over or they’ll sell to somebody or they’ll go by the wayside.
Among the stronger players, I think it’s entirely possible that you would see some consolidation, just because as we make investments in new- generation technology, there are incredible synergies that could be gained.
Speculation as to how that actually falls into place is beyond where I can get to. But I certainly think that if you look medium term, you’ll see an environment with a smaller number of profitable wireless companies.
Q: How important will this summer’s roll-outs be to the success of wireless high-speed data services?
A: I keep saying over and over that it’s not going to be important on a daily basis.
We’re going to look back in 12 months’ or 18 months’ time, and we’re going to notice this shift in the way people are doing business or using their service.
This summer, what’s going to happen is that you’re going to notice a pretty significant increase in the [data] coverage nationwide.
Consumers are going to notice a significant change, and enterprises are getting more interested.
Q: Many believe corporations will be the key to making wireless data successful, but what about consumers?
A: If you classify wireless data as non-voice, you shouldn’t discount the effect the consumer can have on non-voice, in more fun or simplistic ways.
An example might be our ring tones. In the first month that we sold ring tones, I think we sold a few thousand. In December, 350,000 were downloaded, and that was just at Cingular. We never really advertised that.
Q: Why is short messaging service important to the industry?
A: SMS is huge in Europe. My nieces almost never make phone calls. But they know that for 10 pence or 5 pence, or whatever it is there, they can send a message, and they all text-message.
Here, we [recently] turned on the interoperability [with other carriers]. The first morning, we turned it on more for testing than anything else, and 100,000 messages popped over to other carriers. The first week went by, and we were up to about a million, and it’s growing on a daily basis.
From the point of view of Europe, that’s nothing, but from the point of view of a complete nation that’s never done any of that before, it’s kind of amazing.
Q: What do you think of hybrid phones, phones with Palm-like functions built in? How popular or important will that segment be?
A: I think that’s going to be a very personal issue, and I’m sure there are going to be strong advocates on all sides.
One of the great things about [Cingular’s Global System for Mobile communications technology] is that we use SIM cards [that store your account information].
With SIM cards, you can take your identity and use it in multiple devices. Today, I’m using a very businesslike phone with a color display and all sorts of things. But if I’m out tonight for dinner, if I want something more cool or lighter or smaller, I can put [the SIM card] into a new phone.
You’ll see spots where a PDA-like device will be perfect for some people to use during the day, and then they might want to use a different device at night.
There are others, and I think I’m one of them, who prefer to separate the two. I don’t believe that the hybrid is going to dominate, but I think it will have a section or a niche in the marketplace.
