Analyze This

There are more than 384.5 million global wireless subscribers, according to The Strategis Group. The United States proclaims more than 78 million of those subscribers. On the surface it seems the country is doing well. But when you take a closer look at the numbers, you find that the United States only has penetrated 28% of the population. That is significantly less than several European countries.

In Scandinavia, Finns are reportedly leading the world with 62% wireless penetration. The astonishing penetration is nothing short of a breakthrough for the dreamy forecasts of the wireless industry's futurists. Other parts of Scandinavia aren't far behind, as Norway, Sweden and Denmark all report high numbers of wireless ownership per 100 population.

Wireless phones also are gaining in Asia -- Hong Kong at 47% and Singapore at 36% -- and Australia. The gains beg a question for U.S. carriers whose international arms are fueling the wireless revolution overseas but haven't been able to spark a similar surge in America. Why not?

"There's really not a uniform answer," said Elliot Hamilton, The Strategis Group director of U.S. telecom. "It's not that the United States is really lagging behind, but you just have some countries whose numbers are extraordinarily high."

Do Europeans like to talk on wireless phones more than Americans? Does Asia possess the technological aggressiveness that lets wireless manufacturers ship new advancements to tech-starved citizens? Who really is the global leader in wireless? It all depends on how you gauge leadership.

MOBILE MANIA Recently, the focus has shifted to high penetration rates and landline replacement. In countries where wireless phones are outpacing fixed lines, there is a common denominator: an almost fanatical need to be connected wirelessly. That idea is not new, as the telecom industry aggressively has pitched its wares to a public that, it hoped, had an insatiable need to stay in touch.

The notion of wireless as a necessity has matured rapidly, and in some countries has morphed into a high-tech prop. Users are clipping phones to belts or donning wireless headsets for the mere convenience of checking in on a loved one or ordering out -- eschewing wireless' early functionality as a link to help in an emergency and later as a convenience for top-tier professionals.

Some experts attribute Europe's surges to the continent's early embrace of pioneering technologies, such as GSM, and thus are enjoying high market penetration, said Ira Brodsky, Datacomm Research president.

"But it is not because they avoided a standards battle," he said. "It's because they deployed digital technology early. Had they selected three standards insteadof one, they would be even further ahead today."

Also in Europe, digital delivered the first continent-wide roaming, and in most countries the first wireless competition, Brodsky added. (Although the United States also had nationwide roaming, price and performance leveled off significantly.)

Beyond technologies and competition, wireless' ubiquity in Europe reflects a human trend, experts said.

In Italy, for example, the high number of wireless units has drawn international curiosity about people's wireless habits. Mobile phones are credited with exploiting "the triumph of the tentacled family relations in Italy," Italian journalist Beppe Severgnini recently wrote. The wireless phone, he said, had become a "high-tech umbilical cord." Like Finland, Italy has broken the fixed-line majority -- in July, the country reported more wireless phones than wired lines.

A recent study shows that Europe as a whole likely will see continued dramatic growth through at least the next five years.

The study by Strategy Analytics predicts wireless penetration in Western Europe will hit 73% by 2004, with revenues ballooning to more than $150 billion over the same period. Handset sales, the study forecasts, will grow to 183 million units annually in that time, compared with 61 million units in 1998.

"We envisage further scope for price reductions, particularly at the lower end of the market where prepaid services dominate," said Declan Lonergan, Strategy Analytics' director of wireless services in Europe.

Lonergan also expects wireless to displace landline traffic significantly as more traditional barriers are removed. He also said advanced habits will develop as users demand more sophisticated products, such as the introduction of HSCSD and GPRS, which will stimulate sales activity.

An earlier study by Strategy Analytics found that Western Europe's wireless usage generated almost 80 billion minutes of outgoing voice traffic in 1998 -- roughly 9% of the total voice market. A dramatic shift in calling habits across the region will result in almost one half of voice traffic originating on wireless networks by 2004, or about 500 billion minutes annually.

There's a caveat, Lonergan warned. Average revenue per user is expected to drop in the next five years, from 1998's $54 per month to $46 in 2004.

WHAT ABOUT THE UNITED STATES? Can U.S. carriers catch up to these high penetration rates? According to CTIA, 1997 to 1998 saw the greatest 1-year increase in wireless subscribers in the United States. In May The Strategis Group reported the United States gained the most net subscribers in first quarter 1999 than any other country. Will these gains be enough to push the country past Finland's penetration rates?

According to Richelle Elberg, Paul Kagan Associates senior analyst, it will happen sooner than analysts used to project. Penetration rates are accelerating, she said. For example, Elberg used to project the United States would reach 55% by 2004 and 65% in 10 years. But now, she expects that will happen sooner.

"We're just going to get there faster," Elberg said.

She expects that in five years the United States will reach at least 56% to 57% penetration rates. In part, that growth is attributed to a new generation of users.

"A much higher number of (younger) people buying wireless phones today are using that phone only, whereas older users still have both," Elberg added.

Carriers also are adjusting marketing schemes and lowering prices, but they are realizing that price alone will not increase the penetration rate. Advanced phone features such as wireless Internet and data services are key.

"You can only go so low on pricing," Bill Dixon, Sprint PCS area vice president told The Associated Press. "All of us are looking at ways to get the customers to use a lot of airtime and build revenue with ancillary services. We want to make wireless phones a more important part of people's lives."

Carriers also are spending big to open new markets and capitalize on underserved populations, such as rural areas. AT&T Wireless, for example, plans to spend $2 billion this year to expand existing markets and open new ones.

Whether such efforts will crack America's fixed-line fixation remains to be seen. Two big issues form the challenge: the country's diverse population (both socially and economically, whereas nations like Finland, Norway and Japan are largely homogenous), and the relative uniqueness of America's all-you-can-eat style of local telephone billing.

The United States is a relative anomaly when it comes to fixed lines, Hamilton said.

"Most countries of the world, (the United States) is the exception, their landline side is metered in terms of usage," he said.

Customers pay by the minute for local telephone service. Consider that the average U.S. family spends 700 minutes on the phone each month for about $17 a month. That cost would creep up very high on the landline if they were paying just a little bit per minute. As a result, more customers would use wireless instead of landline. Wireless local loop, Hamilton said, is the key to carrying domestic penetration rates to European levels.

"There's no doubt that for 50% to 60%, you need a wireless local loop phone system," Hamilton said. "There's just no other way to do it. Right now, the economics aren't right for wireless local loop. The economics may start being right with the introduction of the next generation of digital technology."

Today, regulatory issues still are hampering local-loop advances. Regulators, for example, stopped Western Wireless because it is not a licensed local carrier.

"States and all types of government usually take basic telephone service very seriously, and if someone is offering basic telephone service, then it usually comes with much higher regulations," Hamilton said. "For some of these rural areas, there'll be questions about what would happen to local telephone companies if they start losing a lot of customer base."

But change, however slight, may be afoot. Earlier this year the FCC proposed rules that would make it easier for carriers to implement calling party pays (CPP). The FCC sees this as a way to boost wireless use among consumers and spur competition among wireless and landline carriers. But others argue this tactic may work for other countries but not for the United States. (See Wireless Review's "CPP: Lost Appeal," Aug. 1, 1999, and "A Prickly Issue," Sept. 1, 1999.)

Regardless of how it comes about, competition will be the key to reaching high penetration, Datacomm's Brodsky said.

"We now have five or six wireless carriers in each city, using three, four or even five different technologies," he said. "No one has yet devised a better way (than competition) to spur development of the best price/performance."

And, he said, don't forget the United States is by far the world's single largest wireless phone market with more than 78 million users.

"Contrary to what the 'experts' predicted, the fact that we have three competing digital standards has not hurt growth," he said. "There are now over 25 million digital wireless users in the United States, and that number is increasing at a very fast pace."

Even though the United States' wireless penetration rate lags behind Finland, Sweden, Hong Kong, Singapore and Japan, the country is far ahead of others. What exactly affects penetration? Kevin Doyle, BellSouth International associate director of corporate communications, said a variety of factors in any given market influence wireless penetration. These include:

* Overall affluence. Globally, affluent countries in Europe, as well the United States, might have higher penetration than Latin American countries.

* How soon wireless was introduced. Cellular was still in its infancy in the United States at the time of Scandinavia's cellular break out, Doyle said.

* The way licenses are distributed. Nationwide licenses facilitate development and favor higher penetration. Some countries hand out nationwide licenses, but the United States hands out licenses by metro and RSA. One nationwide service hastens or simplifies mobility between markets and lets customers use their phone anywhere within a given country.

* The extent/condition of the landline network. For example, in Latin America, wireline penetration runs well below that of the United States. These countries view wireless as a replacement for wireline, not just an addition to wireline.

* Cultural differences. Some countries lag behind others because they're more conservative. Other countries are full quick adapters.

"We have found Israel to be a culture where people just love their cell phones and use them to an exponential degree," Doyle said.

* Pricing on per-minute charges.

* The degree to which carriers subsidize service/handsets.

* Metropolitan versus rural areas/countries. Some U.S. markets, such as Atlanta and Los Angeles, have very high penetration rates. Rural areas with low penetration rates might bring down the overall average.

* Travel/vacation patterns. Subscribers might be spending time in countries where landline access is limited so they use their wireless phone more often.

* Sweden -- 52%

* Hong Kong -- 47%

* Singapore -- 36%

* Japan -- 34%

* U.S. -- 28%

* Germany -- 20%

* Malaysia -- 11%

* China -- 3%