Selling "Free" Minutes

Let's face it, when it comes to attracting and maintaining new customers, most companies will do just about anything. For wireless carriers, "anything" often translates into offering free minutes, primarily during off-peak hours, in a subscriber's initial months of service. The free-minutes tactic is not a particularly good one for obtaining business users, who generally use their phones during business hours.

No one would argue that the popularity of these promotions has translated into plenty of new business. But what carriers now are beginning to discover is that consumers not only like their free minutes, they expect them. That's one of the reasons so many bundled nationwide calling packages hit the market last fall, and why the wireless industry just might find itself playing the same tough pricing game as wireline long-distance providers.

PRICING MISCONCEPTIONSThe practice of selling "free" minutes generally is not a loss leader for wireless carriers today. The cost of operating a network, particularly a digital network, on weekends and at night does not vary all that much whether a consumer is paying for airtime or not, so it makes sense for a carrier to toss in promotional unused capacity.

"They see it as a pure revenue upside," said Peter Garand, an Ernst & Young Management Consultants principal. However, Garand warned, companies that wander too far into free-minute territory might be unintentionally degrading the perceived price of minutes overall.

"When a consumer sees that his bill is lower, there is a sense that the overall telecom cost per minute goes down as such, so consumers will be expecting further price breaks," Garand said.

Additionally, he said most consumers tend to shift their usage habits to those blocks when they are getting free time.

"That means peak usage tends to fall, and it is a vicious circle," he said. "Carriers may have to offset the drop in peak usage with further discounting during that time. We are seeing the beginning of the same trend that happened in the (wireline) long-distance market a few years ago."

The good news for wireless providers, Garand noted, is that unlike the typical long-distance consumer, who can save most of his calls to Mom and out-of-town friends for weekends, wireless customers tend to use their phones out of necessity.

CAREFUL PACKAGINGFor the carriers, the challenge is to craft usage plans that offer customers lots of minutes as well as simplified bills. Bell Atlantic Mobile (BAM) has been offering several flavors of free calling time, primarily during off-peak hours, with good response. But when the company rolled out its flat-rate calling plans in September, it witnessed 100% growth in new customers, according to Debra Carroll, BAM vice president of marketing.

"People do find it attractive to have a period of time when they get unlimited off-peak calling or a certain number of minutes included for a couple of months. It's a good way for them to get used to cellular service and see what price plan might make sense," Carroll said. "But right now what people are very enthusiastic about is our Digital Choice single-rate plan, where you get a nice bundle of minutes indefinitely because it is not a promotion."

Most packages include long-distance and roaming charges, as well as other allowances.

The monthly rate depends on where a customer resides and whether he opts for an East Coast or nationwide package. In Alexandria, VA, for example, $39.99 a month buys 100 minutes a caller can use throughout the East Coast footprint with no roaming charges. Calls beyond the 100 minutes cost 30cents a minute. $59.99 gets 250 minutes with 29cents per additional minute, $99.99 buys 800 minutes and $159.99 buys 1,600 minutes anywhere in the United States with no roaming or long-distance charges.

Carroll said about half of all new BAM customers activate at the $39.99 or $59.99 rates.

"We introduced the plans just after Labor Day and since then have seen a jump in digital sales by 100%," she said. "So we see a real bottom-line impact of coming out with plans that offer customers bundles that are not restricted to nighttime. We are starting to tap into a real need there."

Carroll added that although it used to be that customers signed on for plans with a low access price and no minutes included, "the wave of the future is definitely value-oriented plans, where you might pay a little higher access fee, but you get predictable rates and unlimited calling time. It's a competitive market, and we are here to grab our share of that available market and will keep these kinds of bundles coming.

Sprint PCS introduced three bundled nationwide calling plans in October 1998 and also still offers free minutes bundled in with its standard plans.

VALUE PROPOSITION"We have had national promotions before where there have been windows when a customer gets free minutes," said Ashley Pindell, Sprint spokesperson. "But moving toward this nationwide pricing has been a natural evolution."

With the nationwide offerings, Pindell said, it is not necessary to stage so many free-minutes promotions.

Jeff Battcher, BellSouth Cellular spokesman, noted that because of the economies of scale for digital versus analog service, the company is able to offer more free minutes to digital customers, and it is making them aware of that fact.

"Our major push for any new customer is toward digital," he said. "And you generally get more packages of minutes for a lesser price than on analog, as well as free caller ID, message-waiting alert and voice mail."

As with most of its competitors, BellSouth packaging plans vary from state to state depending on the history BellSouth has had in a given market and level of competition. In wireless hotbed Atlanta, for example, Battcher said, "those customers are used to good-quality service more than lots of free bundled minutes."

In Jacksonville, FL, where BellSouth competes with seven other providers, "customers do expect to have free nights and weekends or first incoming minute and free voice mail thrown in," he said.

A new promotion BellSouth is running in North and South Carolina provides free incoming calls to all customers until 2000 regardless of which package they select.

"For a new entrant, we have to do something a little outside the box," Battcher said.