The Ties That Bind

Want loyalty? Buy a dog. That seems to be the message the wireless marketplace is sending to carriers. Churn continues to rise, number portability is waiting in the wings, and even the term "subscriber" is a misnomer as contracts become passe.

One popular solution is bundling services such as voice mail, caller ID and call waiting into a package that's included "free" with mid- to high-end rate plans. It's a strategy that aims to help a carrier differentiate itself by improving the overall value proposition of its service.

Carriers see bundling as a tonic for much of what ails wireless.

"Margins are declining, costs are rising, churn is growing, and they're very worried about it," said Andrew Cole, Renaissance Worldwide wireless practice manager. "It's an attempt to add some additional value and 'stickiness' to their customers to counter those things. For a lot of wireless carriers, it's something they've been forced to do rather than some grand mar keting plan."

Bundling also is attractive to carriers because enhanced services give subscribers more ways to communicate and, therefore, should increase each subscriber's minutes of use (MoU). Increasing MoU is important because although wireless continues to add subscribers, average monthly bills and per-subscriber revenue are declining. Caller ID and first incoming minute free give subscribers the impression that they have more control over their bills, but they're still more likely to give out their numbers and lose track of when the first minute has elapsed.

"What happens in a lot of the cases is someone gets cellular because they realize now they can control their costs," said Greg Klimek, Cellular One's president of operations in the Southwest. "They get used to it and use it more, and in many cases we end up with that customer on a higher price plan."

Bundling also eliminates complicated pricing plans that give the impression of nickel-and-diming subscribers. The downside is that once bundling becomes widespread in a market, it's tough for a carrier to turn back.

"Those additional features are becoming standard, so they don't really help with differentiation," Cole said. "The concern with bundling is that it's driven principally by price rather than value-adding."

Mix to Match Adding value means first understanding the needs and wants of the target demographic. Services such as call forwarding and voice mail appeal to the busy lifestyles of wireless' new demographics, such as young people and soccer moms, and caller ID addresses cross-demographic concerns about privacy and cost.

Two demographics that appear particularly swayed by bundling are young, upscale professionals and home-based businesses. Attracting young people and businesses that live and die by their phones bodes well for an industry trying to position itself as a viable alternative to landline.

"Many of them are beginning to use our service exclusively and replacing their landline with our service because it gives them everything they need: caller ID, voice mail, mobility," said Mike Bashaw, Powertel vice president of marketing and product development. "And it's all based on affordability."

Bundling also helps portray wireless as a better value than landline because it gives away features for which users are accustomed to paying extra.

"The economics aren't yet there for us to offer a flat-rate, unlimited-usage plan to compete with landline," Bashaw said. "But we can make that up by offering value-added services without nickel-and-diming the customer like they often see with their local-exchange carriers."

The trick to bundling is providing a mix of features that users can't live without. That's what Powertel learned from one participant in its trial run of call return.

"He was real disappointed because he had gotten to the point where he just loved it," Bashaw said. "I guess it's like any of the creature comforts we have in life today: Before it came along, we were living perfectly well without it. Once we have it, and we're faced with giving it up, then we go through withdrawal."

Sticky Situations The ideal bundle is a package of services that increases in value by becoming an integral part of the subscriber's lifestyle. That shifts users' attention away from rates.

"What gets their attention and gets them in the door is price, particularly if you're the new kid on the block," Bashaw said. "But once you get them in, and they get comfortable and begin to use these services, then there's value in it. It becomes more valuable."

That sense of value is important because rates can be cut only so much.

"One of the big downsides to bundling is that if you look at the research, a lot of the reasoning for wanting bundling is consumers want a cheaper price, which is counter to what the carriers want," Cole said.

One way to increase value is to tailor packages of enhanced services to individual user needs.

"Bundles are random collections of services," Cole said. "Solutions are targeted, focused, interconnected sets of elements with some high-end-user appeal. A solution is what they need to develop and sell because that creates stickiness."

Stickiness can be increased if the solution targets a closed user group, such as a hospital's staff, because then the carrier's services become the most effective way for the group's members to communicate. Creating a solution for that group requires understanding how its members communicate and then determining which services and rate plans best fit those needs. That approach gives a carrier a competitive edge over others that simply leave all those decisions up to the users or company, Bashaw said.

The more sophisticated the enhanced service, the more inherently sticky it is. Number portability will eliminate the stickiness of phone numbers, but Powertel's forthcoming e-mail service is an example of how carrier-assigned e-mail addresses could achieve the same effect.

In the consumer market, stickiness might be achieved by bundling wireless with other services, such as local and long-distance landline. That's the approach Cellular South took in March 1997 with its Telepak, which has attracted more than 10,000 subscribers with a bundle of cellular, long-distance and residential service. By reselling its parent company's long-distance service and BellSouth's local landline, Cellular South serves as a 1-stop shop.

"It certainly gives us a unique opportunity in our markets because we're able to offer a product that our competitors up 'til now have not been able to," said Carroll Blackledge, director of product distribution and development.

One of Cellular South's primary targets was households that couldn't justify adding a second cellular phone. By offering a second one for $5 a month, "90 % of our Telepak customers have two cellular phones with us," said Suzy Hays, director of marketing. "That second phone is new revenue for us."

Partnerships are one way a carrier can increase the range of services in its bundles and extend its vertical reach into its existing customer base. Electric deregulation and competition from satellite providers are forcing utilities and cable companies to look for new marketing alliances.

"We are looking at a couple of opportunities, one with a cable TV company and one with a utility," said Powertel's Bashaw.

One possibility is offering a discount on a handset if the subscriber gets electric service through the partner utility.

"That's certainly a very real possibility in some of the discussions we've had," Bashaw said. "They're looking for ways to attract new subscribers, just like we are. I definitely see a trend."

It's impossible to guess what might result from, say, AT&T's cross-pollination with TCI.

"You'll see all carriers becoming part of someone else's bundle as well as trying to develop their own bundled solution separately," Cole predicted.

Partnerships aren't new to wireless. Many PCS carriers are a joint venture of several independent companies.

"The Bell Atlantic-GTE merger may open some doors there also, although it's too early for me to speculate on that," said Klimek of Cellular One, which is owned by Bell Atlantic. "Obviously, we would like to get in to serve as many of our customers' telecommunications needs as possible."

Whether consumers really prefer 1-stop shops is another question. A survey conducted in spring 1997 by RKS Research & Consulting found that residential customers wanted more, not fewer, choices of energy, telecommunications and home-entertainment providers. But Cellular South's research found its subscribers liked having a 1-stop shop.

"They're not hooked by the single bill, but after they become a Telepak subscriber, that's the element they like the most," Blackledge said. "The most critical part for us is making sure we provide not just good but great customer service."

Telepak could be one step toward proving wireless is just as reliable as landline.

Said Hays: "We'll already have taken down the barrier of getting your home phone service from your wireless provider because you're already getting it from your wireless provider."