WIRELESS PENETRATION MORE THAN URBAN ISSUE

Though focused mostly on the progress of wireline competition, last week's FCC report on local competition also provided a peek at wireless penetration. The lesson? At the state level, penetration rates may have less to do with urbanization than previously thought.

The FCC's state-by-state subscriber numbers, combined with the latest available U.S. Census Bureau figures from July 2001, show that Delaware is the top state in wireless penetration, with 54.39% of its citizens having mobile phones. That's about nine percentage points more than the national penetration rate of 45.24%. And while census figures take into account a much larger population than carriers' addressable market, the numbers provide a snapshot of where the industry has been most successful.

North Carolina, New Jersey, Hawaii and Massachusetts follow Delaware to complete to top five the states for wireless penetration. West Virginia has the lowest penetration rate (see figure).

The states that make up the list's bottom come as no surprise, and New Jersey and Massachusetts — two densely populated and relatively urban states — also have predictably high penetration numbers.

But North Carolina? The key to understanding its high rank — as well as other states that don't leap to mind when discussing wireless penetration — is population distribution.

Nebraska is a clear example. Although it is one of the most rural states in the nation, it ranks ninth in wireless penetration.

“You have Omaha that has 70% of the population and Lincoln that has another 20%,” said Roger Entner, program manager for The Yankee Group. “If you cover them, you're set.” That's because urban areas tend to have a higher penetration rate than rural areas, he said.

In fact, Lincoln and Omaha are well covered. According to a July report from the FCC, each city has six mobile operators. The remainder of the state has just two.

It's difficult, however, to draw a direct connection between competition and penetration rates, according to Ken Hyers, senior analyst with Instat-MDR.

With dense populations, urban areas naturally attract more carriers. But the social atmosphere created by so many people with wireless phones, as well as the pace of urban life, also encourages mobile use.

Still, many maintain that there is a correlation between competition and penetration. Where there are more carriers trying to sign up the same potential subscribers, service providers will work harder for business. And one of the most popular competitive tactics — a tactic that also increases penetration — is offering lower price plans.

Competition also increases penetration in a less quantifiable way, Entner said. “People thrive on choice,” he said. “If you have more options to choose from, it's more likely people will consume them.”