Home / Business Focus
Sun, Nov 07, 2004 - Page 12 News List

Small cellphone companies put the squeeze on big rivals

NY Times News Service, UKIAH, California

NY TIMES NEWS SERVICE , UKIAH, CALIFORNIA

Eloise Simpson of Willits uses her cellphone at the US Cellular store in Ukiah, California, as she waits for service at the store. The big cellphone companies dominate the US' markets, and the medium-size ones too. But many of the nooks and crannies -- the exurbs and rural markets -- belong to small companies run by plucky entrepreneurs who took the lead in building cell towers in lonelier places.

PHOTO: THE NEW YORK TIMES

The big cellphone companies dominate the nation's major markets, and the medium-size ones too. But many of the nooks and crannies -- the exurbs and rural markets -- belong to smaller second-tier companies run by plucky entrepreneurs who took the lead in building cell towers in lonelier places.

Regional providers in places like Waco, Texas; Waukesha, Wisconsin and the Antelope Valley in Nevada have had a good business serving small communities with little competition while collecting fees from the major carriers when their customers roam to rural areas.

But these companies, long under the radar for most investors and consumers, are feeling intense pressures these days from national carriers entering rural territories looking for subscribers now that urban markets are saturated.

"To be very honest, there's no place to hide anymore," said Jack Rooney, the chief executive of US Cellular, one of the three mobile providers serving this town about two hours north of San Francisco. "I can't think of one market that doesn't have three or four competitors."

As the national carriers build out their networks, they have less need to pay rural providers for roaming privileges. And incursions by the big providers force the smaller players to spend millions to upgrade their networks.

US Cellular, based in Chicago, is the second-largest regional provider, with 4.8 million subscribers in 26 states. The largest, Alltel, based in Little Rock, Arkansas, serves 8 million subscribers, some in major markets like Tampa, Florida, and Phoenix. But most are far smaller, like Dobson Communications, with 1.6 million subscribers; Leap Wireless International, with 1.5 million, and Western Wireless, with 1.3 million.

Rooney and executives of smaller companies say they still have an advantage because they can provide good personal service. Indeed, in many areas they are better known than the major providers -- Verizon Wireless, Cingular-AT&T Wireless, T-Mobile, Sprint and Nextel.

Perhaps more important, cellphone service is still largely a local business, which allows the smaller companies to compete even in some major markets by selling lower-cost plans to people who make mostly local calls.

Nationwide, some 168 million people own cellphones, but only about 5 percent of the minutes they use are for calls outside their local coverage area, said Tom Seitz, a telecommunications industry analyst with Lehman Brothers.

"For all the hoopla, the wireless business is a local business," Seitz said.

Still, competition is bound to intensify, said Kevin Roe, an industry analyst with Roe Equity Research. In the next three to five years the big players will "turn their attention to the more rural areas," he said. "And the landscape is going to turn against the rural operators."

But until then, he said, the little guys "have a good business." In fact, according to a study published in September by UBS, the investment firm, subscriber growth rates for the last year have been slightly higher for regional companies than for the national carriers.

Ukiah offers a good example of the competitive landscape. US Cellular has served this town of about 15,000 residents since 1992. For many of Ukiah's residents, US Cellular has been synonymous with cellular service, though GTE, which merged with Bell Atlantic to form Verizon in 2000, has offered service in Ukiah for more than a decade. Three years ago, Edge Wireless, a company based in Bend, Oregon, also came to town.

This story has been viewed 3935 times.
TOP top