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.
PHOTO: THE NEW YORK TIMES
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.
Despite the additional choices, Barbara Taylor, 53, a Ukiah resident who works in a nearby Indian casino, said she had been with US Cellular for six years. She and her husband pay US$63 a month for two phones and 500 shared minutes. She does not pay for a service plan that would let her roam nationally, but she said the phone worked just for the areas she liked to travel to, including her occasional gambling trips to Nevada.
"I can go clear to Reno and get reception," she said.
Taylor is not paying the lowest price per minute in town. If she switched to Verizon Wireless, which is sold out of the Radio Shack store, she could get a better deal, with 1,200 nationwide minutes, for US$79.99. But she said her friends who had tried Verizon had not found the service as reliable as that of US Cellular.
Bobbie Rivas, 55, recently moved to Ukiah from Los Angeles. For years, she had been a happy customer of Verizon Wireless. But because Verizon's reception is patchy here, she recently switched to US Cellular.
Verizon Wireless, though it has 30 million customers nationwide, is fighting for market share here. Richard Hardigree, the manager of Radio Shack, said that he went to every carnival and fair in the area in the last two years to promote Verizon's cellphone service.
He said sales had been steadily growing, testing one of US Cellular's strengths, customer retention.
Industry analysts said US Cellular's monthly churn rate -- a measure of how many subscribers it loses -- is, at around 1.6 percent, among the lowest, if not the lowest, in the mobile phone industry.
Rooney said the company planned to fill in some gaps in coverage next year, like adding service in St. Louis. But he insists that US Cellular does not intend to become a national carrier.
Competing head-to-head with the big five carriers is not a long-term strategy for success, argued John Stanton, the chief executive of Western Wireless, based in Bellevue, Washington.
Stanton, who founded VoiceStream, a wireless company that was acquired by Deutsche Telekom in 2001 and absorbed into T-Mobile, said the huge marketing efforts of national carriers will cause consumers to buy national plans even if they don't need the broad coverage.
"It's very difficult to compete in the urban markets against the national providers," he said. Western Wireless, operating west of the Mississippi in 19 states, serves markets where there are fewer than 11 people per square kilometer.
"We try to find opportunities where the competition, especially from wireless providers, is low," said Mark Rubin, director of federal government affairs for Western Wireless.
For instance, in McCamey, Texas, a town with around 800 households, Western Wireless offers local service costing about US$30 a month, excluding features like voice mail. It charges roughly the same fee for service to the 20,000 residents of the Pine Ridge Indian Reservation in South Dakota.
Like rural phone companies, rural wireless carriers can receive federal subsidies to serve residents in out-of-the-way and poor markets. Western Wireless receives about US$50 million a year in subsidies from the Universal Service Fund, as the federal program is known, Rubin said.
Another significant part of Western Wireless' business is leasing network space to national carriers when their customers roam into the rural areas. Of Western's US$1.5 billion in revenue last year, US$200 million was from roaming fees.
But that source of revenue has been declining across the industry.
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