Competition in the wireless carrier business is just brutal. With very little to differentiate carriers from one another, price has become the biggest competitive point. Indeed, other than Nextel's (NXTL) direct-connect capabilities and AT&T Wireless' (AWE) terribly antiquated and problem-riddled TDMA network, most of the wireless carriers in the U.S. are faceless but for their brands.
is no exception, though the company has come up with some creative ways to try to differentiate itself, including its account spending limit (ASL) plan for customers with poor credit. The company
making a move toward the business customer, recognizingwhat Nextel's higher average revenue per subscriber (ARPU) numbers havedriven home -- that business customers make for a better business modelthan the average Joe.
If PCS were more serious about this business drive, the company would be a more compelling buy. As it is, PCS has dichotomized its focus by going after not just the average Joe, but even the below-average Joe. And therein lies the problem.
PCS's ASL plan enables people with questionable credit histories, whootherwise would fail to qualify for PCS subscribership, to become customers. ASLgrowth is really the driver behind PCS's record-breaking third quarter.Although the company didn't release an exact breakdown, backing into thenumbers from last quarter, when PCS added some 1.2 million plussubscribers, 55% to 75% of all new subscribers were the ASL type. In other words, customers that the other carriers won't sign up made up the majority ofnew PCS subscribers last quarter.
ASL customers increased PCS's churn rate, which was up almost 20% quarter-over-quarter, from 2.2% of base to 2.6% of base. That number will likely be higher than 3% in the next couple quarters as the ASL base matures. ASL subscribers also have a net present value of less than half a typical subscriber by almost any calculation, so that 1.2 million-plus new subscriber base ain't really worth all it would otherwise be.
In addition, serious questions still linger for the much-ballyhooed (at least by Wall Street and wireless industry insiders) third-generation (3G) network and its impact on the future of PCS. There's very little indication that subscribers are willing to pay for the added capabilities of 3G, because a killer app is needed for 3G to really succeed. Frankly, I'm not holding my breath in anticipation, nor should investors.
Until we see the business-focused side of the PCS model start to showpromises of real inroads, I'd be very careful about putting too much faith inPCS's phenomenal growth.
Cody Willard is president of TelEconomics Consulting, a financial and technology consulting firm. He is also founder of
Teleconomist.com, a Web site devoted to news and analysis of telecommunications stocks. Previously, he was senior analyst for a venture development company, and before that was a partner at the Lanyi Research division of CIBC World Markets. At time of publication, Willard owned no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Willard appreciates your feedback and invites you to send it to