Children may be the future of wireless, if carriers have their way.
has rolled out a prepaid service aimed at young users, while
has launched a splashy ad campaign.
have designed special teen-friendly services as well.
Yet in their quest to target the nation's youth, the carriers are finding that there's no clear-cut formula to snag young customers, and it remains to be seen whether efforts to do so will be lucrative.
"It's not a very attractive market when you're looking at it purely in terms of
average revenue per user numbers," said Seamus McAteer, an analyst at technology research firm Zelos Group, of the youth market. "But if you're looking for areas of marginal growth ... it's more attractive."
While teen-agers often have cash on hand and spend an estimated $170 billion a year, according to last year's figures from Teenage Research, teens lack credit and are quick to drop providers. "The conventional wisdom is they will churn more and spend less money," said Thomas Weisel Partners telecom analyst Ned Zachar. Churn is the rate at which customers leave a service.
Nonetheless, the carriers forge ahead, as subscriber growth wanes and the companies scramble for new ways to snag users.
Around 38% to 43% of 18-to-24-year-olds use wireless services, compared with 53% in the adult group, according to telecom research firm Telephia. This year, carriers are aiming to drive that youth number up to 50%, according to tech research firm Zelos Group.
"This is the market of the future," said Thomas Weisel's Zachar.
While AT&T Wireless has yet to tailor specific programs to youths, its ads have targeted kids by touting the company's recently launched wireless multimedia services and messaging. "We think messaging continues to be the hottest wireless service with youth," said AT&T Wireless spokeswoman Susan Ramsey.
Thomas Weisel's Zachar agrees. "They'll be the ones to use
wireless data. They can type faster with their thumbs," he said.
AT&T Wireless has stopped short of creating a teen-focused service, because most teens lack credit history. The company instead has aimed some of its marketing at parents, in an attempt to persuade them to purchase additional wireless lines.
Meanwhile, Sprint PCS decided to turn to British media and retail tycoon Richard Branson to navigate the youth market. It launched a joint venture with Branson -- Virgin Mobile USA -- last fall, which targets American children. Sprint PCS and Virgin each contributed an estimated $150 million to the venture.
"One of the things we found out is that the youth market has a highly sensitive
nonsense meter," said Virgin Mobile USA Chief Executive Dan Schulman, a former AT&T executive and previously the chief executive of
. "It's not about putting images of young people on the packaging -- it doesn't do the trick. You really have to design the service from the ground up."
Virgin Mobile USA's product enables users to listen to music clips from new bands and have daily jokes sent directly to the handsets. To tune into what teens and young adults want, the company struck a marketing alliance with MTV Networks. Also, a single push of a button on Virgin's handsets will tell kids how much time and credit they've got left on the prepaid plan.
Schulman said early progress has been encouraging: Since its launch late last year, the service has gained 350,000 net additional subscribers, at a rate of about 2,000 customers a day, outpacing some of the more entrenched national carriers. More than half of its customers sent text messages, compared with only about 20% of average users.
The caveat? The deal resulted in average revenue per user that was lower than the overall industry average. The venture also a higher rate of defection. Moreover, it turned out that kids gabbed only a quarter as much as adults, adding up to a little more than 100 minutes per month.
Schulman said the joint venture's relatively low cost structure helps offset other difficulties. Because the venture didn't build its own multibillion-dollar wireless network, the cost to acquire customers is significantly lower than what any other carrier might spend.
"It's the reason why a lot of other carriers are a bit conflicted
when it comes to targeting kids," Schulman said. "It will drive down average revenue per user and drive up churn, and their cost structure is not aligned around the ability to support it."
The same underlying philosophy drove Nextel to pursue a similar, albeit structurally different, service. The company tapped a New Zealand wireless marketing shop to create a new brand, Boost Mobile, late last year. It is being tested in only two markets, California and Nevada, and early signs are encouraging: Nextel executives said about 30,000 new customers have signed up since September. Boost offers one feature that could turn into a killer application for kids: inexpensive walkie-talkie-like features that enable users to reach each other at the touch of a button almost instantly. For a buck a day, kids can click a button and yap for 24 hours with other Boost customers.
Still, it remains unclear whether Boost will help or hurt Nextel in the long run. One question on Wall Street is whether the company plans to consolidate Boost's financial results with its own. Nextel Chief Operating Officer Tom Kelly said it doesn't matter: "We don't see a product that would damage our results.
Boost subscribers will be a higher-margin customer than our base
customer today," he said, adding that the company will reveal more on its plans later this year.
Meanwhile, Verizon Wireless, the nation's largest wireless service provider, launched a youth-oriented prepaid service, Free-Up, in August 2001. Customers purchase a block of minutes in bulk and aren't required to sign annual contracts.
By late last year, the company discovered that its youth market customers actually spent more than its general pool of subscribers, a company spokeswoman said, declining to give out specifics.
Unlike some of its major competitors, Verizon Wireless now views children as potential lifelong customers -- not just an opportunistic play in tough times. "We view it as an entry-level wireless service," said Verizon Wireless spokeswoman Brenda Raney. "The bigger picture is to look at how those customers could grow with us." The company also added a new monthly billing service to appeal to older college-age kids with a more solid credit foundation.