Wireless Providers Seek Balance

Wireless service providers are in a quandary: They need to continue lowering prices to draw new customers, but dropping prices too low could spiral their industry into operating like a commodity business.

Wireless service providers are in a quandary: They need to continue lowering prices to draw new customers, but dropping prices too low could spiral their industry into operating like a commodity business.

If operators misstep, they risk losing their staying power. "They want to maintain growth, so they will continue to reduce prices," said Andrew Cole, leader of the Global Wireless Practice at consultancy Adventis.

Operators may also slow expansion plans in response to the market downturn. But only some are able to cut spending. Sprint PCS, for example, has a strong network and has slowed upgrades. "They can afford to milk what theyve got," Cole said.

AT&T Wireless, however, must continue to invest in its network, as it has more steps to take to upgrade its systems. The operator plans to spend $5.5 billion this year in network upgrades, compared with $3.7 billion last year. Thats doable for AT&T Wireless thanks to a $10 billion investment from Japans NTT DoCoMo.

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Companies offering fixed wireless alternatives to high-speed data connections may be some of the hardest-hit in the wireless sector. Service providers, including Teligent and Winstar Communications, have struggled to encourage the development of equipment and to build out their networks. Last week Winstar cut 2,000 employees — or 43 percent of its work force. Observers have questioned whether either company will survive.

Slowed spending by operators has hurt even the most powerful equipment vendors. Handset maker Motorola, for example, plans to lay off 22,000 workers this year.

The market downturn is also hurting the start-ups that aim to deliver data solutions. NetMorf recently became the first high-profile wireless data company to go out of business when an investor pulled out.

"Where it has really slowed down is in the glitzy camp — the stuff where there was a really tenuous business value to begin with," Omar Javaid of Mobilocity said. Those companies are now trying to serve enterprise users, the market with the most promise.