The Wall Street Journal

April 17, 2002

Chaos, Confusion and Perks Bedevil Wireless Customers

By ANDREA PETERSEN and NICOLE HARRIS
Staff Reporters of THE WALL STREET  JOURNAL

Joe Gielata thought he had hit the cellphone jackpot. The 24-year-old law
student in Chicago was paying his $60-a-month wireless phone bill online
recently when he spotted an ad offering to upgrade his Sprint PCS plan.
Mr. Gielata would get an extra 2,000 minutes in exchange for renewing his
contract. He signed up.

But he learned later that he had overlooked some small print on a
confirmation note. With his new plan, the night minutes start at 9 p.m.,
an hour later than his old plan. "It practically cut off calls to the
parents," he says. "They go to sleep at 9:30."

Sprint PCS, a division of Sprint Corp., refused to restore his old plan,
even though Mr. Gielata had called to change his mind within the required
time. A spokesman can't explain the glitch but concedes that Mr. Gielata
is out of luck.

These are infuriating days for many wireless customers, the casualties of
an industry in disarray. Wireless companies are struggling with slowing
subscriber growth, soaring expenses and intense competition. Since the
industry has already snared the easiest and most lucrative customers --
road warriors and business people -- carriers are being forced to court
other groups such as parents, teenagers and even credit risks. Meanwhile,
customer loyalty is fading. The number of subscribers who ditch their
service each year has risen to 30% of the total number who own a
cellphone, currently 134 million people, from 25% five years ago.

Hitting a Peak

After years of rapid expansion, the industry's growth peaked in 2000,
when 23.4 million new subscribers signed up for wireless service. That
number slid to 20.6 million in 2001 and is expected to fall to 17.1
million in 2005, says John Bensche, an analyst at Lehman Brothers. Since
the spring of 2000, the shares of all three national publicly traded
wireless companies -- AT&T Wireless Services Inc., which was spun off
from AT&T Corp. last year, Nextel Communications Inc. and Sprint PCS --
have been on a fairly steady slide.

The upshot for consumers has been wildly mixed. Competition has cut rates
and boosted minutes of usage. Phones are smaller, smarter and more fun.
But the plethora of plans and their myriad restrictions and charges can
make it impossible to figure out the best offer or track whether rates
are being accurately applied.

And things will only get more confusing as the carriers roll out new data
services, such as photo-swapping and video. Forced to slash prices and
increase the number of minutes included in plans, the carriers are hoping
to recoup some of the money from extra charges and from new data
services.

Straining Networks

Wireless companies have been spending heavily to support their rapid
growth, but the surge in customers and traffic is straining their
networks. Seduced by plans with lots of minutes and advertising aimed to
convince users to go totally wireless, customers are chatting more and
demanding to use their phones everywhere.

The result: Fast busy signals and dead zones where you can't get a signal
are still facts of the wireless life. "The contracts are a problem, the
billing problems are horrendous and confusion is huge," says Carl
Hilliard, president of the Wireless Consumers Alliance, a nonprofit
consumer group based in Del Mar, Calif.

Many consumers aren't aware that the carriers don't treat all their
customers the same. In general if you spend more -- and sometimes if you
complain more -- you get better service, better deals and more extras.
Many carriers equip customer-service representatives with profiles that
show just how valuable you are, and which determine how nice they can be
to you.

The wireless companies save some of their sweetest deals for the
customers they are most in danger of losing: those that are coming to the
end of their contracts. Since the wooing of each new customer costs the
companies -- in advertising, promotions and discounts -- from $350 to
$475, it's important to keep the ones they have happy. In December, AT&T
Wireless launched an internal program it calls "Refuse 2 Lose." Under the
program, if subscribers who call customer service have fewer than six
months left on their yearly contract, the operator will offer a new plan,
free minutes or other sweeteners in exchange for renewing for another
year.

"We'll be all over you like a duck on a June bug," says John Zeglis, AT&T
Wireless's chairman and chief executive. "We don't like the lower revenue
but we like losing a customer even less." The company has also given one
month of service free to some customers who renew for another year.

Many of the carriers have installed sophisticated computer software that
helps them predict which of their subscribers are the most likely to
leave and need to be treated with kid gloves. The software considers data
such as how many calls you make and receive, what percentage are
long-distance, the duration of the calls, the kind of phone you have and
how many times and for what reasons you've contacted customer service.
The software then creates statistical models and gives each subscriber a
score that indicates the likelihood of that person's dropping the
service. Amdocs Ltd., a St. Louis-based software provider, works with
five of the top six national carriers and its software gives each
subscriber a percentage-based score. A score of 85 for example, would
indicate an 85% likelihood of dropping the service. The carriers then use
this information, coupled with the information on how much you spend, to
target promotions.

When Sprint PCS subscribers call to cancel their service, they are
bounced directly to the company's "retention" department where specially
trained operators can offer incentives to entice them to stay. If you
switch carriers, you have to change your number, a fact that has kept a
lot of people loyal. That is slated to change this November when the
Federal Communications Commission is set to require that wireless
carriers provide "number portability," as local phone companies are
required to do. But Verizon Wireless, a joint venture between Verizon
Communications Inc. and Britain's Vodafone Group PLC, and other carriers
have petitioned the FCC to either drop the requirement or push back the
deadline.

Playing the System

Some people have learned to play the system, by threatening to leave in
the expectation of getting perks to stay. John Baptista, a 24-year-old
part-time student from Bakersfield, Calif., read about the strategy on
Internet message boards and then called Sprint PCS. He says the carrier
more than doubled his anytime minutes, threw in an additional 450 minutes
of nights and weekends, and cut the amount he had to pay if he went over
his minutes allowance to 25 cents a minute from 39 cents. Mr. Baptista
signed a 12-month contract.

His $70 monthly phone bill probably helped his cause. Carriers usually
are more generous to those with higher monthly bills and good payment
records. "If we have to give you a $25 credit to keep you, it isn't worth
it for a $25-a-month customer, but it is for a $100-a-month customer,"
says Sprint PCS President Charles Levine.

The losers are people such as Eric Williamson, a Sprint PCS customer for
about two years. He says he rarely exceeds the minutes allowed under his
$39.99 monthly plan. The 26-year-old Mableton, Ga., student, who says he
has had to return two "faulty" phones, stood in an Atlanta-area Sprint
retail store Monday trying to get repairs for a third. Mr. Williamson
says he has threatened to switch, but Sprint PCS representatives didn't
offer him any perks to stay. "All they did was remind me about the $150
termination fee and said they'd be sorry to lose me as a customer," he
says.

For select customers (including former President George H.W. Bush and the
Secret Service), Sprint PCS has an "executive services" group that
handles VIP requests for everything from personal tutorials on how to get
voicemail to work to personally delivered phones.

At VoiceStream Wireless, a unit of Deutsche Telekom AG, the higher your
bill, the less time you'll spend on hold. A computer system routes
customer-service calls based on, among other things, how much the caller
pays each month. In general, those with cheap plans are routed to the
least-experienced representatives. Those on pricier plans may be offered
special rates or new phones.

Treats for 'Low Users'

Even thrifty subscribers sometimes get a break. Rural carrier Alltel
Corp., for example, offers subscribers it calls "low users" (those who
use their phone for only 10 or 15 minutes a month) incentives such as
free long distance or caller ID. "We want to encourage them to give out
their phone number and use their phone more," says Philip Junker,
Alltel's executive vice president of marketing.

The market is tantalizing for consumers because wireless service has
never before been so widely available -- or so cheap. The average monthly
bill has dropped about 8% to $61 at the end of last year from $66 at the
end of 2000, according to J.D. Power & Associates. And customers are
getting more minutes for those prices. Late last year, VoiceStream
Wireless added free long distance to some of its national plans. Last
month, Cingular Wireless, a joint venture between SBC Communications Inc.
and BellSouth Corp., added a bunch of minutes to its national plans. The
$29.99 plan now includes an extra 150 anytime minutes. Those who spend
$199.99 get an extra 1,000 anytime minutes.

Niche companies, such as Leap Wireless International Inc. and MetroPCS, a
closely held newcomer, are now offering unlimited local calling for as
little as $32.95 a month.

But some of the good deals aren't as good as they sound. Verizon Wireless
has been heavily advertising its new America's Choice plans. The
$35-a-month plan, for example, includes 300 monthly anytime minutes and
3,000 minutes for use on nights and weekends. "Now you can use all of
your minutes across America," the Verizon Wireless Web site beckons.
Except, that is, in big chunks of California, Texas, Oregon and several
other states where Verizon Wireless doesn't own the network the calls run
on and has to pay another carrier to handle those calls. In those spots,
subscribers have to pay a 65-cent roaming charge per minute.

"The way we compensated the customer who may have used the off-network
feature is we provided them more minutes on our network," says a Verizon
Wireless spokesman. "The majority of customers who choose a national plan
do not roam off of our network."

Under Verizon Wireless's old national plan, users could use their minutes
for any call, but the carrier found that 7% of its traffic was running
off its network, costing the company a big chunk of money. So Verizon
Wireless abandoned that plan.

Defining a Minute

Alltel launched plans similar to Verizon's -- and dubbed the program
National Freedom -- on Jan. 31. Subscribers who call off the network in
those plans are slapped with a 59-cents-a-minute roaming charge and -- if
the call is long-distance -- an additional 40-cents-a-minute charge.
"From an economics perspective, it is very favorable to us," says
Alltel's Mr. Junker, though he declines to provide details.

Many consumers are bewildered to learn just how many ways the industry
defines "minute." There are peak minutes that can be used during the
daytime; anytime minutes; nights and weekends minutes; and minutes that
are only good when calling from cellphone to cellphone.

Kerstin Beal Turner, a public-relations executive in Atlanta, says she
frequently goes over her allotted minutes in her VoiceStream cellphone
plan. Her $40-a-month plan includes 600 anytime minutes and unlimited
weekend minutes, but most months she finds herself using an extra 30 to
35 minutes. With each additional minute costing her 40 cents, that adds
nearly $15 to her monthly bill. "I have the best plan that they have
right now, but it still stinks," Mrs. Turner says.

The caveats and charges are enough to make Chase Beasley throw up his
hands. Mr. Beasley, a 39-year-old vice president at an Atlanta-based
technology company, spends about $140 a month on his AT&T Wireless plan.
His calling plan gives him 1,000 weekend minutes, 500 anytime minutes as
well as unlimited "mobile-to-mobile" minutes for calls placed to other
cellphones on a shared plan, such as his wife's number. Some of the calls
are billed as local calls, regional calls, or "roaming" calls for when he
makes calls outside of his calling area. "Sometimes I just look at the
bill and laugh," he says. "To check to see if it's valid would take all
day."

Last spring, in response to consumer complaints about billing and
advertising, 22 state attorneys general requested advertising, billing
and marketing information from wireless carriers including Verizon
Wireless, Sprint PCS and Cingular Wireless. One attorney general says the
wireless companies have been "cooperative" in handing over the data,
adding that no charges have been filed against the companies to date.

If the proliferating plans and inequitable treatment are confusing
consumers now, things are only going to get worse. The carriers are
starting to unleash a slew of new services that run on high-speed
networks. Many customers will also find that they have to buy new phones
-- their old ones won't work on the speedier networks.

The new data services include e-mail with rich graphics, photo services,
games and high-speed wireless Internet access. The carriers hope that the
more people get hooked on these services, the less likely they will be to
change providers. But get ready for more confusion about prices. Some
carriers are talking about pricing per service: for example, one price
for each photo sent. Others are talking about pricing per minute or per
kilobit. Verizon is letting consumers choose either per-minute or per-bit
pricing.

According to Verizon Wireless vice president Jim Straight, such issues
are already causing consternation: "People call customer service saying,
'What's a bit?' "

Write to Andrea Petersen at
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and Nicole Harris at
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