AT&T Wireless CEO urges industry to focus on profits, not new services

The challenge facing companies in the wireless technology industry is to stop talking about whiz-bang future offerings and start generating cash, AT&T Wireless Services Inc. Chairman and Chief Executive Officer John Zeglis said Thursday during a keynote presentation opening the Global Wireless Summit conference in New York.

His own company has struggled with profitability since spinning off from AT&T Corp. in 2001: AT&T Wireless posted a US$2.3 billion loss for in its most recent fiscal year.

Too often lost in the hype about next-generation services and other advanced offerings is the reality that wireless companies need to do a better job of profitably selling the products they already have available, Zeglis said.

"Today's wireless capabilities already surpass most peoples' wireless reality," he said. "The main thing all of us in the wireless industry have to demonstrate now is an ability to execute to create real value."

AT&T Wireless sees landlines as its main competition. Zeglis' goal is to drive per-minute wireless costs down low enough to undercut the prices of fixed-line access, which he expects to help in persuading customers to adopt wireless service as their primary phone-communications method. The company sees two avenues for growth, winning more customers and more minutes of its customers' calling time, both of which will be carved out of the market share now held by landline operators, he said.

It's a mission Zeglis pursues with a borderline holy zeal. "We need to free those minutes, to get them out into the air as God intended," he said.

Late last year, AT&T Wireless scaled back its 3G (third-generation) plans, citing a lack of market demand and the need for more conservative capital investments [See, "3G - AT&T delays 3G, plans limited service by end 2004," Dec. 26, 2002]. In his remarks Thursday, Zeglis emphasized that better marketing, not fancy new services, will be the key to expanding wireless penetration.

He cited AT&T Wireless' recent splashy sponsorship of U.S. television hit "American Idol" as one success story. Millions of votes for contestants on the show have been cast using the AT&T Wireless' text-messaging service, many by subscribers who had previously never or only lightly used the service. A significant percentage of those subscribers have gone on to become more frequent users, he said.

In response to an audience question, Zeglis said AT&T Wireless is unlikely to seek deals with other vendors to offer bundled packages of communications services. Such bundles cost more for providers than does offering services piecemeal, yet competitive pressures force bundled packages to be offered at a discount, he said. What the company will do, however, is partner with outside parties, like its former parent, in joint-services deals that will help it reach potential new customers. AT&T Wireless is always eager to find ways to lower its high customer acquisition costs, he said.

Another topic raised throughout the day by conference participants is a looming November deadline set by the U.S. Federal Communications Commission (FCC) for wireless carriers to implement number portability, allowing customers to keep their phone numbers when they switch service vendors. The wireless industry bitterly opposes such a move, fearing it will unleash significant customer churn.

Fixed-line carriers are already bound by portability regulations, but the near-monopoly status carriers hold in many markets means there's little customer demand. The wireless market, in contrast, remains highly competitive. Zeglis said only one thing will make portability palatable to the wireless industry: an enforced mandate requiring fixed-line companies to shift numbers to wireless carriers, upon customer request.

"We lose 30 percent of our customers each year. A wired company only loses its customers when the customer dies," he said. "Here's what frosts me: We can't go on with the wired companies saying four out of five times that because we're not in their rate center, they don't have to port the number. If we could get the wired numbers ported, then people are going to clip the cord."

FCC Commissioner Kathleen Abernathy said in an afternoon conference session that an extension of the November deadline -- the wireless industry has already won several postponements -- is unlikely.

"I do not see a groundswell of support for a delay," she said.

Requiring fixed-line companies to port numbers to wireless carriers is fine in theory, but may not be backed up in reality by sufficient customer demand, she said.

"Clearly, if you're going to impose that cost and requirement on the wireless industry, the wireline industry has to be ready and able to port numbers to the wireless industry," Abernathy said. "But how many in this room really want their wireless number as their main number?"

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