Essentially, a cellular system involves the use of a series of sending and receiving stations placed throughout a region so that a telephone use can move from one place to another as the signal to and from the handheld telephone shifts seamlessly from one cell to another, according to where the individual is traveling. Other handheld devices, such as the PDA, make use of this same system, which can also connect to other networks to reach across the country or around the world.
From a financial standpoint, cellular technology has become more affordable to a wider range of people. New technology and the introduction of economies of scale have added to the downward spiral in prices. Most users about a decade ago were business users, but more and more private consumers were expected to be attracted in the near future and have been. The utility of cellular service to the consumer is considerable, offering convenience, portability, full telephone service, added services such as Internet access and photo capabilities, and connectivity to other computer-related devices and services. Cellular telephony offers a means of communication from anywhere in a certain area and even from other areas if cellular service is provided there as well. Customers use this to communicate with any other person with a landline telephone or a cellular telephone. Cellular service is often sold on the basis of its use in an emergency, such as an auto breakdown. Newer versions allow other uses, such as sending e-mail, taking and sending photographs, accessing the Internet, and so on.
The way the market developed has been related to both the technology as it has been applied and the uses to which consumers can put this technology in their daily lives, supplanting and extending the older technology of the telephone and of such other means of communication as mobile radio transmitters, CB radios, and the walky-talky. The U.S. industry was energized by the deregulation of terminal telephone equipment in 1984 with the divestiture of at&T, and after this growing demand for data communications capability spurred the development of products and systems integrating the movement of voice and data through the network. Product, market, and regulatory factors combined to make construction of private communication networks an economically feasible alternative to 100% reliance on the public switched network, so the U.S. market then developed two primary sections -- the public switched telephone network, and private networks. Cellular telephone technology applies to both, but the private cellular networks have shown the greatest growth (Standard and Poor's Industry Surveys, 1992, T40).
Imports played a role in the development of the U.S. cellular market, holding a steady position with more than one million units valued at $300 million in 1991. The dominant suppliers then were Japan, Hong Kong, and South Korea, with 40, 24, and 18% of import value and 36, 31, and 16% of import volume, respectively. In the latter half of 1990, imports from Japan increased sharply, and this trend continued into 1991. Nearly 60% of all imports were for vehicular use, with 27% being hand-held portables and 14% transportables. Imports constitute approximately 50% of the U.S. cellular market. The total world market for cellular technology surpassed 13 million subscribers in 1991, with the United States remaining the largest single market, having nearly 50% of the world market. Leading markets after the United States in descending order are Great Britain, Japan, Canada, Germany, Italy, Scandinavia, and Mexico. Subscriber growth was particularly impressive in Italy as the result of the implementation of a new higher capacity system. Eleven new countries added cellular service in 1991 as worldwide growth continued. By the end of 1990, there were more than 10 million subscribers in more than 70 countries, with more than 3 million in Europe alone. By the end of 1991, service was found in 83 countries serving about 15 million subscribers, a fifty percent jump in subscribers in one year. European countries still face delays of up to one year in implementation of the Pan-European digital cellular network, but system coverage is expected to reach 80% of Europe by 1994, with a prediction of 13 million subscribers by 1996. This will mean a market of more than $17 billion for service revenue and nearly $6 billion for equipment. In 1991, the high growth markets included Italy and Mexico (U.S. Department of Commerce, 1992, 30-8-30-9.).
The United States continued to win important international contracts and operating licenses. In 1991, Motorola reached licensing agreements with several major European manufacturers for its Pan-European digital cellular technology. Consortia were also selected to operate selected systems in countries such as Pakistan, El Salvador, Bangladesh, Ghana, and Poland, including such groupings as several of the Regional Bell Operating Companies and Millicom, among others (U.S. Department of Commerce, 1992, 30-9.).
Today, the United Stats is the second larget cellular market in the world, the U.S. has 153 million cellular subscribers against a population of 290 million. Cellular service was first introduced in the early 1980s and licensed by the FCC to two companies in each marketplace, and by 1995 the FCC was auctioning licenses for the 1900 Mgz frequency range to contribute to a more competitive environment. The marketplace now has seven wireless carriers in a single market (USA wireless market - 2003, 2004, paras. 1-2).
This means increased competition for cellular service in each market, affecting price in different ways. Price elasticity in this industry has been affected by the entire body of telephone regulations, a segment that has been in flux for some time. Deregulation of the telephone industry altered the way people related to the different phone companies and phone services offered as what had been a monopoly changed to a very competitive environment, with numerous companies fighting for market share in different segments, such as equipment, local service, long distance service, and so on. The first stage of deregulation came in 1984 with a court ordered breakup of at&T, creating regional subsidiaries, creating competition for long distance service. Pressure continued to bring competition to local service as well, leading to passage of the Telecommunications Act of 1996 so that smaller companies could offer local service. At the time, this brought higher rather than lower prices (Deregulating telecommunications, 2005, paras. 1-6).
The competitive environment for telephone service across the board affects the services offered and the prices charged for cellular service in particular. To the extent that cellular service can be less costly, it is benefited by higher prices elsewhere in the industry. This fact is shown by a study by Ward and Woroch (2004) when they note,
We empirically estimate the substitutability of fixed and mobile services for telecommunications access using a large, U.S. household survey conducted over the period 1999?2001. We find significant positive cross-price elasticities between mobile and wireline usage. Because mobile usage prices fell dramatically over this period, we estimate that wireline usage may have been about 50% higher had mobile prices not fallen (Ward & Woroch, 2004, p. 1).
This development means a shift in the nature of competition between landline and cellular companies. Wireless telephony, such as car phones, did not traditionally threaten landline service, but price differentials today mean that cellular service may undermine traditional telephone service and for some even supplant it entirely.
Among the issues affecting consumer demand and price are the regulatory environment, the resulting competitive environment, shifts in pricing among the different types of service, and rapidly lowered costs on cellular service in particular. Cellular service providers must make an initial outlay in terms of establishing the cell towers that provide service, but this is somewhat easier than putting lines into homes across an area and then maintaining those lines as the traditional telephone companies must do. The cost of the telephones themselves influences how many people sign up for service. When there was a monopoly, equipment was provided by the landline telephone company, but this is no longer the case. Today, the consumer may purchase telephones from anywhere but is also responsible for his or her own maintenance. The cost differential between a landline telephone and a cellular telephone has disappeared, with cellular phones today being relatively inexpensive, and at most being competitive with all home telephone equipment.
Increasing revenues depends on increasing the number of people using the service, and the strategies being pursued are doing well at this effort. These include lower prices, special services to connect family members and friends at lower rates, and lower cost long distance. Another approach taken is to add to the convenience for the customer, with services such as prepaid telephone service such as is being offered by MCI WorldCom to allow consumers access to cellular service within the need for credit checks, service deposits, or monthly fees. Such services come in the form of prepaid cellular cars or with telephones sold with a certain amount of airtime as part of the service (Cellular phones add…