High Costs Make Americans Slow to Pick Up Cellular Phones

The last time America revolutionized telecommunications, it freed long-distance calling from heavy regulation, and the rest of the world rushed to catch up. In today's revolutionary shift to wireless telephones, the United States is lagging behind.

Want to see how people are taking advantage of advanced cellular telephones? Go to London, not Los Angeles; Copenhagen, not Chicago. Here in the US, even many cellular-phone owners are ho-hum about anytime-anywhere communications.

"It's OK," says Marie, a Pittsburgh homemaker who uses her wireless phone once or twice a week. But "I only give my number out to people who need to reach me in an emergency."

Down the street, Laurie Abbott doesn't even bother to turn on her cellular phone except when she's driving or shopping during school hours, when her two children might need to call.

That's the problem with America's adoption of wireless technology: It's half-hearted. The industry is signing up record numbers of customers - one every 2.8 seconds - but those users aren't reaping many of the benefits of the technology.

Competition may change all that. "Prices will drop in the US," says Mark Lowenstein, vice president for wireless research at the Yankee Group, a Boston consulting firm. "But they still have a long way to go."

While the US cellular-phone industry has captured a larger share of the population than its counterparts in Britain, Germany, or France, it still plays second fiddle to Scandinavia. One in 7 Americans owns a cellular phone. In Sweden, Finland, and Norway, it's 1 in 4.

And Americans use their cellular telephones less than almost anyone else in the developed world. For every 100 minutes a month of wireless chat in the US, western Europeans spend 140 minutes on their cellular phones; in Asia, it's 160 minutes.

This is partly cultural, says Rebecca Diercks, program director for wireless research at Business Research Group, a Newton, Mass., consulting firm. In Scandinavia, "it's more widely accepted that people communicate that way." But mostly it's technological and economic.

Europe has a single standard for digital cellular service. Most US systems still use older analog technology, and they can't agree on a single standard for digital service. Meanwhile, a new technology called personal communications services (PCS) is creating yet another system.

The problem for the US cellular industry is not only what it charges, but also how it charges. It may be the only country in the world that bills cellular-phone users for incoming calls, analysts say - even if someone calls by mistake.

Competition is beginning to change that practice. One cellular telephone carrier, AirTouch Cellular, based in Atlanta, has experimented for several years with an option where calls to cellular phones get charged to the caller, rather than the cell-phone user. The option has been successful enough that Denver-based USWest, which has a merger pending with AirTouch, is beginning to offer that option throughout its network.

PCS companies in Washington, D.C., Portland, Ore., and elsewhere are offering an interesting twist: The first minute of each incoming call is free. "We don't want you to pay for wrong numbers or calls you didn't want to receive," says a spokeswoman for VoiceStream Wireless, a PCS company in Issaquah, Wash., now serving four Western states. The option has been a popular selling point, she adds.

The lack of competition in the US is another problem. In Britain, Scandinavia, and other wireless hotbeds, three to four competitors are battling fiercely, much as America's big long-distance companies do today. But in any given US market, only two cellular companies compete. "Since there are only two carriers, that has allowed them to charge almost whatever they want," says Ms. Diercks. The arrival of PCS could boost the number of competitors in the US up to seven per city.

Although American cellular-phone rates are relatively cheap by international standards, they're expensive compared with the alternatives. In Los Angeles, for example, it costs 17 times more to make a wireless call than to make a traditional one, even for users that get volume discounts, according to the Yankee Group. In New York, it's 13 times more expensive. Even in the best US city, Honolulu, it's six times more expensive to use a cellular phone than a traditional one.

Because Europeans usually pay more than Americans for traditional phone service, the premium for a wireless call is less, analysts say. In Vienna, for example, the cost is only four times greater. In Copenhagen, it's 3.6 times; in London, 3.2.

Helsinki has just as large a premium as Honolulu. But cellular phones are more popular in Finland because, among other things, it costs $700 to connect a traditional phone, says Herschel Shosteck, president of Herschel Shosteck Associates, an international cellular-telephone consulting firm based in Wheaton, Md.

Even in countries where the premium is higher than in the US, cellular phones may be popular because there are no alternatives, says Mr. Lowenstein. Businessmen in Moscow, for example, pay 87 times more to use a cellular than a regular phone. But since Russia's regular network is so poor, cellular telephones are sometimes the only way to get through. It took four years for the cost of US cellular service to fall 20 percent, Mr. Shosteck says.

Last month, the Cellular Telecommunications Industry Association reported that the average US monthly bill dipped below $50 for the first time. Diercks predicts even more rapid declines: from about 39 cents or more per minute to about 29 cents a year from now.