It's A Leap Year For Cricket Service

By Joseph Palenchar On Nov 6 2000 - 8:00am

SAN DIEGO -Leap Wireless is accelerating the expansion of its wireless landline-replacement service.

The Qualcomm spinoff added its third market in late October as part of a plan to add seven more markets by the end of the year. The expansion will bring Leap's year-end market count to 10.

By the end of 2001, the company's Cricket-brand service will be expanded to at least 25 more markets for a total of 35, said Don McGuire, Cricket's sales and distribution VP. By that time, the company said, it wants to expand its subscriber base to 1 million.

"For more than two years, we have been refining and perfecting a business model that is changing the cost structure for wireless service delivery," said Leap chairman Harvey White. "We are now ready to apply what we have learned as we begin scaling the size of our business."

Expansion beyond 35 markets is part of Leap's business plan, and although it hasn't announced a timetable, Leap already owns or has rights to acquire 1.9GHz PCS-band licenses in 56 markets in 26 states with a potential customer base of 41.7 million people. The company also plans to increase its spectrum holdings by participating in December's 1.9GHz auctions.

In October, Knoxville joined Chattanooga and Nashville as Cricket-service markets. The next markets to go online this year are Albuquerque, N.M., Charlotte and Greensboro, N.C., Little Rock, Ark., Memphis, Tenn., Salt Lake City, Tulsa, Okla., Tucson, Ariz., and Wichita, Kan. Next year's rollout will include Denver, the Middle Atlantic, the Pacific Northwest and New York state, McGuire said.

For its first 35 markets, the carrier is concentrating on small and midsize markets with populations of 400,000 to 3 million, a spokeswoman added.

To sell its service to consumers in these areas, Leap is aggressively courting indirect retail channels with a simplified over-the-counter sale, said McGuire. In Nashville, Chattanooga and Knoxville, the carrier has enlisted national retailers CompUSA, Office Depot and Staples.

Leap's roster also includes Nashville-based regional retailer Electronics Express and dozens of smaller retailers, many of them paging retailers and wireless specialists, but also a pharmacy, a jewelry store and a pawn shop. The newest outlets in the three markets include Kroger supermarkets.

Leap also plans to launch sales through Costco by the end of the year and is testing sales through a Sam's Club in Charlotte via Phoenix-based Wireless Retail. By the end of October, about 300 retail outlets were authorized to sell Cricket, including outlets in Memphis, where phones are being presold in preparation for a mid-November service launch. Of the 300, only 12 are Cricket-owned stores and kiosks.

Consumers are offered the choice of a $129.95 Kyocera/Qualcomm 2035 or $99.95 Nokia 5100 series model. The price includes one month of local airtime.

Cricket is as simple a sale for wireless retailers as it is for consumers to understand and use, McGuire said. "It's a phone in the box, and it requires little rate-plan training and no credit check."

Dealers make a 25-point margin on the handset before volume bonuses, MDF and co-op. There are no commissions and residuals.

For consumers, the service is packaged like local landline service at a comparable price-but with the addition of wireless mobility. For $29.95/month in the first three markets and for a similar price in future a markets, consumers get to talk all they want within a coverage area whose contours approximate those of their local phone service.

The price includes all incoming calls originating from anywhere in the world. Like cable-TV subscribers, consumers are billed once a month for the next month's service. Options include voice mail, caller ID and call waiting. The cost is $3.95 for one and $2 for each additional service. Long-distance service is also available on a prepaid basis.

On average, Cricket customers talk 1,000 minutes per month.

"It's for the majority of people who don't roam," McGuire said. Those people would include first-time wage earners who are living on their own and people who need a second or third line.

Based on sales to date, 7 percent of Cricket users don't have a landline phone, and 61 percent say they use Cricket as their primary phone service and their landline as a data line or second line, McGuire said.

Based on focus-group research, Leap has in some ways positioned the service as far from cellular and PCS as possible. "Focus groups say wireless is unpredictable, complex and expensive, and they don't like long-term contracts and credit checks," McGuire explained.

Leap has also positioned Cricket as offering better coverage than cellular or PCS networks within its markets, he claimed. "We have better cell-site density where people work and play." Greater density also improves in-building coverage, he added. "Seventy percent of our customers are new to the wireless category, so their [quality] reference is landline."

Leap attributes the lower price of Cricket service compared to traditional wireless to several factors. One is concentrated cell-site coverage. Others include lack of roaming costs, lack of bad debt because customers prepay for each month's service, and simplified billing, which reduces calls to customer service, McGuire said.

Leap's cost of acquiring a customer is less than $230, compared to the typical PCS network's $550, he noted.

At the end of calendar 2001, the company forecasts $400 million in annualized service revenue and cumulative capital expenses of $1.25 billion resulting from its infrastructure buildout.