TELECOMMUNICATIONS

Winning
in wireless
Scott Arnold • Byron G. Auguste
Mark Knickrehm • Paul J. Roche

JOSEPH BORZOTTA/SIS LTD

18 THE McKINSEY QUARTERLY 1998 NUMBER 2

Can the industry learn to operate at one-third its current price levels?

Companies will need to build businesses around key segments

The challenge: reducing churn among the customers who provide

most of your profits

wireless telephony industry* is becoming less

T
HE ONCE COZY US
comfortable by the day. New players are entering the market, capacity
is expanding at a breakneck pace, and prices are set to tumble. Most
players take comfort in the belief that demand will rise as prices fall, but
not everyone is likely to achieve enough growth to oƒfset plummeting prices.
As growth stalls and revenue per user declines, profits will become
increasingly elusive.
* The wireless industry includes both analog and digital cellular telephony and the newer digital
personal communication services (PCS).
We would like to thank Maisie O’Flanagan for her contribution to this article.
Scott Arnold is a principal and Paul Roche is a consultant in McKinsey’s Silicon Valley oƒfice;
Byron Auguste is a consultant and Mark Knickrehm, executive vice-president and CFO at the
wireless messaging vendor Paging Network, is a former principal in the Los Angeles oƒfice.
Copyright © 1998 McKinsey & Company. All rights reserved.

THE McKINSEY QUARTERLY 1998 NUMBER 2 19

WINNING IN WIRELESS

Many executives are only now recognizing the magnitude of the change
facing their industry. Our analysis suggests that net earnings for some players
could shrink to between 25 and 30 percent of revenue over the next three to
four years – a far cry from forecasts of nearly 45 percent by industry players
and Wall Street analysts as recently as last Fall. Large incumbents such as
AT&T Wireless, Bell Atlantic NYNEX Mobile, and AirTouch Cellular will
need to make radical changes if they are to succeed in the new environment.

New attackers entering the wireless market in the wake of the recent
bandwidth auctions pose a threat to which incumbents must respond swiƒtly,
while there is still time. They will have to improve their operations and
restructure their business systems to remain profitable as prices fall. They
will have to adopt managerial and leadership approaches appropriate
to the new competitive environment. And they will have to introduce inno-
vative products and services to make their oƒferings stand out to the most
attractive customers.

The end of an era

The US wireless industry has not always been so competitive. From 1984
to 1995, a government-created duopoly consisting of one Bell operating
company and one independent wireless operator existed in each regional
market. The result was similar service oƒferings and prices from both players
in a region – and the kind of high earnings that are diƒficult to maintain
without regulatory protection.

The game in those days was to increase demand for wireless by expanding
from segments where mobility was a necessity to segments where it was a
luxury. As Exhibit 1 demonstrates, the strategy succeeded: penetration rates
increased from 6 percent of the US population in 1993 to 18 percent in 1997,
although both minutes of use and average revenue per user declined during
this time (Exhibit 2). What made the economics work were higher prices for
lower-usage segments and increased operational eƒficiencies that more than
Exhibit 1

Growth in wireless, 1991–97

US wireless subscribers Wireless penetration Wireless usage
Millions Percent of US population Billions of minutes per month
48.7 18 5.0
17
CAGR = 40% CAGR = 35% CAGR = 29%
38.2 3.9
13
28.2 3.0
9
19.3 2.1
6 1.6
13.1 4 1.1 1.3
8.9 3
6.4

1991 1992 1993 1994 1995 1996 1997 1991 1992 1993 1994 1995 1996 1997 1991 1992 1993 1994 1995 1996 1997
Source: CTIA; Strategis; McKinsey analysis

20 THE McKINSEY QUARTERLY 1998 NUMBER 2

 WINNING IN WIRELESS

oƒfset the decline in average Exhibit 2

Average usage and revenue per subscriber, 1991–97

minutes of use per month of
9 percent a year. Average monthly minutes of use Average monthly revenue
per subscriber ($)
177 CAGR = –9% 75 CAGR = –9%
69 67
The duopoly allowed prov- 147 59
iders to operate in a way that 120
110 106 102 103
52 49
44
was more brute force than
best practice. They set up
complex and costly customer
acquisition programs, sold 1991 1992 1993 1994 1995 1996 1997 1991 1992 1993 1994 1995 1996 1997
through a wide range of retail Source: CTIA; Strategis; McKinsey analysis

channels, paid high co-op

advertising and commission payments to indirect channels such as agents
and dealers, and oƒfered consumers free or heavily subsidized handsets. And
they managed churn (subscriber turnover) through annual contracts and
broad loyalty programs rather than through the sophisticated segment and
lifecycle profitability models employed by competitors like MCI in the long-
distance market.

The good old days came to an end when the Federal Communications
Commission, the US telecommunications licensing authority, began
auctioning wireless spectrum in 1994. These auctions, which continued until
1996, enabled new entrants – whether established telephony players such as
Sprint or competitors new to the industry such as Omnipoint – to join the
market. Wireless incumbents such as AT&T, AirTouch, and Bell Atlantic
Nynex Mobile also purchased spectrum, and became attackers in regions
where they had not previously competed. And Nextel’s national digital
network upgrade to high-quality wireless telephony created another
competitor for attractive business segments.

These auctions have had the eƒfect of increasing the number of players in
some regional markets (such as Los Angeles) to five. Other new entrants,
successful bidders for the three new blocks of spectrum auctioned oƒf early in
1997, are waiting in the wings.

In addition, new digital technologies now being adopted use spectrum three
to six times more eƒficiently than analog networks, allowing more customers
to fit into a given spectrum block. They include GSM (global system for
mobile communications), the dominant digital technology in Europe; CDMA
(code division multiple access), the dominant digital technology in the United
States; and TDMA (time division multiple access), an alternative digital
standard. All PCS (personal communication services) networks use digital
technology, and most cellular incumbents in urban areas are upgrading their
networks to digital, expanding their capacity as they migrate subscribers from
the analog network.

THE McKINSEY QUARTERLY 1998 NUMBER 2 21

 WINNING IN WIRELESS

Exhibit 3
Thanks to the new spectrum and
Prices must fall…
new digital technologies, most urban
Cents per minute, estimated
markets will experience an eƒfective
60
wireless capacity increase of 10 or 12
50 Price times 1996 capacity by the end of
40 1999. This capacity explosion will far
30
outstrip the increase in demand in
the next two to three years. This can
20
Fully loaded incremental cost*
mean only one thing: prices will fall.
10
Marginal cost† Look out below
0
1993 1994 1995 1996 1997
For the past two years, the price per
* Average per minute cost to operate network, including
depreciation of required capital expenditure over the minute of wireless calls has averaged
long term
† Average cost to provide an additional minute on an already between 40¢ and 50¢. Our estimates
built-out network (assumes 70% of costs are fixed)
Source: Industry literature; DLJ; McKinsey analysis suggest that average marginal costs
in the industry are between 3¢ and 7¢
Exhibit 4 per minute, and between 10¢ and 12¢
… and fast per minute when long-run incre-
Average price per minute (cents) mental expenses for expanding cap-
50 acity are included. The experience of
other industries suggests that this
40
Projections kind of disparity between price and
30
marginal cost is unsustainable in a
20 five-player market with high fixed
Worst case*
10
costs (Exhibit 3).

0
1997 1998 1999 2000 2001 2002 The high barrier to exit, at least for
* Assumes 15% retailer margin on top of long-run incremental cost of 12¢ spectrum, only makes things worse.
per minute of use by 2000; flat thereafter
Source: Strategis; McKinsey analysis
PCS operators that have already fully
developed their network have large
Exhibit 5 amounts of unconstrained capacity,
Discounting to attract profitable customers and need to generate enough revenue
Percentage discount offered by entrants on prices of incumbent to cover big debt payments. They
cellular providers
have a strong incentive to encourage
10
usage, even at prices at or near mar-
0 ginal costs. Even if they were to go
–10 bankrupt, their networks’ capacity
–20 would not be eliminated from the
–30
market; rather, someone else would
buy it and return to the fray with a
–40
lower cost basis.
–50

–60 Evidence from regional markets

0
50

0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0

1,0 0
00
15

25

35

45

55

65

75

85

95
10

20

30

40

50

60

70

80

90

where new entrants have built net-

Minutes of use per month
works suggests that prices will fall

22 THE McKINSEY QUARTERLY 1998 NUMBER 2

 WINNING IN WIRELESS

a long way, and fast (Exhibit 4). Attackers entering these markets have
reduced prices by between 15 and 30 percent on average, with bigger
discounts and flat-rate pricing aimed at the most profitable customers
(Exhibit 5). In a few cases, discounts aimed at specific segments have been
as high as 70 percent.
A temporary blip?
Many in the industry hope that the worst of the price wars will be over when
new entrants conclude their initial promotional assaults. But they are deluded.
New entrants will continue to arrive in waves over the next two to three years,
and market economics will dictate further price falls as attackers and
incumbents battle for first-time price-sensitive customers and for the higher-
usage established customers that all providers will chase for their best
margins. There is no getting around it: the US wireless industry is in for a
nasty fight. Smart contenders will start preparing now.

Three implications
The coming battle will have three main implications for wireless providers.
The first, a likely increase in total usage, will be positive, although the benefits
will be mitigated by falling prices. The second will be an increase in churn as
customers defect to take advantage of deals oƒfered by new entrants. And
the third will be a substantial drop in industry profitability as competition
intensifies.
Growth in usage
New entrants need subscribers to oƒfset the heavy cost of their network build-
outs. Looking to gain customers quickly, they are oƒten tempted to oƒfer
favorable deals in the form of flat-rate plans oƒfering hundreds of minutes
for a fixed monthly rate. Sprint has oƒfered 1,000 minutes for $100, and
Powertel 300 minutes for $30. Such deals allow customers to use their wireless
phone much more oƒten at little or no extra cost.

Some analysts estimate that if flat-rate pricing becomes widespread, average

usage could grow from about 100 minutes a month today to 200 or 250
minutes a month by 2001. They are assuming, of course, that customers
currently getting 100 minutes for $25 will increase their usage when oƒfered
300 minutes for $30. This may be so in some cases, but other customers may
decide to migrate to a $19.95 plan oƒfering 100 minutes instead.

As well as encouraging existing customers to use their phones more

extensively, wireless providers are signing up new ones. Some Wall Street
analysts predict that penetration could increase to 45 to 50 percent of the
US population by 2005. Price reductions are the main reason, but others
include advanced handset technology that allows phones to be smaller and

THE McKINSEY QUARTERLY 1998 NUMBER 2 23

WINNING IN WIRELESS

lighter, have more features, and run for longer, and network eƒfects that make
owning a wireless phone more valuable as more people become users.

While estimates vary, most suggest that annual subscriber growth will slow
over the next few years. It was approximately 30 percent in 1996, but analysts
expect it to be between 7 and 12 percent in 2001. Even at these lower rates,
though, penetration will more than double in the next five to seven years.
Increase in churn
Customer turnover in the wireless industry has always been high, at 25 to 35
percent a year. It is likely to increase as new entrants in regional markets bring
low introductory prices, substantial advertising and marketing programs, and
all-digital networks capable of providing advanced services such as voicemail,
integrated one- or two-way messaging, and call forwarding. Factors like these
attract price-conscious, dissatisfied, and leading-edge customers.

The economic performance of incumbents is particularly sensitive to churn

among the most profitable and heaviest-usage customers, who tend to turn
over more than other segments. Indeed, these are the customers who are
most likely to be attracted to the flat-rate pricing and innovative services
oƒfered by new entrants. Early results suggest that incumbents’ monthly churn
rates can increase by 50 to 100 basis points (corresponding to a 10 to 15 point
increase in annual churn rates) aƒter the arrival of new entrants. Evidence
also indicates that attackers themselves experience churn rates one and a
half to two times the current industry average, although these tend to peak 12
to 18 months aƒter launch.

As more entrants arrive in the market, it is far from clear that customers who
have defected will return to incumbent players. Cellular operators will have
to fight to lure them back, and should be preparing now to track their
defecting customers and launch “win back” programs as new PCS networks
go through their teething pains.
Reduction in industry profitability
Falling prices and rising customer churn will mean reduced profitability for
incumbents. Most are ill prepared for the scale and pace of the change. Their
networks are predominantly analog, and years of limited capital spending
have leƒt them capacity constrained. The expected increase in subscribers
and usage will push up their network operation, maintenance, and customer
service costs in absolute terms.

Incumbents’ capacity constraints and need to migrate users to digital

networks will demand much higher levels of capital investment than in the
past. These players will probably also have to spend more than they initially
budgeted to improve performance; indeed, aƒter falling for years, incremental

24 THE McKINSEY QUARTERLY 1998 NUMBER 2

 WINNING IN WIRELESS

capital spending per sub- Exhibit 6

Incremental capital spend per subscriber

scriber rose by a full 60
percent in 1996 (Exhibit 6). Dollars

2,500
High customer acquisition
costs that were supportable 2,000

at duopoly pricing levels

1,500
are becoming increasingly
untenable. 1,000

500
Leading companies also face
slowing revenue growth as 0
1985 1987 1989 1991 1993 1995 1997
their pricing model collapses Source: CTIA; DLJ; McKinsey analysis

and subscriber growth is split

between four to six competitors. A key question for the industry is how
rapidly and by how much average revenue per user will decline.*

In analysts’ most optimistic estimates, annual per subscriber usage growth

of 20 percent oƒfsets declining per minute prices, and average revenue per
user falls slowly for the next couple of years until it settles at almost $44 a
month by 2001. More conservative usage growth of 9 percent results in a
faster decline in average revenue per user, hitting $30 a month by 2001. In the
worst-case scenario, in which usage growth of 9 percent is coupled with
slower than projected subscriber growth, total revenue growth could drop
into the single digits.

Our estimates suggest that incumbent providers that do not move swiƒtly to
take strategic and operational actions are likely to experience a drop in
EBITDA (earnings before interest, tax, depreciation, and allowances) margins
of 25 to 35 percent (Exhibit 7).†

Earnings will fall even faster than EBITDA as increased capital spending
translates into higher depreciation. For the independents, this decline in earnings
is likely to result in a large reduction in market capitalization because of
price/earnings ratios that have yet to reflect the coming changes in the industry.

How incumbents must respond

Incumbent providers can soƒten the blow of a more competitive wireless
environment by taking four steps: organizing their businesses around
* If we ignore “breakage,” average revenue per user equals minutes of use multiplied by price per
minute of use. Breakage, which occurs when a customer pays for a fixed allocation of minutes but
does not use all of it, means actual average revenue per user is typically 8 to 12 percent higher.
≤ This assumes that prices fall by 15 percent, subscriptions increase by 14 percent, minutes of use
grow by 12 percent, and churn rises to 40 percent a year. It also assumes that total per minute
operating cost reductions continue at 8 percent, that variable operating costs are proportionate
to minutes of use, and that customer service and acquisition costs are proportionate to the
number of new subscribers.

THE McKINSEY QUARTERLY 1998 NUMBER 2 25

 WINNING IN WIRELESS

Exhibit 7

Pressure on earnings
Normalized income statements, estimated

1997 2001
Revenue 100 139
Operating expense 15 30
Customer maintenance 12 17
Acquisition 25 48
G&A 6 7
EBITDA* 42 37
EBITDA margin 42% 27%
* Earnings before interest, taxes, depreciation, and amortization
Source: Strategis; DLJ; Everen; McKinsey analysis

customer segments; improving their operational execution; identifying ways

to diƒferentiate their product, services, and brand; and adopting new man-
agerial and leadership approaches.
Organize the business around customer segments
The best way to achieve top-line revenue growth despite steep falls in price is
to focus on customer segment profitability: in other words, to acquire and
hold on to those customers who, because of high usage, price insensitivity,
or both, are the most profitable. This entails not only knowing who these
customers are – which calls for skill in capturing and mining customer
demographic and usage data – but also knowing how to build loyalty through
techniques that segment customers by total lifecycle profitability.* The best
providers will leverage a shared wireless
network infrastructure to deliver tailored
The best operators will build
oƒfers to each segment.
real-time information systems
that warn when an attractive
Reduce churn. This data should first be put
customer is likely to defect
to use to reduce churn among the 20 percent
of customers who generate about two-thirds
of industry profit (and who are most attracted to competing flat-rate oƒfers).
Leading players will build loyalty by designing their customer acquisition,
pricing, and service programs to reward increased usage and account
longevity, and by persuading wavering customers not to switch by oƒfering
them product or service enhancements such as new handsets or price
reductions. Just as important, the best operators will build real-time
information systems that warn them when an attractive customer is likely to
defect. A critical step will be to migrate high-end customers from analog
services to new digital networks oƒfering such features as built-in paging,
voicemail, caller ID, and encrypted communications.
≠ See Peter Child, Robert J. Dennis, Timothy C. Gokey, Tim I. McGuire, Mike Sherman, and Marc
Singer, “Can marketing regain the personal touch?,” The McKinsey Quarterly, 1995 Number 3,
pp. 112–25.

26 THE McKINSEY QUARTERLY 1998 NUMBER 2

 WINNING IN WIRELESS

Stimulate usage. Customer segmentation can also be used as a way of

stimulating usage without undermining regional or national price levels.
Incumbents should experiment to test the impact of diƒferent pricing
promotions on various customer groups. The best programs, such as bonus
minute packages, can permanently increase use by targeted segments.

Incumbents should also promote incoming minutes. “Calling party pays”

plans, for instance, appear to be stimulating use in Europe, and plans recently
announced by AT&T in the United States could address a major concern of
call recipients: the cost of unwanted calls. In addition, companies could give
away features that stimulate usage, such as voicemail and call waiting, to
target segments such as middle-volume users.

Rethink branding strategies. Intensifying competition, particularly from

attackers with strong brand names, demands that incumbents manage brand
and positioning eƒfectively. They must:

• Achieve consistent national and regional brand awareness for both cellular
and PCS oƒferings, taking care to manage conflict between their own brand
and co-brands (such as Cellular One, a brand owned by several competitors
whose stakes vary from market to market)

• Develop integrated national programs with channel partners and the

largest business accounts to compete against national players such as AT&T,
Sprint, and PrimeCo

• Embark on joint marketing with complementary partners and products,

such as the makers of handsets.

An increasing number of cellular providers are pursuing brand development

strategies to penetrate the mass market – and with some success. Recent
market research reveals that only 24 percent of wireless users did not know
the name of their service provider in 1996, down from 47 percent in 1991.*
Yet despite rising awareness of brands among consumers, room for
improvement remains.
Improve operational execution
Over the next 12 to 18 months, wireless providers must restructure their
operations if they are to be able to compete at 15¢ a minute rather than the
45¢ a minute they are used to today. To do so, they must streamline network
operations, customer service, and customer acquisition processes to slash costs
and make the most of scarce capital investment dollars. Incremental
improvements will not be enough. Cellular operators must rethink their entire
business model in order to serve the lower end of the market.
≠ Strategis, April 1997.

THE McKINSEY QUARTERLY 1998 NUMBER 2 27

WINNING IN WIRELESS

Restructure network operations. Providers need to reduce network

operating costs per subscriber by 20 to 30 percent. Existing network man-
agement and maintenance processes must be redesigned to improve
eƒficiency and reduce staƒfing requirements. Unbillable charges such as fraud
or no-fee roaming allowances will also have to be reduced. In some cases,
technology advances that increase the capacity of individual network cells (or
sites) will reduce the need for providers to build new sites and incur
associated operational expenses. These decisions should be based on a clear
understanding of the capacity needs of the most valuable customers, not on
engineering-driven development plans.

Reduce customer service costs. The object is to spend money where it

earns a return by better aligning costs (particularly for customer service
and support) with the value and profitability of the relevant segment.
Customers from highly profitable segments, for instance, would not be kept
on hold for so long when calling the provider, and would always be put
through to a customer service representative. Customers from less profitable
segments would be directed initially to an automated voice response unit.
Wireless companies should also consider how to reduce billing and debt
collection expenses by using pre-paid phone cards, automatic payment, and
billing via e-mail.

Identify cheaper acquisition channels. The biggest opportunity, but the

most diƒficult to realize in a competitive market, is to reduce the cost of
customer acquisition. It is here that incumbents will need to make the most
radical changes in order to achieve cost reductions of 30 to 40 percent per
gross add (or new subscriber). They must redesign their internal processes to
ensure that they are operating with the smallest possible sales and marketing
staƒf and budget.

Where competitive pressures allow, wireless incumbents should eliminate

channels or store locations that attract unprofitable customers, and reduce
subsidies and other selling expenses to levels commensurate with
customers’ value. They should also increase their use of cheaper channels
such as direct order fulfillment (for example, Internet or catalog sales) and
telemarketing. Finally, they can leverage their own base by selling existing
customers a second telephone number, and form partnerships with other
companies that possess strong links with the consumer, such as super-
markets and banks.

Be careful with capital. Reduced earnings and pressure on market

capitalization demand that incumbents maximize the value of their capital
investments. They can do so first of all by ensuring that scarce capital is
applied only to the most valuable projects. This will involve tradeoƒfs between
investment in new AMPS (advanced mobile phone service, the older analog

28 THE McKINSEY QUARTERLY 1998 NUMBER 2

 WINNING IN WIRELESS

technology now being replaced by digital alternatives) capacity and new

digital capacity, and between existing and new regions. Second, they must
judge whether to build out capacity or purchase capacity available for resale.
Third, many need to improve the eƒfectiveness of their vendor management
and procurement to make best use of spending.
Diƒferentiate products and services
Leading players need to move quickly to diƒferentiate their products and
services from those of other wireless providers. They can do so by integrating
wireless products with other telephony-related products, and by tailoring
their product and service oƒferings to diƒferent customer segments.

Product integration is likely to take three forms, with cost, complexity, and
value increasing in line with integration:

• Cross-selling or bundling existing telecom and wireless products

• Integrating back oƒfices, billing, and customer service

• Creating innovative product combinations: for instance, by improving

handsets or physically integrating fixed and wireless networks. One of the
few current examples is U S WEST’s Access2 product integrating wired and
wireless services.

The attractiveness of integrated oƒferings to customers has yet to be proven,

although some surveys suggest that wireless users are more likely than other
telephony users to purchase bundles. Bundled oƒferings brought to market
so far have almost all been loosely integrated, and have been sold at a
discount to the price of the individual components.

Integrated products do, however, have clear benefits for providers. They
increase share of wallet, help in diƒferentiating market positioning, cut the
cost of acquiring customers via cross-subsidized marketing and acquisition
programs, and reduce the operating cost per customer (because billing is
cheaper, the joint administration of accounts produces savings, customer call
centers can be shared, and synergies can be derived from shared network
elements). Given their long-distance, local, and Internet access businesses,
the regional Bell operating companies and long-distance providers may have
an advantage over the independent wireless providers in developing and
bringing to market innovative integrated products.

But direct product integration is only one of the ways in which providers
must diƒferentiate themselves from the pack. They also need to envelop their
integrated products in service oƒferings that are attractive to specific customer
segments. All elements of the customer oƒfering from acquisition to retention
must be tailored.

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 WINNING IN WIRELESS

The power of targeted service oƒferings was demonstrated by Orange, a

wireless provider that took on industry leaders in the United Kingdom and
achieved impressive revenue growth and exceptionally low churn rates. At
its launch, Orange avoided a mass-market approach and focused on
subscriber quality rather than quantity. It used a high-quality network, total
ownership of an enhanced customer service delivery system, and tailored
pricing, service, and sales oƒferings (100 percent direct) to attract high-usage
customers. As a result, one year aƒter launch Orange had achieved rapid
subscriber growth, average revenues per user comparable with those of
incumbents, and churn running at half the industry average.
Adopt new managerial styles
Successful execution of these operational imperatives calls for disciplined,
professionally run organizations with the skills to thrive in a competitive
market. Some companies will need to bring in outside talent. Organizational
structures will also have to change. The need to keep tight control of expenses
will demand that wireless providers simplify and consolidate their traditional
regional organization, centralizing scale-
driven support functions and combining
Companies face difficult
existing regions into super-regions.
challenges, but the threat
attendant on increased
If incumbents are to diƒferentiate their prod-
competition leaves
ucts and services from those of other players,
incumbents little choice
they must experiment with new managerial
processes. To achieve best-in-class service
levels, they will need to create horizontal or crossfunctional organizations –
perhaps separate ones for each customer segment – for activities such as
customer acquisition, customer retention, and pricing.

Successful providers will run several performance improvement eƒforts

simultaneously. To track performance and build a profit-driven organization,
they will also need metrics that measure lifecycle profitability and growth
by segment and customer, reward value creation, and accurately capture the
size of operational savings.

These will be diƒficult challenges for any company, but the threat attendant on
increased competition leaves incumbents little choice. Management teams
that take quick and assertive action in response to changes in the environment
will outperform the competition. Those that fail to see the threat or execute
ineƒfectually will suƒfer as their results fall well below the expectations of
corporate parents or investors.

As new entrants bring additional capacity to the US wireless market, com-

panies aspiring to lead the industry will have to operate at prices as low as

30 THE McKINSEY QUARTERLY 1998 NUMBER 2

 WINNING IN WIRELESS

one-third of current levels. The managerial challenges this presents will cut
across almost every business area. Incumbents that succeed in transforming
themselves will be well placed to capture a profitable stake in the coming
boom in wireless telephony.

THE McKINSEY QUARTERLY 1998 NUMBER 2 31