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New Wireless Service in Chicago Joins Rivals in Targeting Youth

Posted on: Friday, 19 March 2004, 06:00 CST

Mar. 20--A new wireless service in Chicago is giving extreme sports fans a lift.

Boost Mobile is among several new competitors in the burgeoning prepaid wireless market aimed at the young or for customers with particular tastes. More competitors are expected to follow.

Boost, which recently began selling phones at Chicago area retailers including Best Buy and Target, will sponsor a snowboarding contest next weekend at Soldier Field to highlight its arrival here.

The new service from Boost, which uses the Nextel wireless network to deliver calls, is part of a rapidly growing field of so-called virtual wireless carriers.

And while the number of national cell phone carriers is shrinking from six to five thanks to the Cingular Wireless purchase of AT&T Wireless, the Boost product represents a counter trend: a sharp increase in the number of companies offering niche cell phone service.

"There's a window of opportunity right now for virtual carriers," said Michael Grossi, a principal with Adventis, a Boston-based consultant. "They need to get to market fast because if they wait too long, it'll be too late."

Since more than 60 percent of the U.S. population now has cell phones, mass marketing is running low on new prospects, Grossi said. It's time for the niche marketing to kick in.

Virgin Mobile, which caters to young adults and teenagers, has been a big hit in Britain, said Grossi. In the U.S., Virgin uses the Sprint PCS network to deliver service.

The virtual carriers are varied, ranging from phone companies to media giants.

Qwest Communications International, based in Denver, has a deal with Sprint to carry its cell phone service. Unlike Baby Bell competitors such as Verizon Communications Inc. and SBC Communications Inc., Qwest does not have a controlling stake in a cell phone operation.

Verizon Wireless is principally owned by Verizon Communications and SBC and BellSouth Corp. are the primary investors in Cingular Wireless.

Others, including Disney and Time Warner, are in various stages of launching virtual service on networks owned by others. Even AT&T's wired phone company is considering a virtual wireless service.

This proliferation of wireless services will give consumers broader choice, but probably won't spur price wars, Grossi said. "The contracts with host providers make it clear that virtual carriers can't underprice the host," he said.

Boost Mobile started four years ago in Australia to offer wireless service to teenagers, said Mark Fewell, a co-founder of the company.

"Large carriers saw youth as a low-value customer," said Fewell. "Our view was they're high-value customers who have no credit."

By making the service pre-pay, Boost tapped into a rich source of revenue.

Recent studies document the potential of selling wireless service to young people.

A report this week from A.T. Kearney found that ring tone downloads account for nearly 6 percent of current music sales. The primary market for ring tones -- which replace a phone's ring with a popular song -- are teenagers and young adults.

A.T. Kearney predicts that within two years more than 20 percent of all music sales will be made via cell phones.

In a study to be released Monday, Telephia Inc. found that mobile phone gaming for teens is a great, untapped revenue source. In a survey of 1,500 teenagers, Telephia found that 40 percent said they want gaming capabilities built into their next cell phone.

Boost's Fewell said his service offers a broad array of ring tones, wallpaper and games for sale to its customers. The next step will be games designed especially for Boost, he said.

Among virtual wireless carriers, the lifestyle branding plays such as Boost's are most assured of success, said Martin Dunsby, vice president of InCode, a San Diego consultant.

"Wireless is a relatively undifferentiated product," he said. "It's like credit cards where the market moves to a tailored, niche thing. You appeal to affinity groups."

Yet some people who are neither young nor fans of extreme sports might like Boost Mobile's product because it's the only way to get what amounts to a Nextel phone in a prepay plan, Dunsby said.

"I'm sure Boost likes having those customers," he said. "But not too many. If you have a lot of soccer moms using your product, the kids will stop believing that it's cool."

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