Understanding Consumer Use of Wireless Telephone Service

Transcription

1 Understanding Consumer Use of Wireless Telephone Service Findings from an AARP Survey Public Policy Institute

2 Understanding Consumer Use of Wireless Telephone Service Findings from an AARP Survey by Christopher A. Baker and Ann McLarty Jackson Public Policy Institute December 2000

3 Acknowledgements Many people contributed to the production of this report. Carl Hilliard, President of the Wireless Consumers Alliance, and David Furth, Senior Legal Advisor with the Federal Communications Commission s Wireless Telecommunications Bureau provided valuable critiques of the report. At AARP, Jeff Kramer, Coralette Marshall, and Susan Weinstock deserve special thanks for their thoughtful review comments. The Public Policy Institute, formed in 1985, is part of the Research Group at AARP. One of the missions of the Institute is to foster research and analysis on public policy issues of interest to older Americans. This publication is part of that effort. The views expressed herein are for information, debate and discussion, and do not necessarily represent the formal policies of the Association. AARP is the nation s leading organization for people age 50 and older. It serves their needs and interests through information and education, advocacy, and community services provided by a network of local chapters and experienced volunteers throughout the country. The organization also offers members a wide range of special benefits and services, including Modern Maturity magazine and the monthly Bulletin. 2000, AARP. Reprinting with permission only.

4 Executive Summary iii Contents Introduction 1 History 1 Government Oversight and Competition 4 Wireless Pricing 5 Service Quality 5 Purpose and Methodology 7 Detailed Findings 9 I. Subscribers 9 II.Non-Subscribers 31 Implications of Survey Findings for Consumer Information and Choice 35 Policy Options 37 Appendix: AARP Wireless/Cellular Telephone Study 38 AARP UNDERSTANDING CONSUMER USE OF WIRELESS TELEPHONE SERVICE i

5 List of Table and Figures Table 1 Demographic Characteristics of Survey Respondents 8 Figure 1.1 Respondents Who Subscribe to Wireless Service 9 Figure 1.2 Reasons for Using Wireless Service 10 Figure 1.3 Top Eight Wireless Service Providers 11 Figure 1.4 Top Four Reasons for Choosing Current Wireless Service Provider 12 Figure 1.5 Respondents Who are Satisfied with Their Wireless Provider 13 Figure 1.6 Respondents Who Make or Receive Wireless Calls, or Both 14 Figure 1.7 Median Number of Calls Made by Respondents Per Week 15 Figure 1.8 Median Number of Calls Received by Respondents Per Week 16 Figure 1.9 Respondents Who Use a Wireless Phone to Make Either Local or Long Distance Calls, or Both 17 Figure 1.10 Monthly Costs of Wireless Calling 18 Figure 1.11 Respondents Perceptions of What They Pay for Wireless Service 19 Figure 1.12 Most Important Feature in a Calling Plan 20 Figure 1.13 Frequency With Which Respondents Turn Off Their Wireless Phones to Avoid Paying for Incoming Calls 21 Figure 1.14 Respondents Who Have Switched Wireless Service to Get a Cheaper Rate 22 Figure 1.15 Percent of Respondents Who Avoid Making Some Calls Because of Concern Over Privacy 23 Figure 1.16 Year Respondent First Acquired Wireless Phone 24 Figure 1.17 Respondent s Wireless Phone Digital or Analog? 25 Figure 1.18 Respondents Cost for Wireless Telephone 26 Figure 1.19 Ease of Operating a Wireless Telephone 27 Figure 1.20 What Could Be Changed to Make Wireless Phones Easier to Use or Operate? 28 Figure 1.21 Frequency of Respondents Difficulty Hearing on Wireless Telephone 29 Figure 1.22 Respondents Who Have Considered Replacing Home Phone With Wireless Phone 30 Figure 2.1 Most Frequently Cited Reasons for Not Subscribing to Wireless Telephone Service at This Time 31 Figure 2.2 Non-users Who Have Subscribed to Wireless Service Previously 32 Figure 2.3 Non-users Who Have Considered Subscribing to Wireless Service 33 Figure 2.4 Respondents Who Are Very Likely or Somewhat Likely to Subscribe to Wireless Telephone Service in the Next 12 Months 34 ii AARP UNDERSTANDING CONSUMER USE OF WIRELESS TELEPHONE SERVICE

6 Background AT&T introduced the first mobile telephone service to the general public in 1946, but real growth in the wireless telephone industry did not occur until the mid-1980s, with the launch of commercial cellular telephone service. In fact, the cellular telephone industry grew from 91,000 subscribers in 1984 to more than 2 million subscribers in More recently, wireless telephone subscribership in the United States has doubled in just three years, growing from 49 million in June 1997 to more than 97 million in June For many of these people, a wireless telephone is as much or more a part of their life as their wired telephone at home. Wireless is a sweeping term, often used interchangeably with mobile, that includes cellular, Personal Communications Services (PCS) and Specialized Mobile Radio (SMR) phones and services, paging and messaging services, and a variety of other products and services. For the purposes of this report, wireless refers only to the cellular, PCS, and SMR systems used to provide mobile telephone service. From the customers perspective, the services provided over each of these three systems are essentially indistinguishable from the others. A wireless telephone, which is actually just a radio with a transmitter and a receiver, uses radio frequencies or channels instead of telephone wire to connect callers to the public telephone network. The total range of radio frequencies, known as spectrum, is used for many different purposes, including broadcasting radio and television stations and providing mobile telephone service. Every mobile provider must be licensed by the Federal Communications Commission (FCC) to use a specific portion of the spectrum allocated for mobile telephone service. Congress and the FCC generally have sought to avoid imposing regulatory burdens on the mobile telephone industry that might impede the development of competition. Indeed, wireless rates are not regulated at the federal, state, or local level of government. States, however, do have the authority to regulate the other terms and conditions of wireless service, which include billing disputes and other consumer protection matters. Partly as a result of the federal government s efforts to encourage competition over the past 20 years, 88 percent of the total U.S. population currently resides in counties in which three or more different companies offer mobile telephone service. Competition also has led to the development of equipment that transmits digital signals instead of, or in addition to, analog signals. Digital transmission takes up a Executive Summary AARP UNDERSTANDING CONSUMER USE OF WIRELESS TELEPHONE SERVICE iii

7 smaller portion of the airwaves than analog transmission so that companies are able to use the technology to increase subscriber capacity. Digital systems were developed in large part to upgrade analog cellular networks. However, the advent of this technology also has led to the emergence of Personal Communications Service (PCS) and Specialized Mobile Radio (SMR) companies that now compete with cellular providers in offering mobile telephone service. With increased competition and new technology, prices for wireless phones and services have decreased over the years. Indeed, the average monthly bill for mobile telephone service has dropped from nearly $100 in 1987 to a little more than $40 in However, the cost for wireless service can vary significantly depending upon the calling plan selected. With as many as 100 different calling plans available to consumers in big cities and each plan including a variety of fees and charges, choosing the best plan is often a daunting task. Calling plans also can vary by quality of service. A number of factors determine a wireless user s quality of reception; these include the network capacity and the type of network and technology used by the provider, and the number and placement of wireless towers. Buildings and other structures, mountains and other geography, and even inclement weather, which can all deflect or block radio signals, also may cause poor reception for wireless users. Purpose and Methodology Wireless telephones are becoming more popular in the United States as the cost has become more affordable and the quality of wireless service has improved. The purpose of this research project is to determine 1) the extent to which older consumers are using wireless telephones; 2) the reasons why consumers in general and older consumers in particular use wireless phones; 3) consumers understanding and awareness of the variety of choices available to them for wireless telephone service; and 4) the implications of the survey s findings for public policy. Between October 22 and December 14, 1999, Market Facts, Inc., obtained the data reported here through interviews with consumers, as part of a TeleNation omnibus telephone survey. A total of 3,085 respondents age 18 and older were asked whether they personally subscribe to and use wireless telephone service. Among these respondents, 1,530 identified themselves as subscribers and users of wireless service, and 1,555 as non-subscribers. Both groups were asked to supply the same demographic and household iv AARP UNDERSTANDING CONSUMER USE OF WIRELESS TELEPHONE SERVICE

8 information, but were asked different sets of questions pertaining to wireless telephone use and ownership. The sampling error for the total sample (subscribers and non-subscribers) is +1.8% at the 95% confidence interval. Sampling error for the sub-groups of subscribers and nonsubscribers is + 3.1%, both at the 95% confidence interval. All differences in responses noted in this report are statistically significant at the 95% confidence level, unless specifically stated otherwise. Key Findings Wireless Subscribers Fewer respondents age 18-49, as compared to those age 50 and older, say they personally subscribe to and use wireless telephone service (46% vs. 51% respectively). Respondents age 65 and older are nearly twice as likely as those age (54% vs. 30%) to say that security in case of an emergency is the reason they subscribe to wireless service. While security is the reason most often reported by older respondents for subscribing to wireless service, convenience is the most commonly cited reason among respondents age (44%). On average, respondents age say that they make 10 calls per week with their wireless phone, which is two and a half times greater than the number of calls made per week by respondents age and five times greater than the number of calls made each week by respondents age 65 and older. Respondents age 65 and older are nearly twice as likely as those age (35% vs. 19%) to report using their wireless phone only to make calls (and thus do not receive incoming calls). On average, respondents age say that they pay $45 per month for wireless telephone service, which is 36 percent more than respondents age report spending, and 80 percent more than respondents age 65 and older say they pay. Relatively few respondents age and even fewer of those age 65 and older say they have switched their wireless service provider to get a cheaper rate (19% and 12%, respectively). Respondents age are less likely than those age 50 and older (42% vs. 56%) to say that they are very satisfied with their current wireless provider. Fewer respondents age 18-49, as compared to those age 65 and older, say they do not know whether their wireless phone uses analog or digital technology (18% vs. 40%). AARP UNDERSTANDING CONSUMER USE OF WIRELESS TELEPHONE SERVICE v

9 Relatively few respondents age (15%) and even fewer age 65 and older (6%) report that they have ever contemplated replacing their wired home phone with a wireless one. Ninety percent of all respondents report having at least some difficulty operating a wireless telephone. However, more than 60 percent of all respondents say that there is nothing about their wireless phone that could be changed to make it easier to use. Non-Subscribers Non-subscribers age (21%) are more than twice as likely as those age (10%) and four times as likely as those age 65 and older (5%) to report that they have subscribed to wireless telephone service in the past. Non-subscribers age are more likely to say that they have considered subscribing to wireless service than non-subscribers age or age 65 and older (34% age vs. 21% age and 11% age 65 and older). Relatively few non-subscribers age (32%) and even fewer age (18%) and age 65 and older (8%) report that they are either somewhat likely or very likely to subscribe to wireless telephone service in the next 12 months. More than half of non-subscribers age and nearly three-fourths of non-subscribers age 65 and over say that insufficient need for wireless telephone service is the reason that they do not currently subscribe. Implications of Survey Findings for Consumer Information and Choice Much of the attention surrounding the growing wireless telephone industry has focused on younger subscribers, who tend to make more calls and spend more money on wireless service. Nevertheless, consumers age 50 and older are even more likely than their younger counterparts to report that they subscribe to and use wireless telephone service. Findings from this survey suggest that the availability of numerous competitors in the wireless telephone market does not necessarily ensure that consumers take advantage of these choices. In fact, among all wireless subscribers who responded to this survey, just 16 percent have ever switched companies to get a cheaper rate. Even fewer older respondents report that they have changed their wireless service provider. To put this in perspective, the long distance telephone industry, which also includes numerous competitors, offers an interesting comparison. According to a recent AARP survey, 62 percent of consumers who make long distance telephone calls say vi AARP UNDERSTANDING CONSUMER USE OF WIRELESS TELEPHONE SERVICE

10 they have changed their long distance company. Possible explanations for the lack of customer turnover in the wireless industry include long-term contracts that are required by many companies and expenses consumers might incur to get out of their contract or to buy a new wireless telephone if they switch to a company that uses different technologies and/or standards from their current provider. The reasons people subscribe to wireless telephone service tend to vary according to age. While younger subscribers often report that wireless service is most valuable because of the convenience it affords them, older subscribers are more likely to say they purchase wireless telephone service for security in case of an emergency. One finding from this survey, however, suggests that older consumers may lack the information necessary to choose the wireless service and phone that best suits their needs. Two in five older wireless subscribers do not know whether their phone uses analog or digital technology to transmit and receive calls. As was mentioned previously in this report, mobile phone operators using analog cellular systems have had many years to develop their networks and offer the broadest nationwide coverage. Yet digital systems offer more call security than analog and allow for additional services, like and caller ID. In addition, the batteries in digital phones last significantly longer than batteries in an analog phone. An understanding of this and other differences between analog and digital systems is essential if callers are to understand the actual capabilities and limitations of their phone. More than half of all subscribers say that they are very satisfied with their current wireless provider while a majority of the remaining subscribers report that they are somewhat satisfied. However, younger subscribers, who make five times as many calls as their older counterparts and purchase a phone primarily for convenience, are much less likely to report that they are very satisfied with their current wireless provider. In indicating their satisfaction with their current provider, older subscribers, many of whom are looking for security in case of an emergency, may, in fact, be expressing contentment in having the option to use wireless service if it is ever required. Policy Options Findings from this survey indicate that consumers may lack essential information and adequate protections to truly take advantage of competition in the wireless telephone industry. The following changes could prove AARP UNDERSTANDING CONSUMER USE OF WIRELESS TELEPHONE SERVICE vii

11 valuable to current and future wireless subscribers: Price and Quality Comparisons State policymakers could sponsor and disseminate price and quality comparisons of wireless goods and services, or require uniform disclosures to allow price comparisons by consumers. As a means to facilitate and encourage comparison shopping, consumers should have access to information that is low-cost or free, comprehensive, and easy to read. Service Coverage Maps State policymakers could require all wireless phone companies to provide a map of the area covered by their wireless network to all current and prospective customers. Real Customer Choice State policymakers could require companies to allow consumers to rescind any contract for wireless telephone service within 60 days. State policymakers also could undertake consumer education activities or require wireless providers to disclose or warn customers that long-term agreements may limit their ability to switch services or access different technologies. Consumer Complaint Data The appropriate federal and state agencies could compile and report the number of complaints they receive regarding wireless phone service. State Consumer Education Programs State policymakers could create and fund, or require the industry to fund, customer education programs for wireless telecommunications competition. viii AARP UNDERSTANDING CONSUMER USE OF WIRELESS TELEPHONE SERVICE

12 For a large and rapidly growing number of Americans, a wireless (mobile) telephone has become an important communications tool. Wireless telephone subscribership in the United States has doubled in just three years, growing from 49 million in June 1997 to more than 97 million in June For many of these subscribers, a wireless phone is as much or more a part of their life as their wired telephone at home. Wireless is a sweeping term, often used interchangeably with mobile, 2 that includes cellular, Personal Communications Services (PCS) and Specialized Mobile Radio (SMR) phones and services, as well as paging and messaging services, and a variety of other products and services. For the purposes of this report, wireless refers only to the cellular, PCS, and SMR systems 3 used to provide mobile telephone service. A wireless telephone, which is actually a radio with a transmitter and a receiver, uses radio frequencies or channels 4 instead of telephone wire to connect callers to the public telephone network. The total range of radio frequencies, known as spectrum, is used for many different purposes, including broadcasting radio and television stations and providing mobile telephone service. Every mobile provider must be licensed by the Federal Communications Commission (FCC) to use a specific portion of the spectrum allocated for mobile telephone service. History AT&T introduced the first mobile telephone service to the general public in Just one year later, wireless telephone service was initiated in more than 25 U.S. cities. 6 While demand for the service was high, only a limited number of channels were available in major cities during these early years, and since each channel was capable of carrying just one conversation at a time, only a handful of conversations occurred simultaneously in any metropolitan area. As a result of this limited capacity, most mobile systems did not accommodate more than a couple hundred subscribers, who typically experienced long delays before their calls were connected. Many would-be subscribers often spent years on a waiting list before gaining access to service. System capacity remained a problem for a significant period of time. In fact, with a total of about 44,000 mobile subscribers across the country, AT&T still had 20,000 people on 5-to-10-year waiting lists in System capacity for mobile telephone service increased significantly with the launch of commercial cellular telephone service in the mid-1980s. While earlier mobile telephone systems employed a single high-powered Introduction AARP UNDERSTANDING CONSUMER USE OF WIRELESS TELEPHONE SERVICE 1

13 transmitter to send and receive radio signals in an area of up to 60 miles in diameter, cellular networks use many relatively low-powered transmitters to cover the same area. More specifically, each transmitter in a cellular system served an area known as a cell that covered an area between 2 and 40 miles in diameter. 8 The design of a cellular telephone system makes it possible to re-use radio frequencies to carry more than one conversation at a time. As a result, the cellular concept allows service providers to accommodate many more subscribers. Demand for cellular service increased almost as quickly as new capacity was added. In fact, the cellular telephone industry grew from 91,000 subscribers in 1984 to more than 2 million subscribers in Much of this growth was due to the emergence of a variety of advanced technologies, which were created for other reasons but utilized by cellular telephone developers to produce smaller, cheaper, and better quality mobile phones. For example, the use of microprocessors and integrated circuits as well as improved high capacity batteries made it possible to decrease the size and cost of a cellular telephone and improve call quality. 10 The use of these new technologies also meant that a mobile phone, which was almost exclusively mounted in an automobile in earlier years, would then also be available as a portable unit that could be carried anywhere. Another factor that contributed to the growth of cellular telephone service was the FCC s decision to establish advanced mobile phone service (AMPS) as the specific analog 11 technical standard that all cellular systems and telephones had to meet. By requiring this standard, the FCC facilitated the creation of a nationwide compatible cellular network, making it possible to use a cellular phone even in locations covered by another cellular service provider. By 1988, however, demand for cellular telephone service, particularly in major metropolitan areas such as New York and Los Angeles, began to strain the capacity of many analog cellular systems. As a result, calls made in these big cities were often blocked or disconnected because too many conversations were competing for the limited number of channels. In an effort to expand the capacity of existing channels to meet the booming demand, the FCC revised its rules in 1988 to allow cellular companies to use new technologies in providing cellular telephone service. While the Commission maintained that cellular companies must continue to support the analog standard, their ruling encouraged the development of equipment that transmitted digital 12 signals instead of, or in addition 2 AARP UNDERSTANDING CONSUMER USE OF WIRELESS TELEPHONE SERVICE

14 to, analog signals. 13 Because digital transmission requires less space on a channel than analog transmission, companies were able to increase subscriber capacity if they upgraded their system with digital equipment. Digital technology offered other benefits as well. It enabled cellular carriers to provide more services to customers such as caller ID, voic , and text messaging that could not be delivered over analog technology. Further, because digital technology makes eavesdropping more difficult, providers that upgraded to digital cellular offered customers a more secure form of mobile telephone service. With the development of digital technology, dramatic growth in the cellular industry continued into the 1990s as the number of subscribers went from over 11 million in 1992 to 36 million in 1996 to more than 58 million by the end of While digital systems were developed in large part to upgrade analog cellular networks, the advent of this technology also led to the emergence of two new types of mobile telephone service. In 1994, as a means to create more competition in the mobile telephone services marketplace, the FCC reallocated a portion of spectrum previously used to provide services to railroads, utilities, and the police for the purpose of providing Personal Communications Services (PCS). Several companies soon developed national PCS networks that now provide service to more non-cellular mobile phone subscribers in the United States than any other type of system. By the end of 1999, PCS subscribership had grown to 14.5 million, more than doubling the number of subscribers just one year earlier. 15 Specialized Mobile Radio 16 (SMR) service was first established by the FCC in 1979 and typically used as a two-way radio dispatch service for employees of delivery companies to communicate with each other. However, with the introduction of digital technology, SMR providers also began to offer digital mobile telephone service and compete with cellular and PCS services. More than 4.8 million customers subscribed to SMR mobile phone service in Regardless of the type of system employed, whether PCS, SMR, or digital cellular, providers of digital mobile phone service offer basically the same product; they simply use different portions of the airwaves to serve their customers. Overall, digital subscribers represent more than half (52%) of the 86 million mobile phone customers in this country, which means that for the first time the number of subscribers choosing digital service now exceeds the number who opt for analog service. 18 AARP UNDERSTANDING CONSUMER USE OF WIRELESS TELEPHONE SERVICE 3

15 Government Oversight and Competition Throughout the past two decades, Congress and the FCC have sought to encourage competition in the mobile telephone industry. In 1981, the FCC established that two competing companies per market would offer cellular telephone service. To facilitate an extra measure of competition, the Commission also granted resellers the right to purchase service from these competitors and re-sell it to end-users. Prior to 1993, most providers of public wireless telephone service were treated as common carriers, which meant that they were subject to the same federal and state regulations that applied to the more traditional telephone companies, the providers of public wired telephone service. 19 However, in passing the Omnibus Budget Reconciliation Act of 1993, Congress gave the FCC the authority to make certain common carrier regulations inapplicable to wireless service providers if the Commission determined that the requirements were: 1) unnecessary to ensure just, reasonable, and nondiscriminatory rates; 2) inconsistent with the public interest; and 3) unnecessary to protect consumers. 20 Pursuant to this authority, the FCC decided that wireless providers would not be subject to most rate regulation or many other com- mon carrier rules. 21 Congress also explicitly prohibited state and local governments from regulating the rates charged by any wireless service provider as a means to encourage competition in the marketplace and provide wireless services to the largest feasible number of subscribers. 22 States, however, retained the authority to regulate the other terms and conditions of wireless service, which include placement of wireless facilities; 23 customer billing information and practices; billing disputes and other consumer protection matters. 24 In 1994, the FCC allocated a large share of airwaves for PCS services to provide competition to cellular carriers. The decision split the PCS airwaves into six parts so that each market could have as many as six PCS competitors as well as the two existing cellular providers. 25 Partly as a result of these efforts, as well as the establishment of an FCC requirement that each provider expand its network within a given timeframe to maximize its coverage area, FCC data now show that 88 percent of the total U.S. population reside in counties in which three or more different companies offer mobile telephone service. Further, about 69 percent of the U.S. population lives in counties with five or more mobile telephone operators competing to offer service AARP UNDERSTANDING CONSUMER USE OF WIRELESS TELEPHONE SERVICE

16 Wireless Pricing Prices for wireless phones and services have decreased over the years. Indeed, the average monthly bill for mobile telephone service has dropped from nearly $100 in 1987 to a little more than $40 in The purchase price of a portable mobile phone has also decreased over time, dropping from nearly $4,000 in 1982 to about $850 in Today, a good quality portable phone can be purchased for under $100. Some wireless calling plans include a free or discounted wireless phone as part of the contract. The cost for wireless phone service can vary significantly depending upon the calling plan selected. Choosing the best plan, however, can be a daunting task. Consumers in small cities have dozens of calling plans from which to make a selection, while those in large metropolitan areas can have as many as 100 options. Typically, wireless subscribers pay a flat monthly fee that includes a fixed number of calling minutes for outgoing and incoming calls. If a caller uses more than his or her monthly allotment of minutes, the provider adds a per-minute charge to cover the extra calling time. Some plans also may assess roaming and long-distance charges on a perminute basis. Other plans may avoid billing for roaming and long-distance calls by charg- ing a higher monthly fee. Some wireless companies may charge a one-time activation fee ranging from $1 to as much as $50. Finally, because most companies require customers to sign a one- or two-year service contract, wireless users typically must pay substantial fees for early cancellation. Service Quality A number of factors determine a wireless user s quality of reception. These include the network capacity, the type of network and technology used by the provider, and the number and placement of wireless towers. Buildings and other structures, mountains and other geography, and even inclement weather, which can all deflect or block radio signals, also may cause poor reception for wireless users. Companies using analog cellular systems have had many years to develop their networks and offer the broadest nationwide coverage. In many rural areas, analog cellular is the only service available. However, as demand for mobile telephone service has increased over the years, call traffic has, at times, overwhelmed the capacity of analog networks, resulting in busy signals and disconnected calls for some wireless subscribers. While digital technology allows wireless AARP UNDERSTANDING CONSUMER USE OF WIRELESS TELEPHONE SERVICE 5

17 providers to increase network capacity, digital networks are relatively new and, as a result, typically offer more limited coverage. 27 In fact, digital networks cover areas containing only about 60 percent of the nation s population, while analog reaches almost 90 percent. Expanding these networks can be expensive. The average estimated cost of building a single cell site, an area measuring just 2 to 10 miles in diameter, may be $180,000 or more. 28 In addition, callers may encounter reception problems while attempting to use their digital phone outside of their service territory, a process referred to as roaming. Unlike the operators of analog cellular networks, who all rely on AMPS as their standard operating system, U.S. providers of digital phone service have adopted competing network technologies. 29 This creates a problem because wireless phones may be incompatible with the technologies used by service providers outside of the customer s home calling area. A similar problem may occur for callers attempting to use their phone in an area where the provider operates on a different frequency from that used by the customer s current provider. For example, callers may discover that their PCS phones do not work in a particular area outside their home territory because no provider in that area offers service at the PCS frequency (1900MHz vs. the cellular frequency at 800MHz). Some wireless phones are designed to operate in two different technologies (dual mode phone) and/or at two different frequencies. However, wireless phones that can function in more than one frequency band and in more than one technology are also more expensive. One of the best ways to assess the quality of service coverage in the mobile phone industry would be to review customer complaints. Regrettably, no federal or state agency is currently required to undertake customer satisfaction surveys with regard to mobile telephone service. 6 AARP UNDERSTANDING CONSUMER USE OF WIRELESS TELEPHONE SERVICE

18 Wireless telephones are becoming more popular in the United States as the cost has become more affordable and the quality of wireless service has improved. The purpose of this research project is to determine 1) the extent to which older consumers are using wireless telephones; 2) the reasons why consumers in general and older consumers in particular use wireless phones; 3) consumers understanding and awareness of the variety of choices available to them for wireless telephone service; and 4) the implications of the survey findings for public policy. The data reported here were obtained through telephone interviews with consumers. Market Facts, Inc. conducted these interviews between October 22 and December 14, 1999, as part of a TeleNation omnibus telephone survey. A total of 3,085 respondents age 18 and older were asked whether they personally subscribe to and use wireless telephone service. Among these respondents, 1,530 identified themselves as subscribers and users of wireless service, and 1,555 as non-subscribers. Both groups were asked to supply the same demographic and household information, but were asked different sets of questions pertaining to wireless telephone ownership and use. Table 1 characterizes the gender, household income, and education of all respondents by age. One goal of the survey was to be able to compare findings across different age groups of the U.S. adult population with a focus on persons age 50 years and older. Thus, it was necessary to sample larger numbers of older persons than would have been necessary to examine the findings for the population as a whole. The resulting sample included 1,167 persons age 18-49, 897 persons age 50-64, and 811 persons age 65 and older. When findings are presented for the entire sample, representing the U.S. population as a whole, the findings for each age group are weighted in proportion to their known percentages in the total population of the United States. The sampling error for the total sample (subscribers and non-subscribers) is +1.8% at the 95% confidence interval. Sampling error for the sub-groups of subscribers and nonsubscribers is + 3.1%, both at the 95% confidence interval. All differences in responses noted in this report are statistically significant at the 95% confidence level, unless specifically stated otherwise. Therefore, it is expected that differences reported would represent true differences in the general population 95 percent of the time. Purpose and Methodology AARP UNDERSTANDING CONSUMER USE OF WIRELESS TELEPHONE SERVICE 7

19 Table 1: Demographic Characteristics of Survey Respondents Demographic characteristics (Unweighted (n))* (Weighted (n))** Total (n=3085) (n=3106) % Age (n=1167) (n=1185) % Age (n=897) (n=963) % Age 65+ (n=811) (n=853) % Gender Male Female Household income Under $15K $15K to < $25K $25K to < $40K $40K to < $50K $50K to < $75K $75K or more Don t know/refused Education Completed grade school Some high school Completed high school Some college Completed college Post grad work *Unweighted n s are the actual number of survey respondents. Weighted n s refer to population estimates in 100,000s (e.g., 3009 = 300,900,000). Each percentage in this table refers to a portion of the weighted n at the top of the column. **The difference between the sum total of respondents from the three age groups and the corresponding numbers under the column labeled Total represents the number of people who refused to provide their age for this survey. 8 AARP UNDERSTANDING CONSUMER USE OF WIRELESS TELEPHONE SERVICE

20 Detailed Findings SUBSCRIBERS Figure 1.1: Respondents Who Subscribe to Wireless Service Source: AARP Wireless/Cellular Telephone Survey, Winter (n=1481) 60% 50% 46% 53% 49% Fifty percent of all respondents report that they personally subscribe to and use wireless telephone service. Respondents age 50 and over are more likely than respondents age to personally subscribe to and use wireless telephone service % 30% 20% 10% 0% Age AARP UNDERSTANDING CONSUMER USE OF WIRELESS TELEPHONE SERVICE 9

21 Figure 1.2: Reasons for Using Wireless Service Source: AARP Wireless/Cellular Telephone Survey, Winter (n=1481) When asked why they subscribe to wireless telephone service, respondents are most likely to say that wireless service offers the convenience of being able to make calls from anywhere (39%) or provides security in case of an emergency (39%). Responses to this question tend to vary by age. Respondents age 65 and older are nearly twice as likely as those age (54% vs. 30%) to say that security in case of an emergency is the reason they subscribe to wireless service. While security is the reason most often reported by older respondents for subscribing to wireless service, convenience is the most commonly cited reason among respondents age (44%). 60% 50% 40% 30% 20% 44% 30% 16% Convenience Security/in case of an emergency To talk to family/friends Business/work purposes 54% 37% 38% 37% 14% 10% 10% 10% 7% 6% 0% Age 10 AARP UNDERSTANDING CONSUMER USE OF WIRELESS TELEPHONE SERVICE

22 Figure 1.3: Top Eight Wireless Service Providers 31 Source: AARP Wireless/Cellular Telephone Survey, Winter (n=1481) Service Providers AT&T Cellular One (SBC) Airtouch 9% 10% 16% When asked to name their current wireless telephone service provider, respondents are more likely to say AT&T than any other single company. The responses, however, varied with age of the respondent. Eighteen percent of respondents age 65 and older reported using AT&T, compared to only 12 percent of respondents age Bell Atlantic 8% GTE 7% Bell South 6% ALLTEL 6% Sprint 5% 0% 2% 4% 6% 8% 10% 12% 14% 16% AARP UNDERSTANDING CONSUMER USE OF WIRELESS TELEPHONE SERVICE 11

23 Figure 1.4: Top Four Reasons for Choosing Current Wireless Service Provider Source: AARP Wireless/Cellular Telephone Survey, Winter (n=1481) A relatively large segment of wireless subscribers (35%) say that the price of wireless service more specifically, lower rates and/or a special discount or promotion is the primary reason they selected their current service provider. Another relatively large group of wireless subscribers (19%) reports that their company s reputation is the reason they chose their current provider. Wireless subscribers age 50 and older are less likely than their younger counterparts to cite price as the reason for their selection. 45% 40% 35% 30% 25% 20% 41% 17% Price/low rates/discount/special promotion Company's reputation/previous experience Limited or no choice of providers Convenience/company contacted me 34% 30% 23% 17% 15% 10% 10% 9% 9% 5% 4% 5% 6% 0% Age 12 AARP UNDERSTANDING CONSUMER USE OF WIRELESS TELEPHONE SERVICE

24 Figure 1.5: Respondents Who Are Satisfied With Their Wireless Provider Source: AARP Wireless/Cellular Telephone Survey, Winter (n=1481) Age % 44% Very satisfied Somewhat satisfied Nearly nine in 10 wireless subscribers say they are either very satisfied (51%) or somewhat satisfied (38%) with their current provider of wireless telephone service. However, subscribers age 50 and older are more likely than their younger counterparts to report that they are very satisfied with their current wireless provider (56% vs. 42% of those age 18-49) % 35% % 31% 0% 20% 40% 60% 80% AARP UNDERSTANDING CONSUMER USE OF WIRELESS TELEPHONE SERVICE 13

25 Figure 1.6: Respondents Who Make or Receive Wireless Calls, or Both Source: AARP Wireless/Cellular Telephone Survey, Winter (n=1481) More than one-fourth (27%) of all wireless subscribers surveyed indicate that they only use their phone to make calls and do not receive incoming calls. The likelihood that a respondent only uses a wireless phone to place outgoing calls varies by age. Fewer wireless subscribers age (19%), as compared to those age 50-64(28%) and 65+ (35%), report that they only use their wireless phone to make calls. 90% 75% 60% 80% 69% Make calls Receive calls Both 58% 45% 35% 30% 28% 19% 15% 0% 1% 1% Age 3% AARP UNDERSTANDING CONSUMER USE OF WIRELESS TELEPHONE SERVICE

26 Figure 1.7: Median Number of Calls Made by Respondents Per Week Source: AARP Wireless/Cellular Telephone Survey, Winter (n=1423) Number of calls 10 The number of calls a subscriber makes with his or her wireless phone during a given week tends to vary according to the age of the subscriber. The median number of calls made in a week by subscribers age 18 to 49 is 10, which is five times the median number of calls that subscribers age 65 and older report making in a typical week Age AARP UNDERSTANDING CONSUMER USE OF WIRELESS TELEPHONE SERVICE 15

27 Figure 1.8: Median Number of Calls Received by Respondents Per Week Source: AARP Wireless/Cellular Telephone Survey, Winter (n=1040) The number of calls a subscriber receives on his or her wireless phone during a given week tends to vary according to the age of the subscriber. The median number of calls received in a week by subscribers age 18 to 49 is 10, which is equal to five times the median number of calls that subscribers age 65 and older report receiving in a typical week Number of calls Age 16 AARP UNDERSTANDING CONSUMER USE OF WIRELESS TELEPHONE SERVICE

28 Figure 1.9: Respondents Who Use a Wireless Phone to Make Either Local or Long Distance Calls, or Both Source: AARP Wireless/Cellular Telephone Survey Winter (n=1423) 64% 58% 58% Local calls only Long-distance calls only Both 51% While more than a third of all subscribers (37%) say they only use their wireless telephone to make local calls, a majority of subscribers (56%) report that they use their wireless service to make both local and long distance calls. 48% 38% 37% 37% 32% 16% 8% 4% 3% 0% Age AARP UNDERSTANDING CONSUMER USE OF WIRELESS TELEPHONE SERVICE 17

29 Figure 1.10: Monthly Costs of Wireless Calling Source: AARP Wireless/Cellular Telephone Survey, Winter (n=1481) Wireless subscribers report that they spend $32 32 per month for wireless telephone service. Since older respondents typically make fewer calls with their wireless telephone than their younger counterparts, it is not surprising that the older respondents estimates of their monthly wireless charges are lower. At $45 per month, the median amount spent by respondents age on wireless service is 36 percent and 80 percent more than the amount spent by respondents age and age 65+, respectively. $50 $40 $30 $45 $33 $25 $20 $10 $ Age 18 AARP UNDERSTANDING CONSUMER USE OF WIRELESS TELEPHONE SERVICE

30 Figure 1.11: Respondents Perceptions of What They Pay for Wireless Service Source: AARP Wireless/Cellular Telephone Survey, Winter (n=1481) don't know/refused 4% Wireless subscribers are about as likely to report that they are getting a good deal on their wireless telephone service (34%) as they are to say that their wireless service costs too much (32%) or is worth about what they are paying (31%). getting a good deal 33% costs too much 32% about what it's worth 31% AARP UNDERSTANDING CONSUMER USE OF WIRELESS TELEPHONE SERVICE 19

31 Figure 1.12: Most Important Feature in a Calling Plan Source: AARP Wireless/Cellular Telephone Survey, Winter (n=1481) When asked to identify the one pricing feature among four options that they consider the most important, wireless subscribers most often choose a flat rate payment method, that is, a rate that remains constant during peak and off-peak calling times. 40% 35% 38% 34% No long distance charges Free calls on weekends/nights No roaming charges Flat rate None of the above 32% 30% 30% 25% 24% 22% 21% 20% 15% 10% 13% 14% 12% 7% 15% 11% 11% 5% 0% 3% Age 20 AARP UNDERSTANDING CONSUMER USE OF WIRELESS TELEPHONE SERVICE

32 Figure 1.13: Frequency With Which Respondents Turn Off Their Wireless Phone to Avoid Paying for Incoming Calls Source: AARP Wireless/Cellular Telephone Survey, Winter (n=1481) Age % 24% 49% 31% 18% 48% Always Sometimes Never Subscribers to traditional wired telephone service typically pay only for the calls they make and do not pay any additional charges to receive telephone calls. In contrast, wireless telephone consumers throughout the United States generally pay on a per-minute basis for all calls they initiate and receive. Over half of all respondents (51%) say that they sometimes or always turn off their wireless phone to avoid having to pay for incoming calls. Respondents age 65 and older (55%) are even more likely than respondents age or age (both at 49%) to report that they sometimes or always turn off their phone to avoid incurring additional charges % 21% 39% 0% 20% 40% 60% 80% 100% AARP UNDERSTANDING CONSUMER USE OF WIRELESS TELEPHONE SERVICE 21

33 Figure 1.14: Respondents Who Have Switched Wireless Service to Get a Cheaper Rate Source: AARP Wireless/Cellular Telephone Survey, Winter (n=1481) Sixteen percent of all respondents say they have switched their wireless service provider to get a cheaper rate. Responses, however, tend to vary by the age of the subscriber. While 19 percent of respondents age report that they have switched wireless companies to get a cheaper rate, only 12 percent of those age 65 and older say they have done the same. 25% 20% 15% 19% 18% 10% 12% 5% 0% Age 22 AARP UNDERSTANDING CONSUMER USE OF WIRELESS TELEPHONE SERVICE

34 Figure 1.15: Percent of Respondents Who Avoid Making Some Calls Because of Concern Over Privacy Source: AARP Wireless/Cellular Telephone Survey, Winter (n=1481) 25% 20% 22% Fifteen percent of all respondents say that they have avoided using a wireless telephone for particular conversations because of concern about the privacy of the call. This includes more than one in five respondents age % 14% 10% 8% 5% 0% Age AARP UNDERSTANDING CONSUMER USE OF WIRELESS TELEPHONE SERVICE 23

35 Figure 1.16: Year Respondent First Acquired Wireless Phone Source: AARP Wireless/Cellular Telephone Survey, Winter (n=1481) More than half of all wireless subscribers (58%) say that they first started using a wireless phone sometime after 1995, a finding that is consistent across age groups. 35% 30% 31% 25% 27% 20% 20% 15% 10% 5% 7% 6% 8% 0% Years 24 AARP UNDERSTANDING CONSUMER USE OF WIRELESS TELEPHONE SERVICE

36 Figure 1.17: Is Respondent s Wireless Phone Digital or Analog? Source: AARP Wireless/Cellular Telephone Survey, Winter (n=1481) 60% Digital 53% Analog Don't Know 50% 41% 40% 39% 40% 32% 30% 28% 27% 21% 20% 18% 10% 0% Age Wireless telephones use either analog or digital technology to transmit and receive calls. 33 Analog telephones have been available for almost two decades and are now connected to a network that almost completely covers the United States, including many of its most rural areas. Because digital service is newer and typically not as widespread as analog, consumers may find that their digital phones do not work in some areas. However, digital technology allows wireless providers to increase network capacity, offer more call security than analog, and allow for additional services, like and caller ID. In addition, the batteries in digital phones last significantly longer than batteries in an analog phone. When asked what type of wireless phone they have, nearly half of all subscribers (45%) report that they currently use a digital system. The other half is equally divided between those who say that their current wireless telephone is an analog system and those who do not know whether their wireless phone uses analog or digital technology. Answers to this question tend to vary by age. Fifty-three percent of subscribers age say they use a digital phone, as compared to 40 percent of subscribers age 50 and older. Relatively few subscribers age 18-49, as compared to subscribers age 65 and older, do not know whether their wireless phone uses analog or digital technology (18% vs. 40%). AARP UNDERSTANDING CONSUMER USE OF WIRELESS TELEPHONE SERVICE 25

37 Figure 1.18: Respondents Cost for Wireless Telephone Source: AARP Wireless/Cellular Telephone Survey, Winter (n=1481) Subscribers pay varying amounts for a wireless telephone. While 20 percent of all subscribers responding to this survey report that they paid less than $25 for their phone, 27 percent say they paid $75 or more. In addition, nearly one in four (24%) subscribers say they paid nothing for their wireless telephone because it was a gift. Younger subscribers are more likely to say they spent more on their wireless phone than their older counterparts. In fact, 31 percent of subscribers under the age of 65 say they spent more than $75, while just 19 percent of subscribers age 65 and older report spending that much. Respondents' Cost Don't know/refused gift More than $100 $75 to $100 11% 11% 16% 24% $50 to $75 7% $25 to $50 11% Less than $25 20% 0% 5% 10% 15% 20% 25% 26 AARP UNDERSTANDING CONSUMER USE OF WIRELESS TELEPHONE SERVICE