The US market with 80 million subscribers, the largest market with the lowest tariffs, has several ironies about it.

A recent survey by the Cellular Telecommunications Industry Association (CTIA) revealed that the average cellular monthly bill in mid-1999 was around $40, half of that a decade ago.

Revenues for the 12-month period touched around $37.21 billion (a 26 per cent jump). As per CTIA, a new customer is added to the wireless network every 2.25 seconds. The irony is that despite high subscriber growth rates, the proportion of people having mobile phones (26 per cent) is much less than that in Japan and other Scandinavian countries that started much later off the block.

Importantly, the going for the wireless business too has not been great, as the average revenue per subscriber is on the decline. The primary reason for thisf decline is intense competition.

Prior to 1994, a duopoly in the market allowed providers to have their way. This ended when the Federal Communications Commission (FCC), the US telecommunications licensing and regulatory authority, started auctioning licenses. These auctions saw new entrants eat into established cellular businesses.

Then, as customer churn -- when a customer changes service providers -- increased by leaps and bounds, so did the cost of retaining them. The annual churn rate in the US market is estimated to cross 31 per cent in 1999. Customer acquisition and maintenance costs obviously have to follow.

Add to this the need for heavy capital investments. The reported annual cumulative investment till June 1999 is $66.78 billion; CTIA says this is 33 per cent over last year's figures.

Reports suggest that AT&T plans to invest around $2 billion in 1999 and Sprint PCS $1.5 billion. This is unavoidable where technological innovations demand modernisation. During 1994-96, most mobile operations in the US were analogue based. Investments were required to upgrade the systems. Even today, while most European countries offer digital services, the latter account for only 30 per cent of mobile communications.

Industry observers say that the conversion is slow because the government and the FCC were slow in both ushering in competition and maintaining uniform standards. The US market has conflicting technologies like TDMA, CDMA and GSM which has resulted in higher costs for consumers, higher investments by cellular equipment (handset) manufacturers and unreasonably high roaming charges as users move from one network to the other. Harmonisation is still far from over.

What remains is that the US industry would have to innovate and move at a rapid pace to maintain bulk and high end users. There are chances that the operating margins would crash from the current 40 per cent to around 25 per cent, eating into already sparse profits.

The churn and the margins could come next as US players start offering value added services bundled together. According to a study carried out by Cahners In-Stat, a US based research outfit, many service providers could acquire and retain customers simply by bundling converged services and then charging a penalty for dropping any one service.