As the number of phone customers replacing land lines with mobile handsets continues to rise, companies that offer unlimited wireless local calling are seeing strong demand for service.
But such popularity hasn't enabled the original player in the field to stave off bankruptcy.
This month, the pioneer of unlimited local wireless service, Leap Wireless, filed for Chapter 11 bankruptcy protection after failing to secure fresh financing to meet debt-payment requirements. The company's stock, which traded a year ago for more than $10 a share, now sells for less than 8 cents.
But while Leap failed as a publicly traded company, industry analysts have been impressed by its appeal to customers.
Leap Wireless' Cricket service lets anyone purchase a cell phone off a supermarket shelf and pay a flat fee of $33 a month for local and incoming calls. Customers can make long-distance calls for 8 cents a minute and calls to Mexico for 18 cents a minute.
In the last two-and-a-half years, Leap managed to snag close to 1.5 million customers and become the 10th-largest carrier in the United States, an analyst said.
"That is spectacular growth," said Roger Entner, an analyst with market research firm Yankee Group. "It is difficult to grow any faster than that."
MetroPCS, another startup mimicking Leap's business plan, is also growing rapidly. The company, which has been around since February 2002, sells unlimited local phone calls for $35 a month. Customers can purchase a long-distance plan starting at $3 a month for three hours' worth of calls. International plans cost more, but customers are alerted every time they make an international call as to the balance on their account, said a company spokeswoman.
While MetroPCS is a privately held company that has not revealed its finances nor the number of subscribers to its service, the spokeswoman said the company's business model "is definitely working."
Cell-phone users "are tired of keeping track of minutes," said Diane McKenna, director of advertising and brand management for MetroPCS. "MetroPCS offers them the opportunity to know what their bill is going to be every month and they can use their phones whenever they want to."
That's not to say there are no drawbacks to the MetroPCS and Cricket services. MetroPCS is only available in eight greater metropolitan areas. The limited number of service areas could prove to be an inconvenience for some users, especially business travelers who typically demand more widespread coverage.
Leap Wireless' Cricket service is in 40 markets. Cricket does not let its users roam onto other cellular networks -- an advantage carriers with consistent nationwide coverage can offer.
Scott Ellison, an analyst with market research firm IDC, says the lack of nationwide service makes Cricket and MetroPCS less appealing to business customers, but does not stand in the way of broad consumer adoption.
"Most people don't travel beyond their home market all that often," he said.
Ellison applauded Leap's plans not to pursue other markets but to focus, instead, on building its base in the cities it serves.
Leap said it was forced to file for Chapter 11 protection last week when it could not pay back its debts of about $1.8 billion. Its court bid for financial restructuring had nothing to do with Cricket's adoption, however, Leap spokesman Jim Seines said.
Seines emphasized that the company would continue to serve its customers and pay its employees even during court proceedings.
"We are close to reaching an agreement on a plan to restructure our outstanding debt and expect to file that plan within the next few weeks," Seines said.
The company accumulated much of that debt from building out its network when it first got started in 1999, Seines said.
"We definitely consider this a viable market," he said. "Over 26 percent of our customers say that Cricket is their only phone compared to 3 percent of the wireless industry in general."
Ellison estimates that at least 5 million people in the United States today use their cell phones as their only phones -- "cutting the cord," as the industry calls it. Companies like Leap Wireless have helped pave the way for that trend, he said.
Ellison said many of the cell-phone behemoths like Verizon Wireless, Cingular Wireless and Sprint PCS Group won't actively promote cell-phone service as a substitute for traditional home phone service because they have ties to traditional land-line companies -- Verizon Communications, SBC Communications and Sprint Corp. respectively, Ellison said.
But with an unstable economy and as more Americans snap up cell phones -- wireless phone ownership hovers at around 50 percent, according to the Cellular Telecommunications & Internet Association -- cell-phone carriers are bound to release very competitive rates this year, analysts say. Some analysts predict consolidation in the marketplace.
"We may end up with 4 or 5 large carriers," Entner said.
Where does that leave a small company like Leap?
"It really depends on how much of that (debt) gets extinguished and what they do about expansion," Entner said. "If some of the larger carriers try to go out and squash them, then things can get dicey" for upstarts like Leap. Alternatively, larger carriers could buy the smaller companies.
