Do Short Term Rentals Have a Long Term Future?

Mobile Communications International; May 1996

While GSM has the potential to threaten rental services, there are still a number of market niches available. Plastic roaming is one of them.

Short term rentals for cellular telephones have always had a relatively low profile. The rental business is effectively a tertiary element in the cellular food chain, as it neither promotes subscriber growth or innovation.

These businesses are mostly handled by specialist operators. Although there are some smaller outfits which are part of a bigger cellular retail outlet, the 'specialists' tend to consist of wholly independent operations which are authorized airtime resellers or subsidiary companies which belong to a cellular carrier...

Tax deductible: For customers who determine that they will only need a mobile occasionally, renting a phone can work out cheaper than owning one. In certain countries, renting a cellular phone is tax deductible.

As dedicated rental specialists are often service providers or airtime resellers, they tend to purchase their airtime in bulk. Whilst this means they set their own tariffs, they are usually able to present the client with their bill within 48 hours.

Uphill technology struggles: Rental phones have a particularly strong market position in the US on account of the country's patchwork of dozens of different local and regional AMPS networks. Frequently a businessman wanting to travel from the East to West Coast of the US faces an uphill struggle to arrange workable roaming agreements with all of the local and regional cellular carriers along the way.

Companies like Action Cellular of San Francisco are positioning themselves to fill that market need. Providing the traveler can give an idea of his or her advance itinerary, both rental companies can arrange multiple roaming to be programmed into their AMPS rental phones. The market opportunities for such companies are sure to increase as America moves into multi-technology PCS era.

In Europe and Asia Pacific, on the other hand, the deployment of GSM offering universal roaming capabilities might appear as a threat to marketing opportunities for cellular phone hire.

Plastic roaming opportunities: Rental companies see particularly strong opportunities in the emerging trans-Atlantic market with GSM in Europe and PCS 1900 in the US. The significant opportunity for the rental market is the new US digital standard PCS 1900, based around the GSM platform.

Rental outlets clearly have a significant window of opportunity in the trans-Atlantic market. That window will last at least until dual mode GSM900/PCS 1900 handsets hit the market-and that could be some time.

The majority of specialist rental companies offer a standard level of service such as advance notification of number and fully itemized billing at the end of the rental agreement.

Action Cellular also couriers its handsets within the US but the company has plans to open offices in Japan and Korea. "The objective is to provide US standard rental phones to our overseas customers before they leave their home country," says Action's President, Lee Dorfman.

Faced with competition from roaming technologies. Action Cellular and South Africa's GSM Rent a Fone are seeking to reduce the tariffs which they charge rental customers They are doing this by providing their customers with International callback systems which are based on cheap circuits in the USA.

The market positing of rental phones as primarily a short-term option for those who don't need mobile phone all year round looks secure. It will remain secure until such time as cellular tariffs become so low that rental service withers on the line.

New opportunities: "Despite the US experiencing falling sales of cellular equipment, the number of rental phones has continued to increase," Lee Dorfman of Action Cellular says. "We've increased our handset stockpile over the last two years maybe threefold," Dorfman continues. "So far the rental market has been growing. We have been experiencing up to 60% sales growth each year. I think the market will continue to grow on an international basis over the next few years."

If rental specialists can offer the right package at a sustainable price, then with the spread of international roaming and the future opportunities for plastic roaming over GSM, the rental industry still has a chance to enhance its market position.

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