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Wireless firms look to tap teen market

As the average cost of mobile phones drops, analysts and executives say the American teen market is the next growth opportunity for the wireless industry.

SAN FRANCISCO--For Leslie Doran and Della Andrade, two 17-year-old high school students, owning a cellular phone is expensive and unnecessary.

"We're in high school. Why do we need a cell phone?" Andrade asked. "I'd rather spend my money on something else or save it."

Yet Doran and Andrade are precisely the type of potential customers the wireless industry would like to tap: technology-savvy, trend-conscious teenagers with part-time jobs but few bills to pay.

As the average cost of mobile phones drops, analysts and executives say the American teen market is the next growth opportunity for the wireless industry. After all, nabbing new customers at a young age could translate to loyal, lifetime users. But successfully targeting the nation's teens will be no easy task, some say.

The teenage market, often referred to as "Generation Y," is a huge demographic group that some say rivals the post-World War II generation known as "Baby Boomers."

Last year, there were nearly 31 million young people between the ages of 12 and 19 in the United States, according to Teenage Research Unlimited, a Chicago-based teen market research firm. That number is expected to jump to 34 million by 2010.

It's not only the market's sheer size that makes young Americans an attractive target for the wireless industry. Today's teens have grown up using computers and other technology and--having come of age in the prosperous 1990s--have more disposable income than past generations. Active lifestyles also make it more difficult for today's teens to stay in touch with friends and parents--an increasing concern for some families, especially in light of the recent rash of violence in the nation's high schools.

But compared with European countries, the United States has a far lower percentage of mobile phone users, especially among teens and the college crowd. As such, the wireless industry is beginning to reach out to younger audiences with funky phones, hip advertisements, and low-cost or prepaid service plans.

"We think one of the great under-addressed markets in the U.S., and especially compared with the rest of the world, is the teen market," said Dan Hesse, president and chief executive of AT&T Wireless Services, the nation's largest wireless carrier. "The younger market is where the big growth opportunity is. It's the combination of being very under-penetrated and very technically savvy.

"These are your customers of the future," he said.

Connecting with the fickle U.S. teen audience, however, has been difficult. Some analysts believe the industry is only beginning to recognize the benefits of targeting teens at an early age, and could be doing more direct marketing.

"I don't think they realize the valuable resource they have in this age group," said Kelly Quinn, a wireless industry analyst at Strategy Analytics. "If you get them hooked early, they'll be lifetime users. When you try and introduce them to wireless data devices, it'll be easier to transition them over because they don't have a phobia."

Why target teens?
Although estimates vary, about 75 million Americans use cellular phones--a market penetration rate of nearly 30 percent.

More than 40 percent of Americans age 25 to 44 use cellular phones today, according to a new study released this month by Strategy Analytics. But only 13 percent of teens age 16 to 20 currently use a mobile phone.

"It's really a huge market opportunity," said Cliff Thornton, a telecommunications analyst at Probe Research. "These kids are used to growing up with a wireless phone [in the family]. They're not even going to want a regular phone."

More than 80 percent of teens surveyed said cellular phones are "in," or popular, according to a study conducted last year by Teenage Research Unlimited.

Teen cell phone use In Europe, mobile phone usage is far higher than in the United States. In Finland, for example, analysts say about 60 percent of the nation's population uses cell phones, according to industry sources.

"The adult penetration levels [in Europe and the U.S.] are similar," AT&T's Hesse said. "The real difference is the percentage of younger users that have [cellular phones]."

How to reach a kid
When the technology was first introduced, cellular service and the mobile phones themselves were costly, primarily marketed toward wealthy individuals and business travelers. Now, as prices drop, average consumers are buying and using mobile phones on a daily basis.

Pricing is still one of the major problems in marketing cellular services to a younger demographic. Cost is the "primary barrier to adoption" for non-users under the age of 25, according to the recent Strategy Analytics study. After all, a teen's allowance or wages from a newspaper route or baby sitting wouldn't support most monthly charges for a cell phone.

Wireless carriers are responding to the issue by offering plans geared for families. AT&T introduced a new wireless calling plan for families in August that allows customers to call up to five family members for free within the home cellular region.

"The whole plan is to put phones in the hands of people that don't already have them," AT&T's Hesse said. Vodafone AirTouch, like many other major wireless service providers, has a similar plan offering service for two phones with 100 shared minutes.

Many carriers also have found some success in securing younger customers through prepaid service.

"Pay-as-you-go is big because many [teens] don't have access to the financial tools for long-term contracts. Many of them don't have credit cards," said Drath, of Teenage Research Unlimited.

Cost-control is essential for carriers to reach a larger teen audience, analysts said.

"The parent can really control the costs that their child is using [with prepaid service]," said Lori Durazo, a regional consumer market manager with Vodafone AirTouch. "I think there's still some fear by parents, because it's kind of like giving the kid a credit card."

Ultimately, analysts say, if executives hope to continue to attract younger customers, the wireless industry must be creative and innovative. No one knows that better than students Doran and Andrade, who, despite their high school's policy against mobile devices on campus, know many classmates who own phones.

"Some people just want to be flashy," Andrade said.