The cellular telephone net continues to spread across Washington and Baltimore.
Four years after the first commercial service went on the air here, the two cities' combined market has about 60,000 subscribers. Thousands of people who want phones in their cars -- and in some cases their briefcases and pocketbooks -- have been signing up each month with the market's two operators, Cellular One and Bell Atlantic Mobile Systems (BAMS).
Nationwide, this infant industry has just won its millionth customer. But expansion is proceeding at faster-than-average pace locally, analysts say, because Washington is in many ways a dream market. It has affluence, armies of white-collar workers in the field, favorable topography and building heights, and a head start from having had one of the country's two federally designated experimental systems in the early 1980s.
Car telephones have been around since the 1940s. The cellular system is a refinement on that basic technology, but a revolutionary one, allowing the addition of virtually limitless capacity as the customer base grows.
The old systems typically operated around a tall, single radio tower at city center, which covered a circle of 20 or 30 miles.
Cellular systems, however, are based on a collection of small, low-power stations, each covering a small subsector of the market city -- the cell in "cellular." As callers drive from one cell to another, conversations are "handed off" to the next station automatically by computer, without the callers being aware of it.
One key advantage cellular has over a single-tower system is the reusability of radio frequencies, which every year are in greater demand. Because the broadcasts are at low power, a frequency being used by a real estate agent in Fairfax County can also be used for a conversation by a construction supervisor over in Prince George's County, and again by a computer sales agent in Baltimore. With a conventional system, that would be impossible, as all conversations pass through the central tower, allowing only one per frequency.
Cellular One went on the air in December 1983, having inherited the experimental system and its eight cells. Owned by a consortium of investors, it was pitted against telephone company subsidiary BAMS, which began service a few months later.
Neither company discloses customer figures. But Herschel Shosteck of Herschel Shosteck Associates, a Silver Spring market research firm that watches the cellular industry, estimates that the two had 24,000 subscribers combined by December 1985 and 55,000 by last June. Industry sources put the current figure somewhere more than 60,000.
Penetration in the Washington market, according to Shosteck, was a high 9.5 per 1,000 people in June, about half again the average rate of the country's top 10 markets.
Virtually none of the subscribers join for fun or convenience. "The cellular telephone is a tool, not unlike the calculator that sits on many desks today," says Jerry Fountain, regional sales manager for BAMS. Most of the phones are car-mounted. A few operate out of briefcases or are hand-held, like walkie-talkies.
Most carry voices, but a few transmit data from portable computers. For people concerned about eavesdroppers, encryption devices are available.
Mary Pawson, an agent at the real estate firm Coldwell Banker's McLean office, had one installed in her car three months ago. If she is driving with clients and passes a house on the market that catches their fancy, she can call instantly for an appointment to show it. "In this sort of business, if you're not there at the right time, you can lose a valuable customer," she said.
Barry Scher, vice president for public affairs of Giant Food Inc., has been in the cellular crowd for three years. He says it allows him essentially to move his office into his car. He used to find 20 or 30 phone messages waiting for him after a half day away.
Now he takes the calls on the road. "I can usually come back to my office with a clean slate," Scher said.
The boom here and elsewhere in the country has been fed by rapidly declining equipment prices. It was common to pay $3,000 or more for a phone when the service began, but Shosteck found recently that the average cost of area dealers' lowest-price models was $1,032.
Rates, however, have not declined in any significant way. Analysts say this is a drag on industry expansion, as using cellular is not cheap. There are monthly fees, charges for receiving and making calls and long-distance-style fees per unit of time. It is easy for users to pay as much in the first year as they spent buying the phone.
Alan V. Adams, vice president and general manager of Cellular One, said it is unlikely that service prices will drop. "The nature of the business is such that there are not real economies of scale," he said. "Every time you add a customer, you have to add capacity."
A cell site, as the transmitting stations are known, typically costs $500,000 to $750,000. New ones here now are generally built not to enlarge the geographic scope of a system, but to enlarge capacity to keep an existing cell from becoming overloaded. BAMS now has 45 cell sites, Cellular One has 41, and both sill are building fast.
Coverage within the service area is never 100 percent. Radio signals move line-of-sight, meaning that people driving through ravines may find their calls cut off. Some users find the Palisades area along the Potomac River and Rock Creek Parkway a problem. But in general, Shosteck said, Washington area service quality as perceived by customers ranks in the top three of the top 10 cellular markets.
Cellular One holds the local lead in market share, by virtue of having gotten into the business first and skimming off the "early adaptors" -- customers who are always quick to jump at new technology.
Shosteck estimates that Cellular One has 53.6 percent of the local market to BAMS' 46.4 percent, but it lead has been eroding gradually.
Why? Shosteck suggests it is due in part to morale problems at Cellular One stemming from its takeover by regional telephone company Southwestern Bell Corp., which was announced last year but not completed until October.
Adams denies that a morale problem existed. The acquisition, he said, has not changed an essentially entrepreneurial spirit in the company. Cellular One's new corporate parent is taking virtually no role in running things here, he said, while employes now have better personal benefits and security, knowing that a huge corporate entity is behind them.
Adams says Cellular One is making money, but he declined to give figures. BAMS has announced it expects revenues of $85 to 90 million in 1987 in this and its four other cellular markets, all located in the mid-Atlantic region. Its total customer base grew by 60 percent last year, and will probably do so this year as well, Bell Atlantic officials said.