Subject: [NEXTEL-1] OnStar Aims Lower for Growth

From: [email-masked]
Date: Tue, 20 Apr 2004 20:08:45 -0400

OnStar Aims Lower for Growth
(2004-04-19)

Pushing the basic services will replace the high-end come-on.
by Paul A. Eisenstein

One hears the term, "back-to-basics" quite a bit in the auto industry
these days.  But it might seem an oxymoron to apply that idea to
telematics. The basic concept behind a service like OnStar, after all,
is to take the automobile into the future, where cars and electronics
merge into one.

Actually, OnStar CEO Chet Huber doesn't intend to step back in time to
the days when the typical automobile had only a crackly AM radio
onboard. But General Motors' telematics unit has come to realize that
the vast majority of consumers aren't ready - or willing - to load their
cars up with high-tech services and features.

OnStar isn't abandoning its high-priced options, like voice-dialed
Personal Calling, or its concierge service, which lets a subscriber call
a central number to arrange anything from hotel to airline reservations.
But it will focus on its most basic - and popular - safety and security
service.

That stripped-down service allows a subscriber to quickly call for help
in an emergency. The vehicle will even make that call automatically in
an accident, and with the latest update, that won't require the airbag
to go off.
"The peace of mind this creates provides the largest population of
people willing to pay for the service," explained OnStar President Chet
Huber.

Broadening its reach

The GM subsidiary has "backed away" from promoting OnStar's more
advanced features in order to deliver a clear and consistent marketing
message, Huber said, one providing "the opportunity to get to the
broadest subscriber base."
The strategy is working, Huber asserted in an interview with
TheCarConnection.  The telematics service now has 2.5 million paying
subscribers. It has also recorded six consecutive quarters of growth in
its subscriber retention rate, Huber added. He would not give a precise
number, but hinted that more than 50 percent of OnStar users re-up when
their annual contracts expire.

That's critical for the telematics operation. "Churn" is a problem for
all electronic service providers, where customers sign up briefly, then
unsubscribe. It is far more profitable to keep a current user, rather
than sign up a new one. In OnStar's case, a sizable number of
subscribers sign on each year simply because they buy a vehicle equipped
with the service's hardware, often with a free trial included.  OnStar
is now offered not only on GM vehicles, but on some competitor's
products, including Honda's Acura brand.

Despite OnStar's decision to downplay its menu of advanced features,
they are slowly gaining customers. The OnStar Personal Calling service,
which provides a user with a hands-free, voice-operated phone, has so
far sold more than 300 million minutes of airtime. (OnStar resells that
time from its cellphone service partner, Verizon.)

The numbers - and user base - for Personal Calling could increase in the
months to come. OnStar recently launched its sixth-generation hardware,
finally switching to digital technology, rather than analog. That had
been one of the biggest criticisms leveled at the service. However
OnStar still does not offer the ability for subscribers to take their
phones with them when they leave the car.

That also will change soon, Huber revealed. In "a couple of months,"
OnStar will begin offering a dual-phone package, with one built into the
car, the other a conventional, handheld cellphone. A customer will be
able to receive calls on either phone, and there will be a single bill
each month. The new package, Huber believes, "will resonate with a lot
of people."
OnStar is facing a separate issue that might not reverberate quite so
positively.  The vast majority of its 2.5 million subscribers are still
driving cars equipped with old analog hardware. And that doesn't include
the vehicles that have the old phone equipment but which are currently
not subscribed.

The Federal Communications Commission has mandated a phase-out of analog
service, which uses more bandwidth yet provides poorer service than the
newer, digital cellphone systems.

OnStar has gotten Verizon to commit to supporting its analog hardware
through at least 2007. After that? It's a matter under discussion is all
that OnStar officials will say. They hope to develop a retrofit for at
least some of the more recent OnStar analog equipment. But it's very
possible some older vehicles will be orphaned, left unable to sign on.
That would take the concept of back-to-basics a step further than Huber
likely intended.

http://www.thecarconnection.com/index.asp?article=7052

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