Pocket Communications Shows How to Save Without Cutting Jobs... Or Service

Last Updated Nov 28, 2008 4:52 PM EST

Here's a novel idea for delivering cheaper cell phone service: stop sending customers bills each month that waste so much money and paper and instead, shoot them a quick notice via -- what else? -- text message.

Pocket's savings how to cut costs without cutting serviceSomeone should have thought of that a long time ago, but Pocket Communications gets credit for this lightbulb moment. The company, which provides cellular service in Texas and recently launched a subsidiary focused on a new geographic market in the northeastern U.S., has managed to keep its rates low by cutting the frills -- like formal bills -- without compromising service.

Instead of billing customers at the end of the month, Pocket asks for payment up front. Customers who don't pay get no service, plain and simple -- no need to hire bill collectors and the like. When customers pay up, Pocket sends them a simple text-message receipt. Pocket's Northeast subsidiary recently raised $100 million in venture backing and, as Giga Om notes, its attention to costs has really paid off, resulting in annual earnings of about $140 million.

In addition to its no-frills policies, Pocket has borrowed some "no hassle" tips from more established companies like Metro PCS, which offer flat-rate service so customers don't have to time their phone calls or count their text messages. In Texas, Pocket offers unlimited calling, texting and photo sharing for just $25 a month.

It remains to be seen how well Pocket will be able to compete with larger rivals. Because it doesn't own spectrum nationwide, it can only serve parts of the country, meaning it still has to charge roaming fees when its customers move out of its areas of operations. It's probably not the right cellular service for the proverbial traveling salesman.

Then again, it could do quite well carving out a niche for itself among all those people who don't travel much. In fact, Pocket has been quite clear from the beginning that it doesn't need to be all things to all people in order to be a successful business. So far, it says it's not ready to offer wireless data, because it doesn't look like a profitable proposition. How's that for fiscal responsibility?

Pocket's model could help accelerate the decline of the traditional cellular-service model, which has always seemed unnecessarily complex and costly. At a time that just about every industry is a little tight on cash, the lessons about all the painless ways that waste can be eliminated extend well beyond telecommunications. Just last week, after all, a group of bailout-seeking auto executives were ridiculed for flying corporate jets to Washington with tin cups in hand.