See the guy a few seats ahead of you on the train frantically looking for the latest sports scores on his mobile phone? Odds are that if you find him on the train a month from now, he will be doing something else instead: Reading the newspaper, listening to his iPod—or using his mobile phone to have an old-fashioned voice conversation.

On the surface, it would seem that text messaging and other wireless data services are becoming commonplace. But the actual patterns of use point to a different scenario—one that makes it much harder for wireless providers to expand their data services profitably. When Bain & Co. recently surveyed more than 36,000 wireless subscribers in the U.S., only 10% of subscribers accounted for more than 90% of all text-message traffic. These findings come as unpleasant news to wireless providers. Facing a saturated market, they aim to grow by selling customers data services like e-mail, instant messaging, and picture messaging. But those new services won't improve the bottom line until wireless companies first tackle a challenge that has a far greater impact on profits: holding onto the voice customers they already have. The fact is, your fellow passenger may not be buying service from the same wireless carrier a month from now, either. It's easy to see why wireless companies are setting their hopes on data and other advanced services, such as games. For starters, the profit margin of many data products is between 75% and 95%, compared to voice margins of around 50%, according to our analysis. Also, wireless players see vast opportunities to grow in this territory. The market penetration of Internet access and picture messaging, for instance, is only 5% to 15%. Yet so far many customers aren't interested. Our survey showed that only about 30% of customers will buy Internet e-mail or entertainment content. Even under optimistic adoption scenarios, data services would provide only a modest lift to profit margins—between 2% and 8%, according to our analysis. Part of the problem is that customers don't use the data services they buy, at least not enough to increase profits of wireless companies. To make these services more attractive, providers could offer low prices and spend heavily on promotions. They could also broaden the pool of potential customers by increasing subsidies for data-ready handsets. Some data services work only on 3G phones. In the U.S., only 3% of customers have those advanced handsets, while in Britain, penetration is roughly 10%. Wireless providers must also invest heavily in new networks capable of carrying data services. Verizon Wireless (VZ), Sprint (S), and Cingular have spent at least $10 billion establishing 3G networks in the U.S. Sure, providers could boost the bottom line by raising prices for data services, but users are extremely price sensitive. In our survey, increasing prices is listed by users as the No. 1 reason they switch providers. What's the answer? Wireless providers need to focus first on customer loyalty and increasing profits from their core base of voice-only customers. Once they have built a solid foundation of profitable voice customers, migrating subscribers to data services becomes much more cost-effective. It's no secret that customer turnover is a major impediment for providers, with the industry average monthly churn rate hovering at 2%. Cutting churn by one-fifth can increase operating income by 5% to 15%. In addition to boosting profits, improving customer loyalty allows wireless companies to increase the lifetime value of their voice customers—the only way providers will be able to afford the transition to data. Improving customer loyalty typically can increase revenues at twice the rate of competitors. That's why several companies are experimenting with services aimed at boosting retention. For example, Cingular introduced its comprehensive music subscription service that includes XM Satellite Radio (XMSR), Napster (NAPS), and Yahoo! Music (YHOO). Alltel (AT) created its MyCircle plan—an option that allows customers with a $60-per-month or higher plan to select 10 phone numbers for unlimited calling, even if the numbers are those of other wireless providers or landlines. T-Mobile has also launched its own version of the program called MyFaves. The longer wireless providers can hang onto their core voice customers, the more they can learn about them. Segmenting customers according to their needs and preferences helps providers figure out the best ways to appeal to targeted groups with data and other advanced services. The technique inspired Verizon's tiered approach to customer service. Having segmented customers according to the value they bring to Verizon, the company then created a system for providing different levels of services—like more frequent upgrades and faster support for the highest-value customers. Not coincidentally, Verizon maintains the industry's lowest churn rate: less than 1%. Attracting voice customers to the world of wireless data will require companies to make smart decisions, from package design to marketing to pricing. But by focusing first on keeping the subscribers they already have and segmenting those subscribers according to the value they already deliver, wireless providers will be better prepared for the coming boom in data. They will also be sending the right signals to their customers.

Rasmus Wegener is a manager and Pratap Mukharji is a partner in Bain & Company's Atlanta office. They both are part of Bain & Company's telecom practice.