Editor’s Note: Welcome to our weekly Reality Check column. We’ve gathered a group of visionaries and veterans in the mobile industry to give their insights into the marketplace.
Greetings from Kansas City and Dallas, where the fall is in full swing, and Cardinal Nation is celebrating the art of the comeback with their World Series victory over the Texas Rangers. If only Sprint’s earnings call had been a week later, because using Kansas City resident Albert Pujols as a real “comeback kid” would have trumped the use of Brad Pitt for his role in “Moneyball.” In case you missed this part of the earnings call, here’s a summary from The Wall Street Journal.
A lot has transpired over the past week across the industry, judging from Sprint’s earnings announcement, which contained good news for the third quarter as well as an indication that the Apple 4S and Apple 4 have done much better than people expected (and should bode very well for 3G equipment makers in the fourth quarter — Sprint has some catching up to do on 3G deployment). I’ve read the transcript several times, and, all Brad Pitt jokes aside, there was a lot to like about the earnings
Sprint is, with a quiet resolve, becoming the market leader in premium prepaid services (more about that below). They are growing, thanks to a price hike on data (in the footsteps of their peers) as well as an increase in subscribers. And, when necessary, they are changing their unlimited policy to exclude Wi-Fi hotspot abusers (the 1-2% who drive a very disproportionate amount of traffic). Sprint also mentioned that they had entered into a nonbinding agreement with Clearwire to work in their network into Sprint’s future LTE plans. The result: Sprint did no more damage to their stock with their earnings call, which is down 10-11% this month and about 35% for the year.
However, that was not the case at Time Warner Cable. They created an expectation of growth in what is historically a tough quarter for revenue. Residential phone and Triple Play (video, phone, Internet) subscriber losses were reported for the first time — a noticeable decrease in sequential revenue. Further a New York Times blog declared Apple TV inevitable, enabled by Apple’s new voice recognition application, Siri. Business growth was up, but not enough to change the consumer revenue trajectory. The result: Time Warner Cable reversed all of October’s gains in two trading sessions and ended slightly down for the month and year-to-date.
Time Warner Cable is a terrific company but one that, like all communications companies, is going through a rapid transition. As we have mentioned in this column for several quarters, it’s not the realization of the need to change one’s business model that’s critical, it’s the realization that the window of change is very short. Preparing the team for a Category 2 hurricane is a lot different than preparing the team for a severe thunderstorm watch. Consumers are getting a lot smarter, and they see the opportunity to reduce their telecom and Internet spending through wireline cord-cutting and reduction in premium video tiers. When customers’ desire for change exceeds the capability (or strategic desire) of incumbents to deliver that change, things turn south in a hurry. Catching up to your customers is hard.
Finally, while there’s a lot more to write on this topic (the full brief with all of the details comes out this week), the Federal Communications Commission has issued its comprehensive solution for Universal Service Fund reform as well as inter-carrier compensation. A good summary of the findings can be found here (subscription required). The New York Times summary, available for free, can be found here. This report is very good news for the largest wireless carriers, particularly those who had everything to gain because they cannot collect access revenues (Sprint, T-Mobile, Leap/Cricket, Metro PCS). Verizon and AT&T have more wireline operations, but are both net payers of access (meaning in aggregate they pay more to others in charges than they receive in access revenues), so their consolidated income statements should be helped by lower cash costs per user. The rural providers such as Frontier, Century Link/ Qwest and Windstream also received more certainty on access charges related to VoIP, as well as a long window in which to revise their rural network deployment strategies. It was a rare moment of unanimity for the FCC, and tying all of it to Steve Jobs was a nice (albeit ironic) touch. (Steve Jobs did not care one bit about how others connected. He wanted the connection to be iMessage and to remove the entire revenue stream.)
This leads to the main focus of this week’s column: understanding customer habits. While this may seem like an esoteric topic for what is usually an analytical column, there is power in establishing and changing habits. When you mention the word “habit,” most people associate it with vices — for example, you “kick the habit” of smoking. Some habits — like Thanksgiving binging followed by Black Friday wallet purging — we term traditions. Extremely destructive habits become obsessive addictions and can have negative repercussions on society.
The result of a habit is repetition. I still check iTunes on New Music Tuesday. I don’t buy anything, but it’s my way of finding out how out of touch I am with the modern music scene and to check with my teenage son on why the world is so obsessed with Sean Cassidy Justin Timberlake Justin Bieber. I check every Tuesday.
In turn, around 10:30 every morning, I receive my “G” application notification on my smartphone. That’s my Kansas City Groupon (soon to be replaced by the Dallas version). Groupon has a double benefit — checking the “G” creates a habit, and the intent is to create new habits. The problem with Groupon is that it awakened the bargain hunter in me and reignited an entirely new habit: comparison shopping. The habit “G” created cannot be satisfied by Groupon alone. It requires Living Social, Charitablecoupons.com and the Kansas City Star Deal Saver. That’s a habit that’s gone wrong for Groupon.
Facebook also created a habit (how many times did you check your Facebook page this week?). But Facebook recently made changes that have its users irate, namely because there’s no “undo” or “classic” button to enable a new habit to form. Facebook simply said: “This is your new habit. Hope you like it.” The reaction has been less time on Facebook and more time on Twitter and the exploration of social media alternatives. Granted, there are some who like the changes and learned the system. If you have to go to great lengths to resume a habit, that’s a sign that change is coming. (If you have a good report that outlines the impact in October of the changes Facebook made in September, please pass along).
Our communications habits are about to change — dramatically. Here are some of the changes that will take place over the next two to five years:
1. We won’t be afraid to buy a smartphone without a contract. Apple will lead the way. This is good for Sprint, Metro PCS and others. Get me a smartphone for $200 or less with a six-month payback, and watch the postpaid buying habit change.
2. We will easily move away from traditional text messaging into application-based messaging. This will remove a valuable profit source for the incumbent wireless providers.
3. We will learn to check for Wi-Fi wherever we go (many of us are already doing this), thanks to metered billing.
4. We will stop the bad habit of channel surfing and exchange it for an Amazon-esque “Recommended For You” TV viewing experience based on an individual or family profile.
5. We will develop a habit of paying for each show we watch (like the PayGo model in wireless – complete with Top Off services). This will quickly kill the concept of a broadcast channel.
6. We will expect our communications choices to be easily available across any screen we choose.
Habits are developed and shaped over time. The changes they produce can be subtle in the beginning. But those companies who create or “own” the new habit tend to create more value than their followers. Is your company influencing consumer habits? How? Who is out to change the most important habit to your company’s success?
Something to ponder as you pick up that cup of coffee, have those egg (whites) scrambled and check the news.
More on earnings next week as we wrap up the third quarter. Thanks for the many encouraging comments. BTW — most of you are already aware, but there’s a new Omni (formerly known as Mobile) Symmetry Android app out in the store featuring call caching and caller name history that’s fully integrated with our partner, TARGUSinfo. Android available here. BlackBerry available next week by clicking here. Please try it out and give us a rating.
Have a terrific week!
Jim Patterson is CEO and co-founder of Mobile Symmetry, a startup created for carriers to solve the problems of an increasingly mobile-only society. Patterson was most recently president of wholesale services for Sprint and has a career that spans nearly 20 years in telecom and technology. Patterson welcomes your comments at: jim@mobilesymmetry.com.
