Reality Check: Rethinking telecom – your strategic planning primer

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.
For those of you who casually follow the industry, we are entering (or in some cases, have entered) the telecom strategic planning season. This is the time where senior management huddles in rooms, listens to experts prognosticate about the future of the industry, and debates investment decisions that eventually result in the creation of a multi-year budget. Depending on the company’s performance, this may be accompanied by golf, beach time, or some other sort of recreational activity. Regardless of the location, duration, and optional recreation, the strategic planning session is a core event in the life of a telecom executive.
Most strategic planning sessions work because a) the CEO and CFO are actively engaged; b) outside communication is minimized and investment decisions are discussed in an open and “off the record” format; and c) the telecom industry has been fairly predictable. This year, however, several forces are pushing against the industry at the same time:
1. Cord cutting isn’t abating, business wireline growth is not returning, and cable companies are differentiating.
2. No contract services are beginning to appeal to more than the poorest demographics, placing post-paid growth on a slow/no growth trajectory. To quote one prominent industry analyst: “The post-paid pool is draining faster than anyone expected. Mastering your post-paid swimming stroke is meaningless at this point.”
3. Handset advancements are placing traditional voice revenues (80+% of total revenue per user) at risk. Less voice, more wireless VoIP.
4. Opportunities to generate more value for shareholders (early termination fees, high-speed data product restrictions, M&A, etc.) are sure to be met with intense regulatory scrutiny.
One can argue that the industry has faced each of these issues in prior years, and that there have been more challenging times in the past (e.g., the summer of 2002 was a challenging time for WorldCom and Qwest; the summer of 2004 resulted in the end of UNE-P, the old AT&T, and much of the CLEC industry). This year the challenges appear to be sharper and more threatening because there are no “safe areas” in telecom – every product, except rural special access, faces a headwind.
Investors are also growing impatient. Excluding dividends, nearly $30 billion in market capitalization has been lost in the telecom and cable industry since the beginning of 2009. Nearly $28 billion of that has been lost since the beginning of 2010. Contrast that with what we refer to at The Sunday Brief as the “four horsemen” – Microsoft, Google, Apple, and Amazon: since the beginning of 2009, they have created more than $300 billion in value for their shareholders. Even with Google’s missteps this year (which I will argue in a future column weren’t really blunders), their shareholders have gained more than $60 billion (more than one Comcast) in less than 18 months. Verizon and AT&T over that same period have lost $44 billion (Verizon down $19 billion; AT&T has lost $25 billion).
This is not your father’s AT&T. Heck, it’s not even your older brother’s T-Mobile. Absent some big plays, telecom will become as attractive to the investor community as railroads and chemicals (and, as a CSX and DuPont stock follower, it’s not a pretty world for them either).
How can any company in the telecom industry pull themselves out of the rut? Here are three ideas:
1. Rethink the customer relationship – assume you stink. Stop equivocating and making excuses about dropped calls, lost texts, and horribly slow data. Stop blaming 2% of your base for 90% of your problems. Start thinking about how the Four Horsemen will reinvent the customer relationship and render all future telecom advertisements to “Meet the Press.” Assume your customers aren’t happy with their communications experience and are just dying to find every way to minimize your company.
Even if the data shows you that you’re improving, or that “it’s not so bad” compared to the rest of the industry, still assume you stink. If they could all walk tomorrow (and, as we move toward more no contract plans, this assumption is closer than you think), would you be the winner? Why? Why not? This exercise will demonstrate just how much (or little) you are in touch with the user experience. Begin with the humbling refrain of “we stink” and aim for new, higher targets. Start the strategic planning session with five minutes of irate wireless callers (or, in the case of AT&T, just use Jon Stewart’s monologue on Apple/Gizmodo/AT&T). Rethink the customer relationship before your competitors do.
2. Rethink the distribution model, and stop the compensation madness. “Our greatest assets are our customer relationships.” Really? I was recently having a conversation with an industry colleague on how to jumpstart machine-to-machine (M2M) sales in their company, and was suggesting a bundled strategy of IP MPLS + M2M (the secure wireless extension of any wireline MPLS network). This company happened to have both a wireline and a wireless unit. “If only we could do that,” quipped my colleague, then going on to explain that the wireline unit was compensated on profitability (hold yields high, minimize subsidies, milk the cash cow) while the M2M unit was compensated on growth (more net additions, stand-alone P&L, minimal network integration). “We can’t mix MPLS and M2M growth – the compensation plan won’t allow it.”
How many times does compensation become the excuse for not doing things that benefit our customers and shareholders? How many times have we coddled sales teams, worried that a single individual holds more sway than an entire corporation or brand? On the consumer side, how many retail stores have to be “averaged in” to total regional metrics because more stores = more personnel/budget = more power?
Take a challenger position. If Google wouldn’t staff a sales team of 25 for that enterprise customer, you shouldn’t either. If Apple has two company-owned stores in the same market where you have seventeen and they are outselling you in that market, it’s probably time to rethink that distribution strategy. Stop rationalizing – start rationing.
3. Rethink your partnerships – quickly. Traditionally, telecom partners have been weighted to companies who can “do something for” the telecom provider. Most partners make things – handsets, routers, switches, equipment, etc. These can be interwoven into distribution relationships, e.g. Cisco and AT&T have a strategic relationship, but not to sell Juniper routers. Other partners develop software that goes into the “things” above, e.g., a Google or Skype partnership. In a few instances, wholesale customers (which could include other carriers) are considered partners – if the retail-oriented senior management team is willing to rethink their distribution model.
These are yesterday’s partnership structures. They are based on the assumption that the telecom or wireless carrier needs to “fill in” a strategic area (e.g., small business, instant messaging, search). But what if the entire foundation needs to change? What if the practice of “make through others” replaces “do it myself?” What happens when the partnership will not yield results for 18 or 24 months? What happens when there is rapid change in the industry and no one leader has emerged?
That’s when you need to put down the pen, stop talking about companies, and start talking about capabilities. That’s when you stop selling to the university, and start giving to the university. That
‘s when you stop wrapping yourself i
n the Stars and Stripes and start to realize that many (most?) of the next decade’s great ideas in computing are going to come from China, India, Russia and Brazil.
One of the realizations when you start to work with carriers is that their brain trusts are located in fundamentally different places from those where inventive thoughts are emerging. Waltham is not Basking Ridge; Milpitas is not Kansas City (or Willow Grove or Pleasanton); Austin and L.A. are not Dallas. T-Mobile has the closest thing going with Seattle (home to Amazon and Microsoft), yet, ironically, their smartphone leadership is with Google, a Valley-based company. Yes, everyone has business development staff (and aspiring salespeople) in the Valley, L.A., Boston, and Austin – but outside of aspiration, how much “white boarding” really goes on? There’s more to say here about how to build these, but it’s not with middle management or individuals who bear quotas. And it may not be best even to do it with a Verizon, Sprint, or AT&T business card.
Bottom line: Changed partnerships have headlines that look like this (there are dozens more):
1. Sprint/Clearwire and T-Mobile combine cell site bandwidth needs through a ground-breaking partnership to deliver GigE (Gigabit Ethernet) to 90% of the cell sites in the country.
2. (From the column “Three headlines no telecom CEO wants to read”). Apple and XXX (wireless carrier) to deliver guaranteed end-to-end capabilities to businesses and consumers.
3. Verizon and ZTE (or Huawei) form a strategic research and development relationship to advance LTE.
4. Ron Conway (noted angel investor based in the Silicon Valley and the subject of a recent RCR Wireless article) joins AT&T’s board. Companies agree to $200 million partnership to fund wireless start-ups.
Rethinking the customer relationship and assuming you stink. Rethinking the distribution model, and stopping the compensation madness. Rethinking partnerships and industry relationships. Better cancel the afternoon tee times, boys – we have some strategizing to do.
Jim Patterson is CEO & co-founder of Mobile Symmetry, a start-up created for carriers to solve the problems of an increasingly mobile-only society. He was most recently President – Wholesale Services for Sprint and has a career that spans over eighteen years in telecom and technology. He welcomes your comments atjim@mobilesymmetry.com.