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 to the Reality Check faithful. This week many pieces of the earnings puzzle were filled in, with CenturyLink, Qwest Communications International Inc., Level3 Communications Inc., Clearwire Corp., Frontier Communications Corp., Leap Wireless International Inc., MetroPCS Communications Inc. and others reporting.
Discovery 1: Post-paid retail Verizon Wireless net adds were increasingly dependent on their soon to be CenturyLink channel – Qwest. Here’s the breakdown of Verizon Wireless net adds by major distribution channel: 
Seventy percent of the net additions for the first quarter came from two sources: Qwest and Wal-Mart. Qwest, who had been ~6% of post-paid retail net adds in 4Q, now comprises 20%. Verizon Wireless, the long-time retailer, has now turned into an indirect distribution channel specialist. As I noted in a thesundaybrief.com blog post last week, they are quietly shuttering many of their company owned retail stores. I think the breakdown above also highlights that they are making more inroads in the wholesale market, particularly machine-to-machine. It also sets up a broader relationship between Verizon and the combined CenturyLink + Qwest, at least for wireless, and perhaps as a 4G affiliate (while I believe West Virginia will approve the Frontier transaction by the end of June, there is an alternative buyer with the new CenturyLink).
Discovery 2: Leap (doing business as Cricket) and Clearwire made up 20% of the retail broadband (wired + wireless) net additions this quarter. There are some in the techno elite who consider 30 megabits per second the new “normal” in broadband, but clearly folks are still buying the hundreds of kilobits per second capabilities (Cricket advertises a 600 Kilobits per second downstream/200 Kbps upstream capability; Clearwire 6 Mbps downstream/1 Mbps upstream): 
This is a first quarter phenomenon – like we saw with Straight Talk in 4Q, it’s a single data point and needs to be tracked. But it tells us two things: 1) The “dualists” who state that there is nothing new under the broadband sun and that we need to regulate the transmission of broadband as a common carrier are missing the rise of wireless broadband as a competitor, and 2) broadband, even with its increased pricing and 90%+ gross margins, is a (perhaps the?) healthy and growing part of the telecommunications landscape.
If there could be a third point, it would be that free Wi-Fi only works as a strategy through the first filled pipe (which, if it’s a cable modem pipe might last a while).
You have to wonder what Wal-Mart is cooking up on the data front. My guess is that they are saying “if Cricket can do 200,000 net adds with $40 per month broadband, I wonder what we can do with $30.” There’s a lot more to write here, but I thought it would be good to get the data point out there because, if Clearwire hits the majority of their next one million net adds through the retail channel (I have doubts), they could end up being a major source of the gross and net add pie.
Discovery 3: Speaking of Wal-Mart … you’ve (almost) been lapped! When I start to talk about Wal-Mart and I put the Nielsen data about propensity to buy unlimited plans being higher in the middle part of the country, and that Wal-Mart is going to start featuring Straight Talk in their advertising, many of you gloss over. Well, get out of your “market of one” and remember that there is life outside of Apple Inc. and Google Inc.’s Android operating system. People are buying this product at Wal-Mart: 
Like the fourth quarter (and I believe that this is not a seasonal phenomenon, yet), Straight Talk (provided by Tracfone Wireless Inc. through Verizon Wireless and distributed exclusively through Wal-Mart) is nearly lapping the rest of the market. Excluding the strong quarter from MetroPCS, they would have lapped the industry (I like to exclude the Leap broadband additions as most of the rest of the pre-paid providers are not emphasizing wireless modem cards – yet). With MetroPCS included, however, Straight Talk is nearly 40% of the “phone oriented” pre-paid industry share of net adds. The next closest is MetroPCS at 26%, making Straight Talk a clear leader (and the two combined as the market leaders for the industry at 65% combined net add market share).
Why is this important? The propensity for a Straight Talk customer to “buy up” (a better phone with more features for $50 per month, for example) is far greater than an Apple customer “buying down” (it’s about the apps, after all). This trend will continue when Straight Talk introduces their first Android-capable phone just in time for the holidays (Wal-Mart owns “Back to School” and “Holiday Shopping” seasons). My prediction is that it’s a Chinese model with a touchscreen for $99. If Verizon Wireless gets in the way, Slim finds a ready provider in Sprint Nextel Corp., or he can buy MetroPCS and Leap and create MetroTalk (we discussed this in the Sunday Brief titled “Three headlines no CEO wants to read.”
Bringing the app world to the mass market through Google and Wal-Mart. Steve Jobs – forget Jason Chen at Gizmodo (we almost did) – here comes the Bentonville Bomber flown by none other than Dr. Eric Schmidt.
Well, that’s it for this week. I have several posts (one called “Cleaning up the net neutrality mess”) on www.thesundaybrief.com Web site that you will want to read. It’s as close as I can get with my editor to a rant about a colossal blunder on the FCC’s part.
Several of you also ask about what’s up with Mobile Symmetry. We are in development mode right now, and are going to launch a controlled beta in June with more openings in July. It’s focused on micro-directories at the moment, but I expect that model to expand as our carrier interests have been re-kindled. You can also become a fan of Mobile Symmetry on Facebook, and I encourage you to do so.
Thanks again for the thoughts and comments. Keep them coming!
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 at jim@mobilesymmetry.com.
