Editor’s Note: Welcome to our weekly Reality Check column where C-level executives and advisory firms from across the mobile industry share unique insights and experiences.
It has been an eventful week in the telecom industry with each change supplementing three broad themes developed in previous columns: a) the critical nature of data value to each wireless segment; b) the inertia pullling over-the-top content into the home through high-speed Internet connections; c) the role of scale (alone) in determining broadband and wireless winners and losers.
While you were resetting your clocks, AT&T Mobility was resetting their low-end pricing plans for smartphone users. This change at the low end follows AT&T Mobility’s very successful introduction of $160 family plan bundles (unlimited voice/text, and 10 gigabytes to share across four lines). AT&T Mobility’s new plans incorporate unlimited voice and text and 2 GB of data to share for $65 dollars for one line and $90 for two. Both plans require the customer to cover the cost of the device, either through a one-time payment or participation in AT&T Mobility’s “pay-by-the-month” programs.
While $65 per month for two shared GB seems like a mediocre deal ($90 for two lines is much more attractive), T-Mobile US late last week rolled out “double data” packages for their low-end Simple Choice plan effective March 23. For $50, T-Mobile US users will now receive 1 GB of LTE data before speeds are throttled, up from 500 megabytes in the original plan. For $60, current T-Mobile US users will now receive 3 GB of LTE data before data throttling begins.
T-Mobile US took an unusual step of raising prices on their unlimited data plan from $70 to $80 per month (this is still a very good bargain for heavy data users as it includes 5 GB of tethering). Combined with the changes above, T-Mobile US now has $50 (1 GB), $60 (3 GB) and $80 (unlimited with 5 GB tethering usage) price points for the first line. AT&T has $45 (300 MB shared), $65 (2 GB shared) and $95 (4 GB shared) price points.
Pricing changes are occurring quickly as we exit the quarter, especially between T-Mobile US and AT&T Mobility. The ultimate effect of these plans on Sprint and Verizon Wireless is not clear. What is certain is that consumers expect rate plan prices to fall, and are willing to trade off smartphone subsidization for lower data rates.
But what about network quality?
After the dust has settled on pricing plan changes, consumers will increasingly ask “What about data speed consistency?” Last Thursday, the RootMetrics team released a thorough review consisting of “4.6 million test samples, 6,300 indoor locations tested and 218,000 miles driven.” These reviews were all performed in the second half of 2013 (networks are a lot different in January than they were last July).
The winner(s) were Verizon Wireless and AT&T Mobility, as the included chart shows. AT&T Mobility won Texas, Colorado and North Carolina and managed to battle Verizon Wireless to a tie in most of the Southeast. AT&T Mobility also won several cities within states where Verizon Wireless was declared the winner (see Georgia, where AT&T Mobility won Atlanta, but did not win any other city in the state).
Sprint and T-Mobile US, who were in the process of completing their LTE networks when the tests were being taken, did not fare as well, particularly for in-building performance. This is why there is a lot of activity across the board to improve consistency between indoor and outdoor experiences.
While the results of the second half 2013 testing showed two tiers of networks (Verizon Wireless and AT&T Mobility scoring in the mid to upper-80s on a 100-point scale; Sprint and T-Mobile US in the mid-60s), recent results have shown a tightening of scores. Here are the results from Minneapolis, released last November:
This three-way race was also repeated in the New York City test, where five points separate the top three finishers. Smaller metropolitan areas such as Allentown, Pa., and Syracuse, N.Y., remain bifurcated.
The question becomes “How much more money are consumers willing to pay for faster speeds, consistent throughput, and broader coverage?” AT&T Mobility is betting the answer is $10 to $15 per month per subscriber, with Verizon Wireless’ figure nearly double that. The answer to this question determines the future of the wireless industry.
The DoJ appoints Hesse to investigate the Comcast/Time Warner Cable merger
While the wireless carriers are engaged in a pricing battle, the folks at Comcast and Time Warner Cable were notified that Reneta B. Hesse (and not Bill Baer, the current head of the Department of Justice’s anti-trust division) will lead the investigation. According to The New York Times, Hesse “guided the FCC’s investigation of AT&T’s proposed takeover of T-Mobile.”
To the extent that having someone who can delineate the differences between large mergers is important (the AT&T/T-Mobile USA merger would have created concentrations of subscribers and spectrum in many metropolitan areas), Hesse’s leadership will play a critical role. However, the team investigating the proposed merger usually begins with a theme (or bias). It’s hard to see this administration beginning with a “bigger is better” bias. As many of us have discussed, it’s going to be a lengthy investigation and likely one where new precedents are created (as opposed to the enforcement of current anti-trust laws).
Coincidentally, Comcast’s David Cohen last week continued his vigorous defense of the merger with a wide-ranging interview with Fortune magazine. As he correctly pointed out, many in the industry have confused the private network arrangement with a substantial consumer of low-latency bandwidth with the core net neutrality concept of open access.
The approval process of the Comcast/TWC merger is likely the most-watched regulatory event of 2014 (and likely 2015). Cohen is a master strategist who guided Comcast through the NBC Universal investigations (a vertical merger). Despite the rhetoric, there’s an argument that NBC Universal was a tougher case to defend than the horizontal merger being proposed. Absent the creation of new anti-trust precedents (which is always a possibility), expectations of thrilling drama are likely to go unmet.
Speaking of drama, what’s going on at Sprint?
Last week also resulted in the announcement of the departure of two key executives at Sprint: Bob Azzi (chief network officer) and Steve Elfman (president of products and services). This comes on the heels of the departure of Fared Adib (former SVP of product) and the expected retirement of Bill Malloy (chief marketing officer). This comes on the December departure of Sprint’s chief sales officer (Paget Alves) and SVP of business sales (John Dupree). This comes on the heels of a small, VP and director-focused reduction in force that has been going on since the beginning of the year.
Two articles help to shed some light on what’s behind the changes. The first appeared several weeks ago in The Kansas City Star, the newspaper of record for Sprint’s hometown. In this article, Sprint Chairman Masayoshi Son describes the situation:
“Sprint has gotten used to being a loser. It is perpetually stuck in third or fourth place in the U.S. telecommunications market. Some say the poor quality of its networks explains its position. This kind of excuse keeps Sprint from breaking the vicious cycle in which it is caught.”
“Without the correct leadership, even a company with capable managers and hard-working personnel will not be able to reach the top tier,” Son said. “This is why I sometimes yell at Sprint executives.”
While there is truth to Son’s comments (When I was an executive at Sprint, the wholesale groups’s rallying cry was to “beat our competitors every hour of every day, and beat the budget.” This mantra was not endorsed by many of my peers.), it’s disconcerting to see Son’s publicly de-motivating approach, especially for someone who has a long-term view of the industry.
Sprint has been shackled since the Nextel merger. The $25 billion investment by Softbank was a godsend to the company. However, asking the recently recovered patient to win the next sprint courts an irresponsible risk. As this article from The Wall Street Journal describes, this new approach has changed the way employees prepare for meetings:
Defenders of Mr. Son say he congratulates as often as he criticizes, occasionally hugging employees. Outbursts are normal, and the continuing turnaround effort at Sprint is a joint effort with input from Sprint and SoftBank, say people at both companies. One sign of progress: Managers now prepare for every meeting as if Mr. Son is going to ask the question they are most afraid of, according to people at Sprint and SoftBank.
The question Sprint is most afraid of is simple: “Now that we have the capital, can we beat AT&T and Verizon?” This will involve a mix of local network knowledge and accountability (combined with a complete end-to-end view of performance data), increased customer focus (including broad partnerships to meet wired and wireless needs for business customers),and a culture change focused on daily (or hourly) success.
Winning is possible, but the shot clock is running out and T-Mobile US is on a three-point streak. Play selection is critical. Find a way to motivate, and victory is yours. Focus on criticizing previous decisions and the team falls apart.
Jim Patterson is CEO of Patterson Advisory Group, a tactical consulting and advisory services firm dedicated to the telecommunications industry. Previously, he was EVP – Business Development for Infotel Broadband Services Ltd., the 4G service provider for Reliance Industries Ltd. Patterson also co-founded Mobile Symmetry, an identity-focused applications platform for wireless broadband carriers that was acquired by Infotel in 2011. Prior to Mobile Symmetry, Patterson was President – Wholesale Services for Sprint and has a career that spans over twenty years in telecom and technology. Patterson welcomes your comments at jim@pattersonadvice.com and you can follow him on Twitter @pattersonadvice.
