The first couple of articles concern the trend for greater use of mobile devices and the decline in the number of landlines:

• One in Six Use Only Cell Phones at Home (AP / Discovery Channel)
  
• Number of landline-free households up 10% in US (Ars Technica)
  

The second set concerns the communication preferences of younger people (often described as Millennials):

• Gmail Preferred By Students, But Nothing Beats Texting (ReadWriteWeb)
  
• Email vs. Texting (EMarketer.com via LDS Media Talk blog)
  

Both sets of articles, though, are really about the changing communication preferences of the population as a whole, and the impact of that younger group in particular. Those currently aged 15-25 are growing up with a radically different set of communication behaviors and preferences from those embraced by even 25-35 year olds, let alone the older generations. And this will have a massive impact on the landline telcos around the world, which don’t really feature in this picture at all. As the rising generation makes up an ever greater proportion of the total population this impact will only increase.

Mobile substitution happening from the bottom up

First, the increased use of mobile devices and abandonment of landlines. I remember talking to Gavin Patterson, then head of the consumer retail bit of BT, about six or seven years ago, about the challenge of driving growth in his business, and he told me his worst nightmare was a generation of kids growing up never having a relationship with BT. Sadly for him, and other landline telcos around the world, the nightmare is now reality. The CDC survey both articles are based on tells us that 17.5% of households have no landline but do have wireless phones. However, the most striking statistic for me is this one:

Nearly two-thirds of all adults living only with unrelated adult roommates (63.1%) were in households with only wireless telephones. This is the highest prevalence rate among the population subgroups examined.

You’d better believe that that’s mostly college students and those recently graduated from college and still living with roommates, almost all in the 18-25 category. Here’s more detail on the age split overall:

More than one in three adults aged 25-29 years (35.7%) lived in households with only wireless telephones. Approximately 31% of adults aged 18-24 years lived in households with only wireless telephones.

Remember that a good chunk of 18-24 year olds live with their parents and thus technically have landlines in the home even if they don’t ever use them. The question is whether these people will ever return to the habits of their parents as they get older, settle down and have kids of their own. There’s not that much evidence yet to suggest that they will, and there’s not much incentive to either. It used to be that a landline from the phone company was necessary to get broadband but since ‘naked DSL’ is now widely available and cable competitors offer TV/broadband packages without voice that’s no longer the case.

The next question is whether these future households will have landline connections at all – with the increasing availability of 3G and impending availability of 4G wireless options for web access and an increasing preference for web-delivered rather than broadcast/linear video content, I’d question whether these households will need a wireline connection – from a telco or a cable company – at all.

Voice isn’t even a communication option for most young people

Of course, all this assumes that voice is still one of the main modes of communication for young people, but the second set of articles suggests this isn’t the case either. The ReadWriteWeb article cites an eROI study on the communication preferences of high school and college students and includes this chart from the survey:

One caveat: the survey seems to have asked about online communications specifically, but from other surveys I’ve seen and personal experience with teenagers voice would barely make a blip on charts like this even if it was included. But the other key thing is that email – so newfangled when it first entered most people’s lives in the mid- to late-90s – is becoming distinctly passé. Text messaging already enjoys a much higher use rate, and both the combined social networking categories and the combined IM categories in the chart above already add up to the same as email (26%). IM seems to be on the decline with the exception of social networking IM but texting and social networking are now the major components of online communication for most young people. And none of those services is provided by a telco either. Wireless telcos have the best opportunity for capturing some of this spend by creating easy-to-use and low-cost wireless options for using these things on mobile devices, but landline telcos risk being entirely marginalized.

It’s grim reading, all of this, if you’re a landline telco or someone who works with them. Is there anything they can do? Yes, absolutely. They should immediately begin (if they haven’t already) building partnerships with social networks and other online providers to ensure that the necessary interfaces are in place to allow telco services to be linked in to those environments. BT’s acquisition of Ribbit is a great example of an innovative approach to tying online and landline worlds together, and Telecom Italia has also done clever things with Facebook, allowing customers to make calls from within the Facebook site, for example.

Telcos need to offer deep integration both ways between their systems and these online service providers’ systems to allow address book sharing, easy initiation of old-fashioned phone calls and other methods of telco-based communication from within websites and otherwise make the linkages between the two worlds as clear and easy as possible. Telcos have no hope of creating standalone offerings for young people that will generate any kind of real interest, but partnering with the sites where those young people already spend their time is the next best thing. Allow those companies to innovate, and offer them things they can’t easily do as an incentive to partner.

All is not lost – yet. But it’s certainly heading in that direction, and only innovative telcos willing to really rethink the way they engage with teenagers and young adults will have any chance of staving off the steep decline that seems to be on the cards.

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Pogue’s column generated a fair amount of both commendation and condemnation according to his latest blog post, and understandably so. He seemed unusually vituperative about the device compared with his normal even handedness, and you sensed a certain amount of annoyance at the way Verizon Wireless refused to acknowledge the bugs in the device and that this annoyance might have colored the rest of his commentary. At the same time, many users (including me) seem to have experienced similar problems and he gave their frustration voice.

All in all, I agree with some of what Pogue said but don’t feel quite as strongly about it all as he did. I like a number of things about the device:

• the exterior is very attractive – both front and back – the black glassy finish over the front looks nice and sleek and the brushed metal finish on the battery cover adds further class. Feels more solid than the Curve and a number of other recent BlackBerries.
• The user interface is also attractive, although the default Verizon red is a little offputting. The new wireframe icons that debuted with the Bold and continued with the Flip are here too and look pretty good on the whole (although downloaded applications still use the same logos they always have, making them look out of place among the minimalist native ones)
• The email and other PIM functions BlackBerries are famous for are still first class.

But there are a number of problems with the device, too, and the main one is the implementation of the touch screen. I’ve never understood why anyone thought tactile feedback was a useful thing with a touchscreen. If tactile feedback is your thing, then you should really buy a device with a keyboard. If you like touchscreens you don’t get tactile feedback and that’s just fine. What does that tactile feedback do for you anyway? If you hit the wrong key on the virtual keyboard (or more likely in the Storm’s case, select the wrong item in a menu) the feedback is the same – the same clicky sound you’d have got if you hit the right key or selected the right menu item. The Sprint Instinct tried to solve the same perceived problem in a different way – with “haptic” feedback (little vibrations confirming virtual key presses) which was just as useless and also a little distracting.

RIM has made the mistake of assuming that people who want a touchscreen are actually closet QWERTY keyboard addicts. Even if they pretend they’re willing to forego the keyboard they really want a clicky feel afterall – they’re just in denial. No. They actually prefer the flexibility of a keyboard and have made a deliberate decision to do without the clicky keyboard, thank you very much. If I wanted both a touchscreen and a keyboard I’d have bought a Treo.

I had the same issues as David Pogue as regards using the virtual keyboard and the touchscreen in general. Coming from the iPhone (which is my main personal device) the two-layered touchscreen (selection via regular touch, action via hard push) was unintutive – I kept finding myself wondering why things weren’t happening after I had clearly touched the screen as indicated by the on-screen highlighting on the object touched. Admittedly, one would get used to this after a while, but it also takes considerably more effort to push the screen down to the point of clicking compared with other touch screens, which would get old quickly and tiring soon after.

Then there’s the portrait mode implementation of the virtual keyboard, where the device uses the Suretype keyboard layout instead of just a more tightly spaced QWERTY layout as the iPhone does. This is frustrating for those of us who don’t regularly use suretype or other predictive text keyboards. And using the keyboard in landscape mode takes up so much of the screen as to be useless too.

RIM should have realised that, in other areas too, other touchscreen phones – especially the iPhone – have now defined the expected user experience. In Google Maps and the web browser, multi-touch commands like pinching are now the norm on other devices, but not on the Storm. You double-click (as with the iPhone) to zoom, but have to hit the back button to zoom out again (never would have figured that one out on my own). As with the Bold, where this also annoyed me, even perfectly visible links can’t be clicked on until you’ve zoomed into the page – an issue you don’t have with the iPhone where precision finger clicking can be done when in full page view of a webpage.

The acceleromter-powered screen rotation is either much too slow or much too eager – taking ages to turn when you rotate the device very deliberately but constantly switching to landscape mode when you so much as look at the device at a different angle. I don’t know how RIM has managed to create both problems at once but they have.

I’ll stop complaining there – I actually like the device a lot, and a lot of its foibles just take some getting used to. But it really feels like RIM was making a device for reluctant touchscreen users instead of touchscreen enthusiasts, and as a result has rather handicapped what could have been a much more compelling device. Instead of trying to reinvent the full-screen touch device, it should have recognised that Apple defined that space with the iPhone, creating certain expectations, and that the best BlackBerry could do was match the iPhone for ease of use and design and improve on it with all the stuff BlackBerries do best. Instead of which, they’ve combined a sub-par interface with those BlackBerry goodies and come out behind the iPhone instead of in front of it, at least for this user.

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We recently concluded our 6^th survey of wireless customer care response times and Sprint has leapt to the best performance of its peers from the worst in our first survey 2.5 years ago… Sprint’s survey results of 91% in Q3 2008 soundly beat its peers:  AT&T Wireless – 33%, T-Mobile – 43%, and Verizon – 85%. 

I think this is incredibly impressive – Sprint has hardly been a paragon of good performance in the wirelessarena lately, and has had one or two other major things to worry about recently too. But it made customer care a major focus area when Dan Hesse took over (see this earlier post) and the results are kicking in. This is one timely demonstration of the point that I made in my previous post on the topic of customer care at telcos, that fundamentals need to improve dramatically in this area. Kudos to Sprint for fixing this key element of customer service so quickly.

Having said that, this is just one metric. It doesn’t measure customer satisfaction, first call resolution, or the volume of calls to care in the first place (another area where Sprint was until recently also the laggard among its peers) – it only measures time to answer – admittedly, an important element but also an easy one to fix if enough resources and money are thrown at the problem. I’ll be watching with interest as other surveys and reports on the other elements of telco customer care are released in the coming months to see if Sprint’s efforts in those other areas have paid off too.

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So was it all worth it? Well, as one man standing behind me in the line (possibly a Rabbi – in the center of the picture below) said:

You have to do something insane once in your life!

And that was more or less my opinion too – I don’t often stand in line for these things, but once in a while you want to be part of something like this. I sat out the first round – no 3G, stuck on a Verizon contract, don’t buy version 1 of anything and so on – but wasn’t going to do the same this time around.

I love the device. It’s a fantastic experience, and certainly the most fun I’ve ever had with a new phone. To date, I’ve downloaded and installed 23 applications, requiring four home screens altogether on the device (I have a separate one for web clips). I did have activation problems on the first day, along with everyone else, although they were relatively minor and solved by the evening.

I’ve read a lot of articles denigrating the iPhone in pretty strong terms over the past few days – two examples. The thing that strikes me about these articles is that they seem to assume that the iPhone is taking over the world. The Lifehacker article is titled, “Why You’re Better Off Avoiding the iPhone” and the other suggested the iPhone is going to kill the Internet.

Let’s tone that done a bit, shall we? For starters, Apple sold a total of 1 million phones in the first weekend and has since been largely sold out. Compare that with Nokia, which sells more devices than that every single day of the year, and you are quickly reminded that Apple does not dominate the mobile device market (or even the smartphone segment). Secondly, no-one is being forced to buy an iPhone – you have a choice about buying it as you do with every other device out there – and as a consumer you will weigh the pros and cons as you would with every other device. If you don’t like the relatively “closed” ecosystem and approach to applications, you don’t have to buy the phone. But, if you want the design, interface, web browsing, ease of use and so on and think the closed application environment is a small price to pay, then you’ll want to buy it anyway.

The most alarmist and hostile stuff I’ve read comes from the Free Software Foundation, which seems to have a definition of “free” which is much narrower than most people’s would be. But again, it seems to somehow assume that Apple has some kind of monopoly and that everyone is somehow tied into the Apple model whether they want to be or not. The Apple DRM approach in particular has come in for a lot of criticism, which is funny since it’s done at the behest of the record companies rather than any particular agenda Apple has. In order to secure for itself a strong position in online music sales, it acceded to the requests of the record companies to provide adequate copyright protection for their music. As the record companies have become more enlightened in their approach, Apple has begun releasing music in non-protected formats. But again, you have a choice – Amazon, Rhapsody, Napster and plenty of others offer alternative models for purchasing digital music online, and files bought from all those companies will play on iPods and iPhones.

Overall, I think Apple is adding a lot more to the mobile industry than it is taking away, and on a personal level I love the device and especially the ease of use of the device itself and the process of adding applications and media to it. It may not be everyone’s cup of tea – the FSF recommends the Free Runner, which strikes me as being an utterly uninspired (and uninspiring) device. But whatever floats your boat – and that’s the real point here: you have a choice. Stop moaning about the way Apple does things, and find a company that does things the way you like, and buy their stuff instead.

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On the wireless side, the company is planning to rethink its partnership with Sprint and form a new partnership (possibly with Sprint again but likely with someone else) which would provide deeper integration but also a portfolio for Qwest that would more closely mirror its competitors’. Mueller appears confident that he can get this, but given that Sprint has historically been much more aggressive about MVNO activities than the other major wireless carriers, and Verizon and AT&T have very little incentive to play ball, I’m not hopeful. It looks like Mueller may be a little naive in this respect.

This was a major theme from the event and one that got a lot of coverage at the time, though things had been fairly quiet on that front since. Well, today Qwest announced that it had signed a deal with Verizon Wireless. But rather than tighter integration, Qwest has gone for a far looser integration, and has taken another step back from direct participation in the wireless market. In the space of just four years, it has gone from being a wireless player in its own right to being an MVNO to being a reseller:

Qwest Communications International Inc. (NYSE: Q) and Verizon Wireless announced today they have signed a 5-year agreement for Qwest to market and sell Verizon Wireless service beginning this summer.

…

Under the agreement, Qwest customers will have access to the full line of Verizon Wireless handsets, smartphones and BlackBerry devices, as well as high-speed broadband wireless services for e-mail, Internet access and multimedia services. Residential customers will be able to choose “wireless only” and be billed directly by Verizon Wireless, or include Verizon Wireless service as part of a Qwest bundle with their home phone, Internet and video services, and receive one bill from Qwest for all services.

Ed Mueller had said in my conversation with him that, in the TV market, Qwest was perfectly satisfied to merely take commissions from its satellite partner, rather than participating directly (according to that conversation, these commissions are around 15%). It now appears that Qwest is willing to take exactly the same approach with wireless. Having recognized that it doesn’t have the skills to compete in this market itself, it is hitching its wagon to a player that can. But again, it is limiting its upside in one of the few markets that are still really growing. Once again, it appears that Qwest is not all that concerned about growth.

In the meantime, this is somewhat bad news for Sprint, which will have to cope with the loss of one of its resellers (albeit not the largest) and the expansion of Verizon Wireless’s ability to compete through bundling with wireline products, on top of all the other bad news it’s had recently.

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Firstly, it’s been interesting to see the shadow the iPhone casts over everything even though Apple isn’t visibly present at the show. Sprint’s big announcement was around the Samsung Instinct, which is a clear iPhone competitor. But the devices on display were running beta software which was glitchy and slow, and it was clear that – though they have some nifty features – these devices are not a match for the iPhone. AT&T itself had another device which mimics certain aspects of the iPhone – the LG Vu – but it is another poor match for the device on everyone’s minds. Of all the things that people love about the iPhone – the design, the UI, the browser, the ease of use – none of them are matched by most of the devices on display here, even though the manufacturers of those devices have been making phones for far longer than Apple. The Sony Ericsson Xperia X1 showed the most promise of any device I saw at CTIA, but won’t be launched for several months.

And AT&T appears to be keen to cement the thought leadership the iPhone deal has given it. Its announcement that it will deploy Microsoft Surface tabletop computers in some of its stores will further up the cool factor for AT&T and put more pressure on its competitors to find ways to compete. I haven’t seen much from AT&T’s competitors that can match it in terms of providing differentiated experiences on devices or in stores. (I have to admit that throughout the Surface presentation I was thinking about this YouTube video which I first saw a few months back – “take that, Apple”).

I discussed managed mobility services with several players at CTIA, and found broad consensus in several areas. It seems clear that the next several months will see launches from major players including both AT&T and Verizon around managed mobility services, and that a range of factors are coming together to create a fertile environment for uptake of these services. The complexity I have referred to previously in the enterprise mobile arena is creating demand for these services. And technology is now available to enable the supply side, both from specialists like Mformation, Sybase and Nokia/Intellisync and from RIM and Microsoft. Launches in the next few months from those two big carriers and increasing uptake over the next year or two should follow.

“Openness” appears to be becoming the new “convergence” in that it is a term everyone seems to feel compelled to insert into every pitch and keynote despite the fact that it means different things to different people. AT&T still appears frustrated that Verizon has got so much attention for playing catch-up with the GSM world: as Ralph De La Vega (head of AT&T Mobility) put it today, “we were open before open was cool”. But he also suggested AT&T now views Android much more favorably than it did at first, ironically because Android will be “open” to AT&T’s branding and applications in the device UI, rather than being restricted to just Google and open source software. I’m hoping the open thing will soon blow over at least in the form of hype, and that we’ll start to see some significant real moves towards openness. Android will be important to watch when it launches – Texas Instruments is demoing two Android devices here – but it can’t be the only game in town.

Carriers need to get better at explaining that they already offer openness on the RIM, Windows Mobile and Palm platforms, where users get unfettered access to the Internet and the ability to install their own applications. But they also need to find ways to extend that openness all the way down the portfolio for those customers who want that. And they need to stop pretending that “choices” and openness are synonyms. Just because you give your customers a choice between two hand-picked applications does not mean your approach is open. Allowing them to pick the application they want regardless of whether you have endorsed it is. And carriers still have some learning to do in this department.

Overall, the show is as always a nice snapshot of a point in time for the wireless industry. But I hope that by the time the Fall show rolls around we’ll have moved forward in all these areas – compelling devices, managed mobility and openness in particular.

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Having had the opportunity to think about it some more, I think that initial reaction is still the right one. Only once those two things are well established can the combination of the two really occur in the form of mobile enterprise social networking. And those aren’t insignificant barriers.

Ironically, even though I think the opportunities are far greater in some ways for mobile social networking, enterprise social networking actually seems to be taking off more quickly, in part because there are companies with the right assets to take the job on. Oracle, IBM and others are taking the lead in creating enterprise-grade social networks with the appropriate structure and controls for the business setting. They have the software expertise and the credibility and knowhow in business to make it work, and they are already doing so, both for internal use and for use by customers.

On the mobile side, most of the players only have half the story to tell – the social networking companies have the SN knowhow and the customer base, but not the mobile knowledge or operator relationships to really make things happen. The mobile implementation of Facebook (both the mobile website and the BlackBerry application) is limited at best and doesn’t do a lot of the things you’d want it to in order to be really useful. Mobile operators, who have many of the other pieces needed to make things work, don’t have the credibility as social networking providers in their own right, and so need partnerships with SN specialists to make things work. In time, the two groups will come together in such a way that mobile social networking is enabled in a more mainstream way, but we still have a long way to go.

Only once both of these trends move a lot further down the road does it make much sense to expect mobile enterprise social networking to take off. But that doesn’t mean that the various stakeholders shouldn’t start thinking about how it might work now. Both the Oracles and IBMs and the mobile operators and social networking sites should be actively working out how they will take advantage of this future opportunity today. But that shouldn’t prevent them from staying focused on nearer-term opportunities in both mobile and business flavors of social networking individually.

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From the preamble, which lays out the context for the proposed legislation:

(2) Wireless service has become a replacement for traditional telephone service for millions of consumers in the United States.
(3) As wireless service is increasingly used and relied upon by residential and business consumers, such consumers will increasingly depend on Federal and State authorities to apply and enforce essential consumer protections applicable to such service in a manner commensurate with the role such authorities have played in ensuring consumer protection with traditional telephone service.

So, the key argument here is that, since wireless services are replacing wireline services for at least some people, the same (or similar) “consumer protection” provisions are required for wireless services as have previously been made for wireline services. Before I got to the second half of (3) above while I was reading it, I assumed it was going to say “the same protections as are applied to other commercial businesses under existing US law.” Because that’s the logical thing to say: wireless consumers should be subject to all the same consumer protection provisions as consumers of any other product or service. Why do we need special rules for wireless services?

In Section 101 (a) (1) we get to the meat of the matter. The Bill proposes that carriers should have to disclose to consumers the complete terms of any plan they’re signing up for, including the duration of the plan, the number of minutes included (although no mention of data transfer), any trial period, “the terms of subsidizing any wireless customer equipment” (whatever that means), and information on early termination and other non-recurring fees. Carriers also have to disclose up front any and all charges, including taxes (which could be tricky since they change from time to time, as do charges).Now, in and of itself, this is reasonable enough, but isn’t the bulk of it covered by existing consumer protection laws? And if not, why does the wireless industry have to be different from other industries?

Section 102 deals with early termination fees. The first requirement is:

each commercial mobile service provider to offer a wireless service plan for which there is no early termination fee;

Which would presumably be covered by prepaid plans, now offered by all major carriers. Which makes this a bit of a hollow provision. Section (2) adds:

that if a commercial mobile service provider offers such plans with subsidized wireless customer equipment, such provider shall offer to consumers the opportunity to purchase subsidy-free wireless customer equipment in return for the ability to secure service, without a long-term wireless service plan, at a price no higher than a comparable wireless service plan offered with subsidized wireless customer equipment;

Now, some people have assumed this means that AT&T would have to offer unsubsidized iPhones. I’m not sure it does, since it doesn’t specify that customers shall get the same “wireless customer equipment”. At the very least, this is an easily exploitable loophole. But it’s not clear that Markey’s intention is even to force de-subsidization of all handsets, just the option to buy one or more handsets in this way. Of course, Verizon Wireless has already announced that it plans to allow customers to attach any phone that meets basic requirements to its network, and AT&T and T-Mobile as GSM carriers offer this option by default.

Section (3) requires that early termination fees (ETFs) must be prorated over the life of the contract, and that the proration is just based on the cost of subsidizing handsets (which suggests that ETFs should be different for each handset rather than standardized).

Then we get onto wireless coverage maps, which must be provided by each carrier, and which must depict sufficient detail that they show

(A) generally geographic areas where commercial mobile service is not predicted to be regularly available; and
(B) whether or not a consumer is predicted to receive commercial mobile service in the general geographic area in which such consumer’s primary residence is located, to the extent prediction of reception in such area is feasible using the formats specified in paragraph (1).

“General geographic area” is just vague enough to be completely useless. All carriers provide some kinds of maps for coverage – see:

• T-Mobile
• AT&T
• Sprint
• Verizon Wireless

These tend to provide enough detail to see if your street gets coverage, and that’s about all that can reasonably be expected. So what’s the point of this provision? To be really useful, these maps need to tell you whether you can get coverage inside your house (which is where most people have problems) but that’s impossible. So again, this feels pretty pointless, especially given the fact that the carriers are already providing such maps without legislation requiring them to.

Markey also wants the carriers to do the government’s dirty work for it:

to require that any charge specifically required by a Federal, State, or local statute, rule, regulation, or order to be collected from a subscriber be listed in a separate section of each bill sent to a subscriber and itemized separately in clear and plain language;

Section 105 is the “create employment in the wireless industry section” (not really, but it could be), since it requires potentially huge amounts of disclosure on the part of the carriers about their coverage, signal strength and other items. This seems to be covering more or less the same ground as the mapping question, but could potentially go a lot further in the hands of an interventionist FCC.

Now onto contract extension. The bill requires that customers not be provided contract extensions unless:

the subscriber agrees to extend such plan by providing express consent to such extension

Cue angry customers a few months from now wondering why the heck their cellphone service has been cut off when they pay their bill every month, because the alternative to extension is cessation of service, and we all know a lot of customers won’t respond in time.

We now get to the Verizon clause. Apparently, the fact that Verizon has offerered a 30-day trial period (its “Worry Free Guarantee“) means not that the market will take care of this on its own, but that everyone should be forced to do it. At least the bill doesn’t require carriers to pay back any fees racked up during those 30 days as Verizon has willingly agreed to do.

This Worry Penalty Free option is pretty ironclad:

a wireless service plan may be canceled upon the request of a subscriber for any reason during the 30-day period that begins on the date on which such plan was executed.

Note: “for any reason” – i.e. just if they feel like it, or if they enjoy hopping from carrier to carrier just to drive them nuts and cost them money by forcing them to restock used devices and sell them at a discount. And this next point is not quite clear either:

If a subscriber exercises the right to cancel such plan under paragraph (1), a subscriber shall receive a pro rata refund of the charges, if any, paid for wireless customer equipment used in conjunction with such plan if such equipment is returned during such 30- day period.

What’s pro rata about buying a phone? If they mean that carriers can charge a reasonable re-stocking fee, that seems sensible, but there’s nothing pro rata about that.

I’m not going to dwell on the wireless broadband stuff or the spectrum efficiency stuff at the end but might come back to that later.

Overall, this feels like more intervention in a market which has generally done very well by consumers in terms of providing good service at declining prices and offering compelling devices and services. Yes, there are transparency issues, and yes, there are misunderstandings about contracts, but I believe these can be addressed under existing laws and through market-based incentives (just look at that Verizon Worry Free Guarantee and the presence of coverage maps on all the major carriers’ sites as examples). We really don’t need more legislation in this area.

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charging $99 or slightly more for a plan that would include unlimited voice and messaging and/or data usage.

I didn’t explain this at the time (although I seem to have been right I have no insider information here and it was still just an educated guess), but my thinking here was that Sprint would want to undercut the others, but would also want to do it in such a way that it kept ARPU high while providing for its growing base of unlimited data customers (both personal and business users).

By throwing everything into the package Sprint is going after the power users on all networks. But it is also effectively capping ARPU at $99, including data, which means it’s closed off the only real avenue to future growth, which is data revenue. The plan includes:

unlimited voice, data, text, e-mail, Web-surfing, Sprint TV(SM), Sprint Music, GPS Navigation, Direct Connect(R) and Group Connect(R).

So almost every revenue-generating service Sprint has. For business users, there will still be the opportunity to sell additional productivity, horizontal and vertical applications, but it’s really maxed out for consumer users. Now, a $100 ARPU isn’t bad, and certainly a lot higher than Sprint’s current average, but who’s to say this is where the price will stay?

And since this was announced on the same day that Sprint suggested they will lose 1.2 million postpaid subscribers in the first quarter, it’s going to have to be a heck of a powerful shovel if Sprint’s going to dig its way out of that hole.

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The Verizon and AT&T deals are pretty much identical – $99 per month for unlimited calling. T-Mobile threw in unlimited texting, which makes sense since its user base tends to skew young and therefore is more prone to communication via thumb than mouth. US Cellular’s is a national offering too but its user base is more regional.

Financial analysts and investors have largely seen all of this as a bad thing, either because it will start a price war, or because it will take everyone spending over $100 on voice currently and bring their spending down to $100, by definition decreasing their spending (Om Malik would appear to be a case in point).

There is already speculation that Sprint will attempt to undercut all of the above, which it could do by simply charging less than $99 for its unlimited voice plan, or presumably by charging $99 or slightly more for a plan that would include unlimited voice and messaging and/or data usage. Certainly, Dan Hesse has suggested that he has what have variously been described as “nukes” or simply “missiles” he can fire off to kick-start the turnaround at Sprint, and one of these is presumed to be a dramatic move on prices. With the other carriers having now stolen a march on that particular idea, he may need something new.

However, it’s not clear that it would have made a huge difference even if Sprint wasn’t playing “me too” at this point. Think about it. Wireless churn stands at somewhere between 1 and 3% for the larger US carriers. That means that in any given month, only 3% (or fewer) subscribers switch carriers, or put another way the average lifetime of a subscriber is between 3 and 8 years. Even the most dramatic move on pricing would be unlikely to loosen up more than a small number of additional subscribers in any given period. Look at the iPhone – growth appears to have slowed, and there are doubtless several reasons. But one is the simple fact that many people are locked into 2-year contracts (which by themselves would limit churn to just over 4% if everyone stayed in them) and over three quarters of US wireless subscribers are currently with a carrier other than AT&T.

Given that Sprint currently has negative “flow share” towards the other three big carriers, just turning that trend around would be something. But simply reducing prices will not likely do the trick on its own, especially when competitors are making similar moves. Forrester has a survey which has been used by Morgan Stanley to look at brand loyalty, and it illustrates where Sprint’s problem really lies:

Verizon scored an average response of 7.7 out of a maximum score of 10, AT&T and T-Mobile scored 7.2 each, with Sprint Nextel averaging 6.1 among their customers. Factors such as reliability, trust and prior experience
were rated as key factors in making a carrier choice.

Sprint has by far the lowest rating of any of the main carriers (Nextel’s independent rating is even lower), and this ties in directly with its churn. It needs to be doing a better job of keeping existing customers happy at least as much as it needs to win new ones.

As to the question of whether the impact of unlimited pricing plans will be good or bad, it’s hard to argue they’ll be good. The answer really depends on which of four resulting trends is strongest:

• existing customers of a carrier switching to a higher-priced plan (i.e. going from limited to unlimited), which would have a positive ARPU and revenue impact
• existing customers of a carrier switching to a lower priced plan (i.e. because they currently spend more than $99 either because their plan costs more or because of overages), which would have negative ARPU impact
• customers switching from other carriers, which would have positive subscriber and ARPU impact, but which seems relatively unlikely on the whole because the model has swept all but one of the major carriers in the space of a week
• new customers signing up with the carrier because of the new plan (which seems least likely of all, since current wireless non-subscribers tend to be poorer, with poor credit scores, and are therefore much more likely to adopt pre-paid or at least low-priced postpaid offerings.

Given that the fourth trend is likely to be negligible, and third also small, that leaves the first two. There is an argument for switching from a lower-priced to a higher priced plan if it allows you to make another simultaneous change – i.e. to switch your calling from another network to your wireless carrier. If people cut the cord either at home or in business as they make this change, they may save money overall while increasing spend with their wireless carrier. The premium on top of more modest allowances of minutes is likely to be at most $50 and probably considerably less, so it would be competitive with unlimited wireline calling plans. However, it seems likely that the percentage of subscribers currently paying more than $100 for their voice services who will switch to the $99 plan will be close to 100% within the first few months. While providing some goodwill benefits similar to those enjoyed by Sprint with its Fair & Flexible plans and AT&T/Cingular with its Rollover minutes, it’s not clear those will translate to sufficient churn reductions to offset the loss in ARPU / revenue.

Had Verizon been alone in making this move, the picture would look very different, even if it only had a few months of lead time over the other carriers. But because the others have responded – or are likely to respond – very quickly the overall impact seems likely to be at least slightly negative.

On the other hand, it’s also worth asking what would have happened to voice ARPU over the next year anyway. It has been stable for some time, and with most growth coming from prepaid and family plans at present it is likely to drop considerably in the coming years. Per-minute pricing has been dropping for some time, since that ARPU has been buying ever larger numbers of minutes over time. The current model for consumer communications has flat-rate pricing as its endgame every time (see broadband, wireline voice, TV), and although it has taken a very long time to get there with wireless, we’ve arguably had several baby steps already – the “bucket of minutes concept” and the elimination of long-distance and roaming charges being among the most obvious. This will doubtless accelerate the decline in ARPU somewhat, but overall it may simply cap voice ARPU at a nice high rate (about twice current ARPU), freeing consumers to increase spending on data, which is where all the growth is today regardless. It may not be as bad as some people think.

Note: the image used in this post is a picture I took myself a while back on a walk through NYC. Unaccountably, a huge inflatable rat was sitting on the back of an unattended trailer outside a Verizon Wireless store. Seems somehow strangely apt for this story. Original can be viewed here.

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