Are U.S. Consumers More Satisfied with Social Media or ISPs and Video Services?

You might think consumer satisfaction with social media apps such as Twitter, Facebook and LinkedIn would be dramatically higher than for Internet service providers, cable TV companies or telcos.

After all, those these industries traditionally rank at the bottom of satisfaction ratings produced by the American Consumer Satisfaction Index.

But you would be wrong. At least according to ACSI rankings, consumers are less satisfied with the popular social media apps than they are with fixed telephone service and mobile phone service.

On average, those social media apps get higher satisfaction ratings than video entertainment providers and significantly higher satisfaction ratings than Internet service providers. ISPs scored 63, while video services ranked collectively as a 65 for satisfaction.

Time Warner Cable scored an even-worse 60, while Comcast scored 63. AT&T U-verse and DirecTV both scored a 69.

In 2014, Twitter got a score of 69, Facebook earns a score of 67 and LinkedIn has a ranking of 67 as well.

In other words, according to the ACSI ranking, consumers are only about as satisfied with Twitter, Facebook and LinkedIn as they are with their ISPs and video providers. That puts satisfaction with those social media apps near the bottom of all industry rankings.

Among search engines, Google got a high score of 80. Bing and MSN both scored 73.

Major news portals earned an average score of 74.

Perhaps the most surprising finding is that the leading social media apps do not score much higher than ISPs or video entertainment providers, which have been ranked at the bottom of satisfaction rankings.

The top social apps can be used for no incremental cost, where Internet access service and video entertainment are significant cost items.

And one might draw a couple of  conclusions. Consumers are relatively unhappy, but continue to buy because they need the products. Also, consumers are unhappy and feel they have no workable alternatives that are sustainably better than the others.

The gap in scores between some cable firms and their satellite and telco video competitors, though, does suggest growing consumer perception that there are workable alternatives.

Verizon FiOS, for example, garnered much higher scores than most other ISPs. Google Fiber is not tracked, but one suspects its scores would top even those of Verizon.

It isn’t clear that there is a direct causal relationship between satisfaction and spending. But to the extent there is a relationship between satisfaction and consumer spending, a number of industries might have faced first quarter 2014 difficulties in some part because there apparently was a big drop in satisfaction ratings from the fourth quarter of 2013 to the first quarter of 2014.

It likely goes too far to argue, as does the ACSI, that “a sharp first-quarter decline in customer satisfaction contributed to a slowdown in consumer spending growth.”

Most economists say miserable and unusual weather in January 2014 likely was the direct reason for slowed U.S. consumer spending in January.

Still, says ACSI, “the drop in satisfaction in the first three months of 2014 was one of the largest in the 20-year history of the Index—down 0.8 percent to a score of 76.2 on the ACSI’s 100-point scale, from 76.8 the previous quarter.”

One might argue with the contention that “a downturn in satisfaction weakens consumers’ willingness to spend. One might argue something else is at work, such as reduced disposable income or growing anxiety about one’s own fortunes.

On the other hand, simple reversion to the mean would have been expected after record high satisfaction levels seen in the fourth quarter of 2013.

Among the industries with the largest satisfaction score declines are subscription television service (-4.4 percent from an ACSI score of 68 in the fourth quarter of 2013 to 65 in the first quarter of 2014).

Internet service providers fell 3.1 percent from a fourth quarter 2013 score of 65 to a first quarter 2014 score of 63).

source: ACSI

source: ACSI

OTT Video Providers Look to 4K, 8K Video, Conflict with ISPs Will Grow

What is good for video entertainment app providers such as Netflix is not necessarily always so good for Internet service providers. Customers with suitable Internet access are an input to the business Netflix operates.



Supplying such bandwidth is both the revenue model and the cost driver for ISPs. ISPs arguably benefit from higher consumer demand for bandwidth, but also have to invest to supply that bandwidth, while charging prices consumers are willing to pay.



Bandwidth consumption, consumer resistance to higher prices, lawful pricing policies and capital investment are some of the issues ISPs therefore have to grapple with, when contemplating higher investment to support 4K and 8K video apps and services. 



Netflix, like all other popular apps, creates the reason for people to buy Internet access. But Netflix and other video services are the primary driver of bandwidth demand, which in turn drives network investment requirements. 



Entertainment video imposes bandwidth demand on the ISP network far out of proportion to all other apps, and ISPs do not always have the ability to charge their customers for what the bandwidth consumption represents, in terms of network load. 



So ISPs will eventually have to come to terms with higher-quality image standards that will affect bandwidth consumption as much as high definition TV differs from standard definition TV.



Over-the-top (OTT) services such as Netflix, VUDU, and M-GO, which exclusively distribute content over the Internet, see high image formats as a way to create distinctiveness in the video market.



That will apply to emerging 4K and eventually 8K video formats as well. Even legacy video distributors, such as cable operators, might do so as well. 



“We expect pay TV operators will seriously consider 4K movie services over IP connections directly to smart TVs, bypassing the set-top box," says ABI Research Senior Analyst Michael Inouye. "This will allow them to compete with OTT providers on feature set before rolling out 4K capable set-top boxes in 2015 to 2017."



In that case, of course, ISPs who also own OTT video services face public policy issues, as they cannot favor their own services without drawing regulatory scrutiny. At the same time, 4K and 8K video will drive capital investment requirements to support greater quantities of high-bandwidth video. 

How Much Revenue Can Sprint Afford to Lose in New Pricing War?

How much revenue can Sprint afford to lose if and when it launches a new price war in the U.S. mobile business? That is going to be a huge question.

Perhaps the harder question is how much free cash flow Sprint can afford to lose, as it already has negative free cash flow of perhaps $340 million a year. A new pricing attack might improve cash flow, but could also damage cash flow further. It just is not possible to say, yet, what will happen.

In the near term, Sprint has to hope it will add enough new accounts to compensate for the lower revenue per account it will see once a price war is launched.

T-Mobile US already has done so, and, so far, T-Mobile US is adding enough new accounts to compensate for lower average revenues per user.

And, no question, the strategy can work, so long as each attacker keeps adding new accounts in sufficient quantities to compensate for declining average revenue per account.

But it will not be easy, long term. As AT&T, and even Verizon, which likes to stay above the pricing fray, start to respond, it will become harder for T-Mobile US and Sprint to take share. It will be equally hard to keep a pricing advantage.

And that is the strategic danger. Larger contestants with stronger balance sheets can weather a price war better than smaller firms without such resources.

There are other issues as well. When service providers add more customers, and make offers more attractive, those new customers will use the network. That, in turn, means network resources can be tested, requiring more capital investment.

That is a balancing act both Sprint and T-Mobile US will have to contend with, at some point.

Though both networks arguably are, at present, able to support significant growth, neither could handle wildly-successful rates of growth. The simple reason is that network loads would climb.

And that eventually would require investment to enhance coverage and capacity, requiring access to capital that might prove troublesome.

source: Jacksaw Research

Up to this point, T-Mobile US has managed to finesse a price attack by adding robust numbers of new customers. Sprint will face the same challenge.

Almost paradoxically, the more successful the attackers are, the more likely they are to provoke a significant response from the dominant providers that in turn makes the attack more difficult.

And that would eventually create enormous financial strain, but most of all on the attackers.

To be sure, Sprint has no choice but to attack. It is in danger of falling to fourth place among U.S. providers, as measured by subscribers,  and its historic strength in prepaid appears already lost to T-Mobile US.

Sprint will have to show a degree of nimbleness it has not exhibited in the past, to pull off a successful attack.

LIke T-Mobile US, Sprint now seems to have a leader with competitive service provider instincts. Whether Sprint’s culture can respond nimbly is the issue.

Can New Sprint CEO Change Sprint?

Here’s one way yo illustrate the challenges Sprint will face as it prepares, at long last, for a serious attack on the U.S. mobile market.

How well do some words match up with your own experience with the leading U.S. mobile service providers?

“Street fighter, outlaw, guts.”

Those are words Masayoshi Son used to describe the new Sprint CEO Marcelo Claure. Does that sound like Verizon? No, you would say. Not on any level.

Does that sound like AT&T? Maybe the “guts” part, you might say.

Does it sound like T-Mobile US? Much more so. But does it sound like Sprint? And that is precisely the issue. Does that sound like the people you know who populate the ranks of Sprint? Well, no.

But none of the four leading U.S. carriers front-line personnel seem to match those words. So what of the people behind the front lines? No, that doesn’t seem quite right, either.

Of all the words one would use to describe the middle and executive ranks at the four carriers, you would definitely not deem “outlaw” the right term to describe them, and most of you would not say the organizations tolerate or encourage people who might be called “street fighters” or people with “guts.”

And that is not to pick on telcos. Think of the vast bureaucracies that staff any large, multi-national corporation. Do the words “outlaw, guts and street fighter” seem to resonate? Of course not.

Still, it might be important to note a couple of facts. What became T-Mobile US was founded by Western Wireless. Who is that? But that might be the point. At its peak, Western Wireless served about 1.8 million customers.

In a current market of some 335 million customers, Western Wireless would not have registered on a market share graph.

There are cultural implications. T-Mobile US operates more efficiently than its top competitors. It never did have the bloat that larger organizations feature. Some might say that is a cultural legacy left by its founding as a scrappy upstart, not an organization with a large telco mentality.

That is not true of AT&T Mobility or Verizon Wireless, both of which have Bell system roots.

Sprint, in terms of culture, should be different. Though Sprint is well over a century old, it grew up as an independent company not part of the Bell system. That said, Sprint did not become a national brand until the mid-1970s, on the strength of its long distance business.

And Sprint wasn’t a player in mobility until the 1990s.

The point is that Sprint’s mobile culture arguably could have emerged, as have the cultures of many competitive service providers, in a more “scrappy” mode. That doesn’t seem to have happened.

Whether that is a function of the rural telco or railroad parts of its history is hard to say. For whatever reason, most people would not say Sprint is synonymous, in any way, with “outlaw, street fighter or guts.”

John Legere’s success at T-Mobile US (and most would agree it is possible to use those terms to describe Legere) is something Claure will try to emulate at Sprint.

Whether the organization each CEO leads is capable of acting in a way commensurate with the marketing slogans is the key issue.

U.S. Mobile Service Provider Revenue Temporarily is Distorted

It has been a little more challenging to characterize U.S. mobile revenue growth over the past couple of quarters, for reasons relating to a change of packaging strategy. A few years ago, most consumers purchased devices that were bundled with recurring service plans.

That had one implication for how revenues were booked. Now that the major U.S. carriers are moving to unbundle, selling devices separately from service plans, different accounting will come into play.

And that is going to temporarily distort revenue reporting, essentially boosting device revenue growth rates, temporarily, even if total revenue remains comparable with past periods.

So it is that U.S. mobile "service" revenues declined two percent in the second quarter of 2014, representing about $1 billion less revenue for the largest service providers. 

Total revenue grew, however, as device revenues grew more than service revenue declined, an accounting artifact, more than anything else.

In part, the service revenue declines reflect more aggressive discounting by a couple of the leading U.S.mobile service providers, but largely are caused by accounting changes triggered by widespread unbundling of device sales from service revenues.

That pattern also was seen in the first quarter of 2014,  mostly because of results at AT&T, Verizon and Sprint, according to Jackdaw Research,

The impact of device revenues can be seen in T-Mobile US average revenue per user and a new metric, average billings per user, which includes both device and service revenue.

source:Jackdaw Research

T-Mobile’s  ARPU is falling rapidly, but average billings revenue is growing. AT&T attributed the lower service revenue to major changes in the way most consumers buy devices and service.

"We are confident that what we saw in Q2 was part of the transition we had to make to go from service to equipment revenue in NEXT," said Ralph de la Vega, AT&T Mobility CEO.

NEXT is the AT&T plan that allows customers to unbundle device purchases from service plans.

AT&T mobile service revenue decreased 1.4 percent in the second quarter, while equipment revenue grew 44.8 percent.

That is one of the statistical anomalies AT&T, T-Mobile US and the other service providers will have to endure when making a shift from primarily bundled sales plans to unbundled sales plans.

On the other hand, such unbundling also increases the transparency of service plan pricing, allowing consumers to compare offers more directly, one might argue. With competition expected to increase, rather than decrease (some expected competition to decline if Sprint successfully purchased T-Mobile US), such pricing transparency likely will put even more pressure on service plan pricing.

Operating margins in the first quarter of 2014 were up sequentially for AT&T, Verizon and Sprint, but down at T-Mobile US. Most would attribute the T-Mobile US margin hit to aggressive retail promotion, allowing the company to take market share.

And that is the potential Achilles Heel of the T-Mobile US strategy. By sacrificing profit margin to gain market share, the company has to keep adding new customers at a high rate. The danger comes in the future, when growth rates slow. At that point, T-Mobile US will have to switch strategies and start to focus on profitability, which almost certainly means an end to the pricing attack.

The mobile data services revenue, nevertheless, is on track to exceed the $100 billion mark in mobile data services revenue for the first time, according to Chetan Sharma.  Data contribution to the overall revenues is now at 55 percent.

source:Jackdaw Research

Deutsche Telekom Wants More Help in US Spectrum Auction

Deutsche Telekom wants more help from regulators in the upcoming U.S. spectrum auction for former TV broadcast licenses, now that regulators have essentially blocked Sprint's bid to buy T-Mobile US.



Of course, regulators already have set aside a portion of that spectrum for smaller bidders, including Sprint and T-Mobile US. 



Whether anything more than that is contemplated is unknown, but is unlikely. 

GMail Makes it Much Easier to "Unsubscribe"

Gmail now makes it easier to "unsubsubscribe" from promotional emails sent by brands, social networks and discussion boards. 



Now when a sender includes an “Unsubscribe” link in a promotions, social or forums message, as Gmail allows users to categorize email messagges, Gmail will surface it to the top, right next to the sender address. 



No more scrolling around to the bottom of messages to find that option.