Sprint Aims to End Confused Retail Message

Marketing messages tend to fail when they are not in harmony with a product's perceived values and weaknesses, or when the messages are ambiguous. 



So it was likely the case that many observers were confused about Sprint's recent "Newest Network" retail message. What the heck is that supposed to mean?



"Fastest network" people would understand. Likewise, "best network" or "most affordable network" or "best coverage" or "most reliable network."



Those who follow networks would know why Sprint did not try any of those. 



Now new Sprint CEO Marcelo Claure appears ready to ditch the confusing message with one that makes sense. 



Claure says  "very disruptive" rate plans are coming very soon. And the new positioning will at least make sense.



"When you have a great network, you don’t have to compete on price," Claure said. "When your network is behind, unfortunately you have to compete on value and price." 



That at least would be congruent with what many consumers actually think about Sprint. Sprint doesn't have to claim it has the best network. It only has to tout its fundamental proposition: value. 

Are We in "Post-Productivity" Era of Communications? You Bet We Are

Are we in some real sense in a “post-productivity” era of communications, where the driving force for building and operating networks is entertainment? Yes, some of us might argue.

What drives traffic across the global backbone? Video. Globally, IP video will represent 79 percent of all traffic by 2018, up from 66 percent in 2013, according to Cisco.

What drives fixed network Internet access traffic at peak hours? Video. In fact, video drives as much as 63 percent of total traffic during peak periods.

What drives mobile network bandwidth? Video, which represented 53 percent of mobile network traffic in 2013.

Though consumed bandwidth is not identical to service provider revenue, the two are related. Over time, revenue for fixed and mobile networks will be driven by data bandwidth, primarily related to Internet apps, and Internet app traffic disproportionately will consist of video.

Uncompressed 4K video, for example, requires 9.2 Gbps per video stream. Not even a gigabit connection can handle video at such rates. Video encoded at 8K standards might require between 23 Gbps and 28 Gbps. Obviously, no app provider will stream at such rates.

But the dimensions of the problem are very clear: video drives video demand across all networks.

Looking at fixed network service provider revenue, managed video and Internet access revenue streams already are driven by video services and applications.

If AT&T succeeds in acquiring DirecTV, for example, video entertainment would be the single biggest revenue stream, followed by high speed access, itself increasingly used to support video consumption. Voice but be only the third biggest revenue contributor.

The revenue picture is different at Verizon, which earns half its total revenue from business customers. Video might represent as much as 35 percent of consumer revenues, but perhaps only 17 percent of total revenue.

If you wonder why AT&T seems far more interested in consumer video entertainment, revenue tells the story. Consumer video entertainment has much less impact on total Verizon results than video does for AT&T total revenue.

AT&T, for example, says that upstream traffic is growing at double the rate of downstream traffic, and the reason is uploads of photos and video to social sites. In other words, in addition to driving more downstream bandwidth demand, entertainment now also drives the need for more upstream bandwidth.  

Long Term Evolution networks, for example, will grow speeds by concatenating spectrum bands, as two South Korean mobile service providers will do by the end of 2014, enabling 300 Mbps top speeds.

T-Mobile US says it eventually will use 20 MHz by 20 MHz of bandwidth, enabling speeds up to 150 MHz for its LTE network.

The point is that global networks now are sized for video entertainment. Increasingly, many enterprise networks (especially networks operated by application providers with a high consumer video component) also are sized for video apps and services.

In that sense, we are well past the point where networks of all types are driven by “productivity apps” and uses. These days, entertainment video drives investment in networks, and increasingly, service provider revenue.

Internet of Things Might be 5 to 10 Years Away from Widespread Adoption

How long will it take before the Internet of Things produces the significant revenues mobile and fixed network service providers expect? In perhaps five to 10 years, according to Gartner analysts.

In fact, some might argue widespead adoption could take a decade, given the huge range of potential Internet of Things applications, across a wide range of industries, some of which will adopt earlier. 

The reason is that the Internet of Things has just reached the peak of the Gartner hype cycle, a position in the adoption cycle where hopes for rapid adoption are about to be dashed. 

Cloud computing and near field communications, on the other hand, are largely finished with the period of disillusionment, which means both might soon begin a climb to mature adoption in two to five years.

4G Boosts Spending, Cuts Churn

Does 4G Long Term Evolution reduce mobile churn and increase customer spending? At least one study suggests that is the case.

To be sure, customer retention is a complicated issue, since customer unhappiness can be caused by price, perceived value, dropped calls, slow mobile Internet access, billing issues, poor customer service, device availability or perceptions of network coverage.

Also, churn rates for prepaid customers are much higher than for postpaid accounts. But there is some evidence that the converse also is true.

Faster networks, more reliable networks, networks with greater coverage, better customer service, attractive prices and device availability tend to do better.

A study conducted in 2013 by J.D. Power found that U.S. customers with 4G-enabled smartphones are more loyal to their wireless carrier than owners of devices that use other technologies.

The study also found that the amount of monthly wireless spending is considerably higher among customers who experience fewer problems with slower connection speeds.

That study measured overall network performance in 10 areas, including dropped calls; calls not connected; audio issues; failed/late voicemails; lost calls; text transmission failures; late text message notifications; Web connection errors; slow downloads and email connection errors.

Smartphone customers who experience just one problem per 100 attempts (PP100) and 10 problems per 100 attempts with slow mobile web speeds spend an average of  $11 more per month than those who experience between 11 PP100 and 20 PP100 ($140 vs. $129, respectively).

Customers experiencing more consistent network speeds are more likely to be brand advocates, as 31 percent of smartphone customers who experience between 1 PP100 and 10 PP100 "definitely will" recommend their carrier, compared with 24 percent among customers who experience between 11 PP100 and 20 PP100.

Overall, satisfaction is significantly higher among smartphone customers using 4G networks than among those using previous-generation networks (7.3 vs. 7, respectively, on a 10-point scale).

This satisfaction gap is due to the level of problems experienced with network quality, J.D. Power suggests.

On average, 4G LTE smartphone customers experience significantly fewer issues with data than do 3G customers (16 PP100 vs. 19 PP100, respectively).

This in turn translates to higher brand loyalty. Some 12 percent of smartphone customers using 4G LTE service indicate they are likely to switch their carrier within the next year, compared with 15 percent among those using 3G.

ISPs in the fixed network segment probably have growing opportunities to lift customer spending and take market share, as well. Gigabit networks, where available, are likely to lead to significant customer churn, especially where value-price relationships are disruptive, as with Google Fiber and other offers of a gigabit, symmetrical, offered for about $70 a month.

In most markets, $70 will buy perhaps 50 Mbps from many suppliers.

Some consumer surveys show video entertainment provider satisfaction scores might be diverging, with cable companies lagging significantly, and some telcos and satellite providers gaining.

The point is that network performance now might allow some service providers to take significant market share from lagging competitors.

Is Gigabit Internet Access an Existential Threat?

AT&T has begun activating its “GigaPower” gigabit network in Austin, where it already provides 300-Mbps service to some neighborhoods.

Customers in Austin who already buy U-verse service at 300 Mbps will see their Internet speeds automatically upgraded to up to 1 Gbps speeds at no additional cost in the coming weeks, AT&T says.

To the extent that GigaPower will not be available to all neighborhoods in Austin, an interesting marketing challenge has to be faced.

AT&T will have to market services with radically different price per bit metrics, in the same market.

The new expectation is that a gigabit service “should” cost about $70 to $100 a month. On a cost per megabit basis, that has implications.

At $70 a month, the implied price of 1 Mbps of speed is about seven cents. So the implied price of a 10-Mbps service would be 70 cents a month. A 45-Mbps service “should” cost about $3.15 a month.

AT&T so far has not adjusted its pricing to such levels, and logic suggests AT&T cannot do so.

And that illustrates a range of tactical issues many major ISPs will face is 1-Gbps service is offered more widely.

Most consumers are smart enough to compare a gigabit for $70 a month with other offers from the same company that feature 50 Mbps for $50 a month. Over time, customer irritation is bound to grow, as the value-price relationship for existing offers will seem quite unfair, compared to the new standard.

ISPs including AT&T will face excruciating challenges adjusting their rate cards. For the moment, some will lift speeds while holding prices the same. That will help, at least until those same firms also begin offering gigabit service.

In the meantime, value propositions are going to be challenging. For some, the challenge likely is existential. Satellite and fixed wireless providers have limited ability to respond. In a new market where 50 Mbps or 100 Mbps is a “low speed option,” inability to supply much more than 20 Mbps will be a huge disadvantage.

One might argue it is an existential threat. Nobody talks about that in public. But it seems an inescapable conclusion.

Broadband Internet access doomed business plans for hundreds, perhaps thousands of independent suppliers. Gigabit access someday is going to pose the same sort of problem.

New Trans-Pacific Cable System to be Built

China Mobile International, China Telecom Global, Global Transit, Google, KDDI and SingTel will build a new trans-Pacific communications cable connecting the United States and Japan.



The “FASTER” cable system will cost $300 million and will feature a six-fiber-pair cable with an initial design capacity of 60 Tbps (100 Gbps by 100 wavelengths by six fiber-pairs).



FASTER  will connect to neighboring cable systems to extend the capacity beyond Japan to other Asian locations. 



Connections in the United States will extend the system to major hubs on the US West Coast covering the Los Angeles, San Francisco, Portland and Seattle areas.

Dynamic Range Can Spark Market Disruption

Dynamic range--the difference between the highest and lowest possible values in any set--is important in music, photography, communication and power systems.

But the concept also might apply for business strategy, as when firms measure their operating or financial performance against other suppliers in the same business. Up to a point, that makes good sense.

It means something when the number of customers, profit margin or gross revenue, churn rate, market share, debt ratio or customer additions for one supplier is higher or lower than another.

In highly-stable industries, such comparisons are highly valuable, as major disruptive attacks from outside the industry are highly unlikely. In such stable settings, change from one year to the next is likely to be highly incremental.

So benchmarking--the practice of comparing one’s performance against other firms in the same industry--is useful. Typically, such measures provide an indication of how well a firm is doing, compared to its existing competitors, and in a stable industry, that is all that really matters.

Also, the difference between the worst and the best performance can, in a stable industry, be rather small. Under such conditions, the value of big investments to gain a little improvement might be questionable.

That arguably is especially true when the dynamic range is small. In other words, when the difference between the best performer and the worst is limited, any effort to improve might yield little in the way of operational results, which in turn might yield little in the way of financial results.

Quite the opposite might be true in unstable industries where the financial or operating dynamic range is large. Where the difference between the best and worst performance is quite large, and where an industry is unstable, small to moderate investments might well have important operating and financial implications.

One thinks of the impact online news sources or apps have had on legacy media, the impact of over the top Internet calling and messaging on legacy voice and messaging markets, or the impact of online retailing as cases in point.

Likewise, many predict similar disruptions to education, television and other markets that so far have been relatively immune from attack.

On the other hand, where dynamic range is small, and the difference between the best and worst performances is slight, it is fair to question the potential of any investments to alter contestant market positions, or even the possibility of disruption.

Major disruptions, one might argue, happen when a market is large and attractive, dynamic range also is large, and new ways of meeting demand are conceivable.

That also is when benchmarking is most dangerous. As logical as it is for Comcast to benchmark against Verizon or AT&T, that leaves all the contestants open to a disruptive attack by Google Fiber, which aims to fundamentally reset expectations about Internet access value and price.

Traditionally, Internet service providers, video entertainment services and now even in some cases the major social media apps have ranked poorly on measures of customer satisfaction or customer service.

A 2012 study suggested Internet service providers, video service suppliers and even mobile phone companies scored at the bottom of services customers would recommend to others, and is generally considered a measure of consumer loyalty.

There also is some reasonable dynamic range on measures of customer service, for example, which might account for the recent divergence of supplier performance. But it is a complicated matter.

The mobile business, for example, has rather narrow dynamic range, in terms of customer service. And though customer service is not the same thing as value proposition, T-Mobile US so far has been able to exploit differences in value proposition to great effect.

The danger, for legacy providers, is when an unexpected outside attack occurs. You might argue one direct impact of the Google Fiber launch has been to dramatically increase dynamic range in the Internet access market, making the distance between the best offer, and the worst, much wider.

No amount of benchmarking protects incumbents when dynamic range suddenly increases. And that is true whether an industry ranks near the top, or near the bottom, of consumer experience studies.

An old adage in the cable TV business is that “we give customers a chance to think about canceling every 30 days, when we send the bill.”

Intangible products always are hard to value, and it might simply be that consumers tend to value any service less favorably than tangible products they also buy. Think “iPhone” as compared to “Internet access” or “mobile service” without which the iPhone has little value.

But in any industry, the prevailing standards are susceptible to disruption. And that is what has changed in the U.S. Internet access industry. Dynamic range has been disrupted.

And that is where benchmarking can be a problem. It is true that dissatisfied consumers will continue to use products for which there is perceived to be little differentiation or alternatives.

Airlines are the best case in point. Airlines virtually always rank near the bottom of the ACSI rankings. And yet people still fly.

But that leaves room for a disruptive attack by a contestant that performs much better than benchmarking would suggest is necessary.

So how much better could some contestants do, and what does it take for them to pull away from the competition? Google Fiber provides one answer: disrupt dynamic range.