Sprint Will Prune Products and Segments to Focus on Value, Price Attack

Sprint likely is going to abandon some services or business segments, relatively quickly, as part of Sprint’s effort to supplant T-Mobile US as the price disruptor in the U.S. mobile market.

"In times of turnaround, we will focus on must-haves,” said Sprint CEO Marcelo Claure. “Nice-to-haves will have to go.”

And Claure appears to believe many Sprint currently operates in many such segments where it underperforms, and are not core assets or lines of business, perhaps. “We have an extensive line of nice-to-haves,” Claure said.

Moving fast, Claure appears to have looked quickly to an audience he understands very well, Sprint dealers. What he heard quickly convinced him that the “Framily” shared data plan was not resonating with consumers.

"Dealers said it was hard to sell,” Claure said. “We are marketing a hamster talking to people."

The big problem was that the plan was more expensive than plans offered by the other three national providers, with a consumer experience perceived as less desirable.

The new Family Share Pack offers a simple value proposition: more data for less money. Sprint’s value brand Boost also moved quickly to adopt the same posture for consumers preferring prepaid services.  

And while disclosing no specific numbers, Sprint’s new price attack is working, Claure said. Even after a short period of literally weeks since revamping pricing, Sprint has seen some days when it gained net customers, instead of losing them.

“Value” appears to be key, as Sprint has been emphasizing.  "We are now the disrupters in the industry," Claure said.

Gigabit Business Model Changed with "Neighborhood" Approach

There is one thing executives at Verizon Communications, AT&T and Google all seem to agree upon concerning gigabit networks that require fiber to the home networks: the business model varies neighborhood by neighborhood, even within larger metropolitan areas that are promising.

Verizon, for example, continues to maintain that further deployments of Verizon FiOS, though conceivable, will require a fairly-stringent financial viability test.

Google made a key breakthrough in convincing local governments that the traditional criteria--universal access--was not optimal for getting rapid deployment of gigabit networks.

The change in thinking, one might suggest, is something that has grown organically since passage of the Telecommunications Act of 1996.

In legalizing local competitive communications services for the first time, the Act allowed U.S. service providers to experiment with revenue models that served businesses only, for example, not “all locations.”

The enduring examples have been out of region services sold only to business customers of some size. That approach has allowed a few firms, including Frontier Communications and Windstream, to dramatically reshape their customer profiles and revenue sources.

Where both firms traditionally have earned most of their revenue from rural and smaller market consumer customers, both now earn substantial revenues (more than half) from business accounts.

The point is that Windstream and Frontier have been able to grow revenues, and add new high-capacity facilities, precisely because they had no requirement to serve “everyone” in a particular market.

So the principle that it is lawful for a communications supplier to serve only some parts of a city, or only certain customers, has been established policy for some time.

What Google Fiber did was gain widespread support for the idea that the same principle could expedite gigabit network facilities serving consumers, on a neighborhood by neighborhood basis.

Fundamentally, that is the same logic that other service providers have done in serving the business market. Perhaps it took a new provider such as Google to convince local regulators that consumers would benefit for the same reasons as business customers, by allowing building of facilities that do not serve every location, or every neighborhood.

Both AT&T and Verizon executives have spoken of the change in potential feasibility the Google Fiber model has enabled. And it is no surprise that AT&T already is exploring doing so in scores of metro areas. The economics simply are better when a neighborhood approach is used.

Forethought, for example, is building gigabit networks serving business customers in Denver, building by building, as most competitive local exchange carriers and metro fiber providers have done.

Denver Telecom Company does the same. And CenturyLink recently has announced it will do so for at least some neighborhoods in Denver.

The larger point is that the gigabit business model is a lot more attractive for any fixed network facilities-based Internet service provider when the CLEC model is used: build first in neighborhoods where demand exists, and not everywhere.

Growing Number of Cases Where Mobile Internet Access is a Viable Substitute for Fixed Access

For Deutsche Telekom customers, mobile Internet access speed now is faster than what is available on the fixed network. That raises an important question to a new level.

Under what circumstances can a mobile Internet access offer substitute fully for a fixed network offer?

As mobile voice effectively has become a preferred substitute for fixed network voice, what are the conditions under which mobile Internet access is a functional substitute for fixed access?

Some usage scenarios already are clear enough. Where the cost of fixed network Internet access is non-economical, mobile will be the only form of access.

Where both mobile and fixed access are available, there are more use cases. With the advent of Long Term Evolution, the number of viable use cases has grown, compared to the situation where 3G is viewed as a potential substitute for fixed access.

Low usage, single-user consumers are a generic class of consumers for which mobile access using LTE could be a viable substitute for fixed access. Single-person households or users who do not watch much online video are examples.

On the other hand, multi-user households that watch significant amounts of video almost never are the best candidates for mobile Internet access substitution.

Someplace in the middle are many use cases where mobile offers might compete effectively with fixed network offers on a price-per-gigabyte basis.

It will is tough, but not impossible. Users will have to manage their own behavior, resisting the temptation to use resource-intensive apps when on the mobile network.

Substitution also will be easier in markets where public Wi-Fi or at-work Wi-Fi is plentiful.

We already have seen that in most markets, half to 70 percent of total mobile device usage relies on the fixed network, in the form of Wi-Fi offload.

So service providers with access to their own fixed network assets, plus mobile assets, might try to market usage buckets that incorporate both mobile access with fixed access, when Wi-Fi access is included.

Illiad’s Free Mobile, for example, uses a “Wi-Fi first” approach to support its lower recurring prices, in part because it owns some fixed network assets. Comcast is expected to take the same approach to creating mobile services.

Service providers without fixed network assets will have to leverage public Wi-Fi alone. That is more challenging, but becoming easier.

For mobile operators with some fixed Internet access assets, creating a sense of value is more a marketing exercise and a consumer perception issue than a technology exercise.

When mobiles are connected using any form of Wi-Fi, they have “effective” usage buckets that are almost arbitrarily large, no matter what the formal mobile usage bucket happens to be.

So whether approached from a “cost to supply” standpoint or a “cost to use” basis, an access supplier with both fixed and mobile assets has clear advantages.

From the service provider’s perspective, allowing smartphones to use any Wi-Fi connection dramatically affects the cost of supplying mobile Internet access to customers in a wide variety of stationary usage scenarios.

For consumers, the effective price of Internet access, on a dollars per gigabyte basis, is rarely even understood, on a granular basis.

Typical users never approach the usage limits of their fixed connections, which might have usage caps ranging from 150 Gbytes to 250 Gbytes, when such caps exist.

So the simple value proposition effectively becomes “monthly recurring cost,” not actual price per Gbyte. Effective price always hinges on actual consumption.

In other words, what is the “actual” price, per Gigabyte, of a plan costing $50, with 10 Gbytes of actual consumption? In that instance, $5 per gigabyte.

What is the “actual” cost of 1 Gbyte of usage, on a plan costing $30 a month? In that instance, $30.

So long as the cost to supply mobile bandwidth remains more costly than fixed network bandwidth, directly-competitive offers will be difficult. But “effectively competitive” offers will be possible.

One possible approach for a mobile service provider is to market effective usage buckets using all access methods, both mobile and fixed. In that case, the blended access cost, per device or per user, across fixed and mobile networks might be quite effectively comparable.

To be sure, full “mobile access” will remain subject to relatively stringent usage caps, compared to fixed access. But marketers might be able to create a perception of value by touting total monthly usage buckets that are effectively equivalent to fixed offers, because Wi-Fi consumption, which might be half to 70 percent of total usage, is available at “no incremental charge.”

For Deutsche Telekom, Mobile Internet Access Now is Faster than Fixed

It is something of a truism that fixed network Internet access is "faster" than mobile Internet access: except where that is not the case.

In the German communications market, mobile Internet access speeds arguably exceed fixed network access speeds on a national basis. That is the impact Long Term Evolution fourth-generation networks have had, at least for Deutsche Telekom.

Consider the latest Deutsche Telekom retail packages. Deutsche Telekom’s “MagentaEINS,” (Mobile One) consumer packages combine mobile and landline services in three basic packages.

But note how the offers supply Internet access across the fixed and LTE networks. The most-affordable MagentaEINS S package costs EUR 49.90 per month for the first seven months, EUR 54.90 per month thereafter, and offers Internet access at 16 Mbps on the fixed network.

MagentaEINS M costs EUR 59.85 per month (EUR 69.85 per month from the seventh month on) and features “iMagentaEINS S Entertain,” adding 100 linear TV entertainment channels, over 20 of which are provided in high-definition format.

Fixed network Internet access is at speeds up to 50 Mbps, with Long Term Evolution access at speeds up to 150 Mbps.

That is the first example of inverted capabilities. Normally, one expects the fastest speeds in a market will be provided by a fixed network. For Deutsche Telekom, the LTE network is fastest.

That might not be the case for every contestant in every market, though. Cable operators might argue they can--or will--top 150 Mbps in the future.

The largest package, MagentaEINS L, sells for EUR 64.85 per month (EUR 79.85 per month from the seventh month on) and features mobile communications, landline and Internet up to 100 Mbps, plus “Entertain Premium” with more than 45 HD channels.

In that case, fixed network speeds operate up to 100 Mbps, while LTE still offers speeds up to 150 Mbps.

One might argue Deutsche Telekom is trying to avoid the market realities in Austria, where mobile Internet access has proven to be a widely-accepted substitute for fixed network services.

As early as 2009, mobile access represented 38 percent of all broadband connections in Austria.

One service provider response is to improve the value of the fixed network offer by combining fixed and mobile services and features in ways that blur the line between fixed and mobile resources, and create a unified experience that draws on each network’s advantages.

For Deutsche Telekom, and, arguably other providers such as AT&T, the new strategy is to create retail packages combining features of fixed and mobile networks as seamlessly as possible.

LIkewise, some service providers such as Free Mobile, and cable operators, leverage fixed network assets (Wi-Fi) to create mobile experiences and value.

As foundational as triple-play offers have become for fixed network providers, a growing number of tier-one service providers now are starting to bundled access across fixed and mobile networks.

One characterization is that the quadruple play now becomes the new offer. A different characterization might be that the new effort is not only to essentially blur the difference between network access methods, but create different experiences where the “network access” is invisible and irrelevant.

Many mobile service providers have attempted to create mobile substitutes for fixed products.

They have largely done so for voice. In messaging, mobile services have surpassed fixed services as well.

Internet access and video are the new battlefields.

In Germany, Deutsche Telekom will try to head off substitution by combining a faster mobile Internet access offer with other fixed network features.

In the U.S. market, T-Mobile US already offers 150 Mbps Long Term Evolution speeds in Dallas.

Sprint has recently argued it will introduce 200 Mbps LTE service, using its new Spark network.

AT&T also has talked about launching 100-Mbps LTE in the U.S. market as well.

To be sure, many will argue mobile and fixed Internet access offers are not directly comparable, given the huge difference in usage buckets (5 Gbps might be typical for a high-end mobile user, where 150 Gbps is standard for fixed network customers).

That difference in usage buckets (two orders of magnitude) might also represent a similar gap in effective price-per-gigabyte actually consumed.

On the other hand, on the metric of access speed, it already is possible to argue that T-Mobile US service in Dallas, for example, might be faster--at 150 Mbps--than what consumers generally have access to on either telco or cable TV networks.

T-Mobile US  has said that it will bring LTE that fast to 90 percent of the top 25 markets by the end of 2015, which means that 23 of the 25 most populous cities in the country will have it.

That means T-Mobile US would be offering 150 Mbps in 23 of the biggest U.S. metropolitan areas.

So add LTE speeds to the business pressures convincing telcos and cable companies they now must boost access speeds. It isn’t just Google Fiber.

Will Apple Pay Be Most Significant for Retail or Online Payments?

It’s too early to say how much impact Apple Pay, Apple’s new mobile payment service, is going to have. Many share the belief that if any company is going to make a big difference in mobile payments, it is Apple.

What isn’t yet clear is whether the big impact winds up being “retail mobile payments,” where the iPhone is used in place of a credit card or debit card, or eventually will have more impact supporting e-commerce.

When asked whether Apple pay “kills the credit card,” Apple CEO Tim Cook has quipped “I think we put a dagger in it.” And there is legitimate reason to think retail payments will be a big part of the value and eventual revenue streams for Apple.

On the other hand, some might argue equal success, or perhaps more success, will be found in the “e-commerce payments” part of the business, which is not, strictly speaking, dependent on the payment features of the iPhone.

In other words, Apple Pay might ultimately become more significant as an alternative to PayPal, Visa Checkout or MasterCard PayPass, han as a replacement for a credit card in a retail store.

With 800 million iTunes accounts worldwide, and each potentially able to use Apple Pay, the new payment service has a huge potential installed base of users.

To be sure, Apple needs to convince other online merchants to accept Apple Pay as a payment mechanism, as they now accept PayPal, PayPass, Checkout or credit and debit cards.

Some of us would argue that is the bigger long-term opportunity.

Either way,  it will take some time. The iPhone 6 or 6 Plus features Apple Pay natively, with major retailers going live with Apple Pay in October 2014.

Consumers can then use Apple Pay accounts to pay for purchases at retail locations outfitted with near field communications terminals, and the ability to support Apple Pay.

Apple Pay arguably is more secure than prior efforts. For starters, the iPhone fingerprint reader is used to authenticate the user when making an Apple Pay retail payment.

The other angle is that actual credit card or debit card information is not on the phone, at all.

Instead, cardholder information is “tokenized” and stored in the secure element and never makes it onto the phone’s memory or on Apple’s servers in the cloud.

So it is no surprise that Visa recently announced its new Visa Token Service, which  aims to assure consumers that their mobile devices can safely use mobile wallet and payment services and apps without fear of accidental disclosure of credit card numbers. Apple apparently is using Visa Token Service to support the Apple Pay tokenization feature.

Sprint "iPhone for Life" Moves to Device Rental

One effect of the Apple iPhone 6 launch is that the leading U.S. mobile service providers are moving swiftly to use the launch as a chance to protect existing customer bases and attract new customers.

Perhaps the most unusual is Sprint’s iPhone for Life promotion, where customers rent rather than buy their devices. The program allows users to get a new model iPhone every two years.

Users pay $20 a month for the device rental, and $50 a month for unlimited domestic talking, messaging and Internet access.

Basically, the rental plan creates a new “lowest cost offer” from Sprint. At $70 a month, the rental plan is $10 a month less costly than the no-contract plan that features $30 a month for installment payments on the device.

The two-year contract price represents monthly payments of $85 a month.

Sprint also is offering to pay as much as $350 per line when a customer switches to Sprint from T-Mobile US, AT&T Mobility, Verizon Wireless or “any competitor.” To get the credit, customers must sign up for the installment plan for any new devices, and buy an unlimited usage plan or a “Family Share Pack” including at least 20 Gbytes of mobile Internet usage.

Verizon Wireless is giving customers a free 16 gigabyte iPhone 6 if they traded in an eligible working, older iPhone model and signed a two-year contract. As is typical for any such offer, the key is the two-year contract, meant to deter churn over the length of the contract.

Sprint also has a promotion allowing consumers to trade in as many as three phones per account, promising to pay up to $300 for each trade-in device and matching any offer for a trade-in made by T-Mobile US, AT&T Mobility or Verizon Wireless.

T-Mobile US likewise offers to match trade-in offers from the other three leading national providers, and top it by paying $50 more.

AT&T Mobility is offering a $100 credit toward the purchase of any iPhone model for customers who activate a new line.

Historically, ability to offer the latest iPhone has been a competitive advantage, the best examples being the exclusive AT&T enjoyed at the time of the U.S. iPhone launch, as well as the similar exclusive SoftBank enjoyed in Japan, a period when SoftBank saw its fastest growth of market share.

Conversely, T-Mobile US began to add customers rapidly after it gained the right to sell the iPhone. To be sure, other initiatives also have been launched by T-Mobile, so it is hard to isolate the impact of any particular component.

But it is safe to say all the leading mobile providers see the iPhone 6 launch as a time when customers can be lost or won, very quickly.

As expected, wide adoption of “no-contract” and  device installment plans might play a role in increasing potential churn.

Though Verizon Wireless continues to have a high percentage of accounts on contract plans, AT&T already has 44 percent of its U.S. postpaid accounts on “no contract” plans. AT&T further expects 66 percent of its accounts to be on such plans by the end of 2014.

By definition, it is easier for a customer to switch when on a no-contract plan.

Hence the concern by the leading four mobile service providers about getting as many iPhone 6 upgrades as possible.

The promotional activity around the Apple iPhone 6 comes amid a price war that still shows no signs of abating.

Longer term, there also is the issue of when T-Mobile US will be purchased by another firm, and which firm will do it. It seems virtually certain now that the buyer could not be any of the other three leading U.S. mobile firms. Both AT&T and Sprint have tried, and both have been rebuffed.

That means the U.S. mobile market will continue to feature four leading firms. The only issue now is the identify of the firms in the group of four.

Dish Network has to do something relatively soon, or lose the equity value embedded in its right to deploy Long Term Evolution fourth generation mobile networks.

Comcast does not have immediate pressure, but is another likely candidate to change U.S. mobile market structure, eventually.

Smartphones on Track to Surpass Tablet-Based E-Commerce Revenue

Smartphones have yet to reach the level of tablet-based e-commerce revenue for retailers, but soon will do so, if current strong rates of growth continue. Consider browsing activity, which already has moved decisively in the direction of smartphone-initiated visits.

In 2010, 96 percent of online retail browsing was done on desktops while only four percent took place on mobile devices.

But mobile devices now represent 51 percent of visits to retailer websites, according to Branding Brand’s Mobile Commerce Index.  

Of course, visits are one thing, revenue quite another. But it also seems mobile browsing leads to mobile purchasing, particularly from smartphones.

Retailer revenue from mobile visits was up 111 percent from May 2013 to May 2014, for example, according to Branding Brand.

Between August 2013 and August 2014, revenue from mobile orders grew 89 percent.

Keeping in mind there is a difference between market share (new orders) and installed base, revenue earned from tablet purchases continues to hold a slight lead over smartphone orders.

In August 2014 retailer website tablet revenue represented about 16 percent of total retailer site e-commerce sales. Smartphones represented about 12 percent. With the faster rate of smartphone revenue growth, it is only a matter of time before smartphone sales surpass tablet revenue.

And there is another somewhat surprising change. Though it has been rather widely supposed that larger screens are preferred for online shopping interactions, logically favoring tablets instead of smartphones, end user behavior seems to belie those assumptions.

Between August 2013 and August 2014, for example, revenue from tablet-placed online commerce grew just 18 percent, compared to the 89 percent growth of smartphone revenue over the same period.

How to interpret that data is the issue. Screen size might not be as big an issue as originally thought. Retailer mobile sites arguably are getting better. And more people are using smartphones. All could explain some of the increase in smartphone sales volume.

Other data suggests the enormity of the change that has taken place in visits to retail websites.

A year ago, tablet browsing surpassed smartphones and was expected to continue to outpace the amount of total browsing happening on smartphones.

That now seems to have reversed, as a study by Adobe shows more browsing on smartphones than tablets. The study authors argue the advent of larger-screen smartphones has slowed tablet browsing preferences.

Whatever the combination of reasons, smartphone-based commerce is eclipsing tablet-based commerce.

That might, or might not, suggest a clear trend beyond high adoption of smartphones and now slowing adoption of tablets. Since the study is based on total end user browsing activity, vastly larger numbers of smartphones--compared to the base of tablets--will make a difference.

In 2012, the number of smartphone and tablet owners in the U.S. market were roughly equivalent.

By 2013, there were nearly twice as many smartphone owners as tablet owners. In the first quarter of 2013, about 34 percent of U.S. consumers owned a tablet, according to the Pew Internet and American Life Project.

By January 2014, a separate survey by Pew found that perhaps 32 percent of U.S. adults (18 or older) owned a tablet. Some estimates peg tablet ownership at higher levels. Some 44 percent owned a tablet in 2013, according to the Consumer Electronics Association.

At about the same time, at least 59 percent of U.S. consumers owned a smartphone, according to comScore. Smartphone ownership was twice that of tablets in 2013.