Time for a humbler, more focused, wireless wholesale market

The US MVNO market is the greatest missed opportunity I've seen in my wireless career, stretching back almost 20 years. Through carrier resistance and MVNO hubris, a business model that works very well in Europe and Asia has floundered here. Strong, focused MVNOs, which manage their costs and market excellently, improve services and value for wireless users in many places outside the US.

Yet there may be a light flickering in the US market. It's been several years since the meltdowns of Amp'd, Disney Mobile, ESPN and other high-profile players. The iPhone and its imitators have demonstrated the value of a (relatively) open architecture and application environment. And the carriers are still no better at rolling out truly innovative services than they have been.

Plus, nationwide carriers #3 & 4 (Sprint & T-Mobile) trail far behind the leaders in market share. This creates a strategic scenario where a customer acquired by a Sprint or T-Mobile reseller is relatively unlikely to poach the direct business of the wholesaler (and in Sprint's case, they should welcome retaining customers by any means, even if they are transferred to an affiliated wholesaler). Therefore, the perceived opportunity cost of a full-on push into wholesale by these carriers is lower.

Who will be tomorrow's resellers? Those that are laser-focused on markets unserved by the carriers. They will be smaller but profitable, with excellent, low-cost distribution channels. They will be true innovators, bringing high-value applications to their customers. They will have customer bases who purchase phones without subsidies. They will be able to create win-win agreements with the wholesalers.

In a perfect world, a Sprint & T-Mobile push will force AT&T and Verizon to re-enter the wholesale market. Then there will be a strong, vibrant, competitive market where resellers will have some control of their destiny.

And the biggest winner of all will be... the customer. You and I.

iPhone data price complaints off base

Now I'm not a fan of megalithic wireless operators. But the criticism of AT&T's pricing plan for the new iPhone 3G, especially the monthly cost for unlimited data, is missing the point.

The complaint, lodged by Walt Mossberg and others, goes something like this: "Yes, the new iPhone costs $200 less, but the unlimited data package costs $10 more per month. So after a contract of two years, you'll be out $40 compared to the first iPhone."

But the point is this. We are talking about the iPhone 3G. Its data rates are about three times faster than the old 2.5G EDGE technology on the first iPhone, according to Mossberg's tests.

Which means, minute-by-minute, you'll be getting more data (and thereby more value) from the iPhone 3G.

But there's more. When available bandwidth jumps, people use far more of the service. New applications become possible. Video, for example, is much more reasonable at 400kbps than at 56kps.

So perhaps the comment should be, "For pretty much the same total cost as the old phone, you get a new phone with three times the power and 10-15 times the application utility. Why not stop by an Apple store and pick one up?"

marketing, pricing, iPhone 3G, wireless, mobile, devices, apple, iPhone

Confused by "open wireless"? Read this

When it comes to making sense of the fragmented, messy world that is the US wireless marketplace, Hamilton Sekino of Diamond Consulting (someone I've worked with for years) is as good as it gets.

He and co-author David Gates have just written a white paper entitled "Wireless Open Models" (link - free with registration) that helps sort out just what "open" means in all the different contexts of the wireless world (networks, services, platforms, devices) and how names like Verizon, Android, iPhone, Nokia, Kindle, and others are involved. Like all Hamilton's work, "Wireless Open Models" is rigorous, well-written, and comes with a strong viewpoint.

It's a useful resource to have handy the next time you read about "open wireless." Which could be as early as today.

Tags:
mobile, wireless, open wireless, strategy

The new media onslaught is making entrepreneurs out of creators

An article from the New York Times earlier this week ("Bridging The Gap, The Sequel") starkly illustrated that venture capitalists from Silicon Valley and creative types from Southern California are having difficulty cooperating to create financial and partnership models for new media.

One of the biggest obstacles, according to the articles, is the Southern Californians' focus on upfront cash rather than long-term equity.

How this situation came to be is easy to understand: when the means of production of creative property were expensive, there was a distinct separation between the "suits," who raised needed capital, and the "talent," who wrote, acted, sang, directed, etc. The suits financed productions and paid the talent, who worked job to job. It was in the talent's interest to get as much of their payment upfront as possible because (1) they didn't know when their next job would come through and (2) the suits could, and wanted to, maintain full ownership of the property.

Now production costs can be much smaller, for music, video, text, etc. Prices for distribution are coming down too as new outlets emerge for digital distribution. And media companies are looking to hedge their risk as the old moneymakers (CDs, DVDs) erode.

As a result, an entire new entrepreneurial class has emerged, between the suits and the talent, combining the ability to raise money, cut deals, etc., with songwriting, producing, or acting. Around this "middle class" is a new set of technology and business enablers that are providing key pieces of the production and distribution infrastructure for these creators. (This edition of the radio program "Fresh Air" discusses some of the new models and companies emerging in the music business. Companies like Indieflix provide distribution services for video/film producers.)

Here's an example of the new world order for music: the LinkedIn profile for Fran Ten of the LA band West Indian Girl:

oversee and run all the departments of the west indian girl business - management, marketing, new media, touring, merchandising, promotions, licensing, legal, accounting, art, etc etc.

music is a business and musicians that dont understand this are at a disadvantage.

this job is just as much a blue collar job as the one i had in high school working at a brake factory in grand rapids, mi. sometimes i think it's even dirtier.

Technology advances have made internet video and mobile entertainment accessible to consumers on a wide scale. The business models are lagging behind. The old way--suits and talent--isn't going to be able to work them out. The "middle class" will have to do it.

(Photo: a still from "Fields of Mudan," the all-time best-selling DVD on Indieflix.)

mobile, media, alliances, technology, music, video, business models, New York Times

Can mobile phones eradicate poverty?

This past winter I had the opportunity to spend a night working at a local homeless shelter. It was an unforgettable night for many reasons, including the memory of huddling around a radio with four other guys after lights out listening to the Giants beat the Packers to go to the Super Bowl. Among everything I experienced, one thing that surprised me was the share of people staying at the shelter that night carrying cell phones. By my reckoning, it was roughly half.

As I thought about it, though, the idea of a homeless mobile-phone subscriber seemed less peculiar. Without a fixed address, the phone provided a means of connecting to the world. Employers could call if there was work available. Family and caregivers could check in. For most of us, the ability to be connected while mobile still seems an extravagance, a luxury. For these guys, it was a lifeline.

An article in today's New York Times magazine brought this back to mind. "Can the Cellphone Help End Global Poverty?" by Sara Corbett trails mobile "user anthropologist" Jan Chipchase of Nokia as he studies how people use cellphones in developing countries and thinks aloud about whether mobile phones could provide a key ingredient in reducing poverty.

Corbett writes:

There are a growing number of economists who maintain that cellphones can restructure developing countries [similar to how just-in-time techniques changed manuracturing]. Cellphones, after all, have an economizing effect. My “just in time” meeting with Chipchase required little in the way of advance planning and was more efficient than the oft-imperfect practice of designating a specific time and a place to rendezvous. He didn’t have to leave his work until he knew I was in the vicinity. Knowing that he wasn’t waiting for me, I didn’t fret about the extra 15 minutes my taxi driver sat blaring his horn in Accra’s unpredictable traffic. And now, on foot, if I moved in the wrong direction, it could be quickly corrected. Using mobile phones, we were able to coordinate incrementally. “Do you see the footbridge?” Chipchase was saying over the phone. “No? O.K., do you see the giant green sign that says ‘Believe in God’? Yes? I’m down to the left of that.”

To someone who has spent years using a mobile phone, these moments are common enough to feel banal, but for people living in a shantytown like Nima[, Ghana] — and by extension in similar places across Africa and beyond — the possibilities afforded by a proliferation of cellphones are potentially revolutionary. Today, there are more than 3.3 billion mobile-phone subscriptions worldwide, which means that there are at least three billion people who don’t own cellphones, the bulk of them to be found in Africa and Asia. Even the smallest improvements in efficiency, amplified across those additional three billion people, could reshape the global economy in ways that we are just beginning to understand.

Corbett writes, "In an increasingly transitory world, the cellphone is becoming the one fixed piece of our identity." Based on my experience at the shelter, I'd have to agree.

Related:
The cure to poverty is connectivity...
Another inspiring thought from Dr. Yunus

[Photo: the Nokia 1200, designed for emerging markets]

mobile, wireless, poverty, New York Times

CTIA Day 2 - a look back

broadband, technology, wireless, mobile, CTIA, Wireless 2008, Las Vegas

Most interesting discoveries of CTIA Wireless 2008

As I wait in the Las Vegas airport for my flight home, here are the most interesting discoveries I made at this year's show.

Chargebox - they sell a neat vending machine to recharge cellphones.

Wildwave - a Canadian company that creates and distributes mobile digital content.

Jygy - an SMS-based social network tool (disclosure: I know some of the leadership of Jygy, though this week was my first look at the system)

dial2do - one of several voice-to-text companies at the show, their software is focused on processing oral commands, such as composing and posting Twitter updates completely by voice.

broadband, content, technology, wireless, mobile, CTIA, Wireless 2008, Las Vegas

Free, unsolicited product management advice for Verizon Wireless

As I mentioned yesterday, I am using EV-DO to connect to the internet here in Vegas for CTIA. It's more economical and reliable than the hotels' and convention center's WiFi hotspots. What I didn't say is that the way I contract for this service is convoluted and actually, on my analysis, loses money for Verizon. Details to follow.

It's got me feeling a bit guilty, so I would like to offer them some free advice. If they implement my ideas and wish to share perhaps 10% of their incremental profits on the change, I'd be happy to accept. [VZW, you can email me at inquiry (at) caddellinsightgroup (dot) com for my PayPal info.]

Here's the situation with EV-DO. I have a Blackberry, using a 10MB per month plan costing $24.95 per month on top of my voice subscription. This is fine for emailing and web browsing through the Blackberry, but not enough to support what I'm doing this week--blogging, video uploading, etc.

For that application, VZW requires I buy unlimited data access for $49.95 per month, and on top of that buy tethered modem service (that allows me to use the Bberry as a modem for my computer) for an additional $15 per month.

As a result, it would cost me $39.95 extra per month to subscribe to this EV-DO service. Except for the fact that I need it for perhaps 15 days per year. The rest of the time, cheap or free WiFi hotspots do the job. So I can't justify an ongoing subscription for this service.

But here's the thing: VZW allows me to sign up for the service, then, when I don't need it anymore, I call them back to cancel. The billing is ugly and almost incomprehensible, but at the end of the day I only get billed for the days I use EV-DO, at the rate of about $1.33 per day. A bargain for me.

But not for VZW. Here's a litany of costs they incur, each time I set up the service:

Calls to tech support: 2 @ $10 (one call to activate, one call to deactivate)
Letters informing me of a change in service: 2 @ $2.50
Incremental billing costs for changes, prorates, etc.: unknown

Total: at least $25

For this trip, I will use the service for four days. Meaning VZW will get incremental revenue of $5.33, but spend $25, for a marginal contribution margin of ($19.67). Ugh.

Here's my idea. VZW should offer a daily plan. [Virtually every other wireless ISP offers such a plan.] I would pay $5 per day for that plan. Have the signup be online rather than through tech support, meaning the incremental cost should be near zero. Have me sign up for exactly the number of days I need, and have deactivation be done automatically by the ordering system.







Related post: "Worst Practices in Product Management"

product management, mobile, wireless, customer service, packaging, pricing, technical support, Verizon Wireless

CTIA Day 1 - It's Vegas, baby

As Dan Meyer pointed out in RCR today, CTIA is just more fun this year. Is it the Vegas factor?



broadband, technology, wireless, mobile, CTIA, Wireless 2008, Las Vegas

EV-DO is a bit of a miracle

I'm in Las Vegas for CTIA, and so it's appropriate that I'm connecting on the web via Verizon's EV-DO service. (WiFi coverage in the hotels is lousy, plus it costs $12.99 per day.)

My first CTIA was New Orleans in 1992, and if I recall correctly, McCaw Cellular began developing the CDPD (cellular digital packet data) service around that time. That service didn't do much of anything, but now, sixteen years later, mobile broadband is a fixture.

broadband, technology, wireless, mobile, CTIA,
Wireless 2008

If you want to find innovation, don't look for market share

Here's a blanket generalization: market-share leaders don't innovate.

Exhibit A is the cellphone industry. The real innovation in the US mobile market is coming from T-Mobile, the fourth-largest operator. We discussed its combination WiFi/cellular package in an earlier post, and today the Wall Street Journal wrote that T-Mobile is the most enthusiastic operator partner of the Google-led Android alliance, seeing in it the opportunity to develop a distinctive user experience. And to help create innovative and better integrated services, T-Mobile is getting more involved in its handset manufacturers' design process.

One question is, why can't leaders be more innovative? The most straightforward explanation gets to the heart of the leader's paradox. Feeling they have more to lose causes leaders to become more and more conservative, settling for incremental upgrades and not seeing (or not valuing) the new and bold.

Fear of cannibalization also inhibits innovative thinking at market-share leaders. The question "What's this going to do to all the people we've sold the old product to?" has probably doomed thousands of worthy innovation efforts.

While upstarts and companies who are trying to catch up are freer to act.

The leader who figures out how to instill this type of thinking in a market-leading company should win the Nobel Prize for Management.

innovation, mobile, Wall Street Journal, wireless, handsets, alliances

Is there a huge business opportunity at the bottom of the telecommunications market?

Everyone has a cellphone, right? Some of us have two or more. Nobody needs cable or satellite; we all have that. Maybe there's an opportunity to sell more people broadband, who knows?

At any rate, it seems as if every American who uses telecom services has more than they need. But averages can be deceiving. America's roughly 70% wireless penetration rate includes upper-income rates of 100%--everybody has a cellphone...and lower-income rates below 50%.

Hamilton Sekino, partner in Diamond Consultants' telecom practice, explored opportunities selling telecom service to the lower and lower-middle income brackets at this month's Next Generation Mobile Partnerships Conference presented by Informa Telecoms & Media.

It was a fascinating presentation. Hamilton pointed out that marketing for most telecom and cable operators focused on high-end customers. And while prepaid cellular in the US appeals to low-income customers, its high churn rates make it a daunting business.

Diamond's proposition involves someone reselling a modest bundle of telecom services (video, broadband, wireless, wireline) at a discount to this market. An example package is:

$99.99 monthly fee
unlimited local wireless (a la Cricket or MetroPCS)
unlimited local wireline using VoIP
40 channels of video
1.5Mbps broadband

The key success factor is to be able to minimize cost of acquisition (to 1 to 1.5 times monthly subscriber revenue) and maximize discounts from underlying operators. (I'd add that it would also be important to keep operational costs low, by sticking to very simple plans, billing and payment.)

Who can do this? According to Diamond, a retailer like Wal-Mart would be a perfect fit, given its appeal to low-middle income segments and ability to distribute cheaply. Or perhaps an internet portal like Google or Yahoo, or a video company like DirecTV or Dish. In the right hands, it could be a multi-billion dollar business, according to their analysis.

The response by the conference attendees: much skepticism. But I find something very intriguing about this idea. There's a market, with money (not a lot) to spend, whose needs are not being met. There are companies that could provide service to this market. Stay tuned to see if this proposition becomes a product, and if the product becomes a success.

wireless mobile telecommunications strategy innovation

Worst Practices In Product Management

I had a call with Verizon Wireless yesterday afternoon that went something like this:

Me:

"I got a Blackberry recently and I was trying to use it as a wireless modem for my laptop and I'm having trouble."

Tech Support:

"Let's try some things."

...time passes. We try lots of things. Problem persists...

Tech Support:

"I checked and I found out that you need to activate a feature to enable you to use the Blackberry as a modem. The feature costs $15 per month."

Me:

"What? I am already paying for data access, by the megabyte. Modem support costs $15 more?"

Tech Support:

"Yes, I'm sorry. Would you like to speak to Customer Service?"

...on hold for a while...

Customer Service:

"Yes, sir, that feature is $15 per month."

me:

"How come that wasn't clear when I signed up for the Blackberry service? Plus, I'm already paying you $150 a month."

Customer Service:

"I'm sorry, that's the only way we sell it... think of it this way: It's only $0.50 per day."

me:

"But I only need it occasionally. I can't justify paying $15 per month for occasional use."

Customer Service:

"This might solve your problem. You can activate it when you need it, then deactivate it when you're done. You'd only pay for the days you use in that case."

me:

"I have to call once to activate, then again to turn it off? Every time I want to use it? Why don't you have a daily access?"

Customer Service:

"That's the only way you can do it."

me:

"I might try that, but it's unfortunate that you don't have a plan that helps the occasional user, like me. And I don't like having to pay $15 or even $0.50 per day for something that should have been included with the data feature I already bought."

Customer Service:

"I'm sorry. Can I help you with anything else today?"

* * *

So: no resolution. Tech Support and Customer Service were fine, creative, even approaching that state of bending the rules to satisfy a customer. (Installing rigid processes that force this kind of behavior is a worst practice depicted nicely in a recent post by Dave Snowden.)

It's Product Management I have the problem with. First of all, an additional fee for my laptop to use megabytes I'm already paying for is bad. (It's done so that people who pay $60 per month to use the Verizon PCMCIA card in their laptop won't feel that they're getting ripped off--even though they already do.)

Second of all, not having an occasional-use plan and forcing me, the customer, to do work to synthesize this plan (call to activate, call to deactivate, every time I need the service) is also bad.

Finally, I am a $150 per month wireless customer. (VZW's ARPU is around $50.) I'm a Verizon VIP. Yet there's no accomodation built into the product for my kind of customer.

It's just poor packaging all around. And it needs to be fixed. This is one of the reasons mobile phone customers hate their suppliers.

Aaargh.

product management mobile wireless customer service customer service packaging pricing technical support Verizon Wireless

Friday Haiku #1 - Apple's Product Announcement

Two hundred dollars
Off the price of an iPhone.
Early buyers steamed.

Friday haiku apple iphone pricing wireless

Virgin Mobile inside the numbers, part 2: let's talk about loyalty

Customer loyalty is perhaps the biggest profit driver in wireless--so big, in fact, that your wireless company employs many tools to enforce your loyalty to them. Among them are two- (and sometimes three-) year contracts with large early-termination penalties, handsets locked to use their network only, content you can't port, etc.

Why is loyalty so important in wireless? It comes down to four numbers: ARPU, CPGA, CCPU and Churn.

ARPU stands for Average Revenue per Unit and represents the monthly revenue for each subscriber on the service.

CPGA stands for Cost per Gross Add and is the cost the wireless operator incurs for each customer sign-up.

CCPU stands for Cash Cost per Unit and is the cost per month to support each subscriber.

Churn rate means how many customers disconnect from the service each month.

So, getting to Virgin Mobile. According to their S1 registration filing, here's how they fared on each of those metrics for 2006:

ARPU: $21.48
CPGA: $120.55
CCPU: $13.15
Churn: 4.8%

Massage the above numbers and you can learn some interesting things about Virgin's business. Their monthly gross profit per customer (APRU minus CCPU) is $8.33. They spend $120.55 to sign up a customer. This means that an average customer has to use the service for fifteen months before he becomes profitable. (And a business like Virgin, that's growing substantially, they is signing more new customers up, incurring more CPGA, with fewer old customers generating profits. That leads to net losses in the short term.)

With a churn rate of 4.8%, the average Virgin customer stays on the network a bit less than two years. Meaning there are only six or seven months to make profit from that customer. (Note that Virgin's churn rate is quite a bit lower than a typical prepay operator's churn, which can run upwards of 7% per month, yet is much higher than the postpay operators--e.g., Verizon, Alltel, AT&T--whose churn is around 1.5-3.0% per month, depending on the operator).

One way to summarize this is using a metric called lifetime customer value. According to a model from Harvard Business School, Virgin's lifetime customer value is $30.59. (Here's how I came to that figure. Please check my assumptions and math and let me know if you think anything needs fixing.)

If they could reduce their churn one percentage point, Virgin's lifetime customer value would rise to $64.18. More than double.

And that's why loyalty's important.

(For more on customer loyalty and how it drives the success and failure of businesses, read Fred Reichheld's book, "The Loyalty Effect.")

marketing mobile wireless mvno ipo metrics

T-Mobile USA turns a bug into a feature

T-Mobile is the smallest nationwide US carrier, has the fewest cellsites, and the weakest coverage. Problem, right? Well, in general, yes--but with its new product, HotSpot@Home (link), T-Mobile is turning this weakness into a strength.

HotSpot@Home relies on hybrid cellular-WiFi handsets and an elegantly-designed handoff process to allow phones to hop seamlessly from wireless LANs to T-Mobile's GSM network, and back. All for $10 per month on top of your cellular plan. (New York Times personal technology columnist David Pogue raved about the service in last Thursday's paper.)

So, lousy cell coverage in your house? Don't worry, use your home WiFi network to make your calls, without burning up cellular minutes. You can also connect at T-Mobile's 8000+ hotspots (in places like Starbucks) or, with some limitations, other public hotspots.

Are any of the other network operators going to imitate HotSpot@Home? Not likely. They're terrified of WiFi calls siphoning off minutes that they currently bill for.

Turning a bug into a feature, changing the ground rules for competition. No matter what you call it, it's innovation at its best.

It's so cool, I'm almost ready to give it a try.

Voice-to-Screen messaging - powered by SpinVox

(Photo: the Nokia 6806 with WiFi and mobile calling)

wireless innovation WiFi mobile New York Times

Why did Amp'd Mobile stumble?

It's another day of negative news for the US MVNO industry. One of the highest-profile operators, Amp'd Mobile, filed yesterday for Chapter 11 bankruptcy protection. According to theWall Street Journal (link - $$), they simply ran out of cash. How did they get to this position?

In the MVNO business (as well as the mobile operator business), customer signups are really expensive. It costs, depending on your distribution model, marketing model, etc., from $100 to $400 to sign up a customer. Meaning it will take perhaps eight to twenty-four months for a subscriber to pay off the initial investment in signing him up.

Established carriers have a large existing customer base to defray the cost of adding new customers. Startups don't. Therefore, they must have enough working capital to absorb these losses until they reach a critical mass of customers. Amp'd apparently didn't.

One other thing. I've heard from some Amp'd subscribers that their bills were late, that they didn't receive bills at all for some months, and in some cases they received bills with an outstanding balance of a penny.

You don't read much about billing in telecoms, as opposed to, say, marketing. But late bills, missing bills, etc., cause customers to withhold or delay payment. A carrier with these issues leaves money on the table--money that could help pay its bills while it waits for those new customers to turn positive. It's not clear how much this impacted Amp'd's situation, but it was a factor for sure.

Marketing is sexy, but collecting money from customers? That's priceless.

mobile MVNO marketing operations private label

Missing an opportunity via traditional business planning

Posting about a better way to manage innovation last week reminded me of a story from my days at EDS. In 1996 a colleague and I worked on business plan for a South American wireless clearinghouse. We could see it was good business, but no matter what we did, we just couldn't get those numbers to work out, to get an appropriate level of profit with low enough risk. So the company dropped it. But now of course such a clearinghouse does exist, and I'm guessing it makes money for whoever runs it. Which makes me wonder how things would have been different if we'd used the approaches described in the article.

Voice-to-Screen messaging - powered by SpinVox

spoken post innovation business planning wireless mobile

Qualcomm plans health-care-focused MVNO

MVNOs, or privately-branded wireless operators, continue to make slow but steady progress in the USA. The latest announced today is LifeComm, a company spun out of wireless giant Qualcomm, which reportedly will operate over the Verizon Wireless network. Read the Wireless Week story here.

Health is an ideal niche for MVNOs to target, given the huge expenditures in healthcare and the ability to create wireless applications that help users better manage their health. (This company, though not an MVNO, has an interesting wireless health application for diabetics.) A barrier to this point has been carriers allowing MVNOs to use the full richness of the 3G application environments to develop applications that could compete with those of their carrier hosts.

For Qualcomm, provider of Verizon's wireless application environment Brew, that was apparently not a problem.

innovation healthcare wireless mobile MVNO