Excellent summary of US mobile market

So Gary Cohen, now VP for North America for Flirtomatic, has a habit of writing up notes from major industry events he has been to which he circulates to his network. In fact his notes on MWC in Barcelona 2009 were part of what attracted him to us…

We attended CTIA in San Diego two weeks ago. Here is his rather good summary.

CTIA Wireless Entertainment and IT Conference Wrap-up
October 7-9, 2009                                                                                        by:  Gary Cohen
This year’s fall event was much less attended than in years past, but I found that the attendees were generally decision makers who could, and wanted to progress some matter of business.  The exhibit hall was definitely not the focal point, whereas the keynote sessions seemed better attended than usual.  Because of these factors, the hallways, meeting nooks, eating areas and nearby hotels was where the real action took place.

I have always been a big proponent of the CTIA’s VIP Pass which gives one access to a great place to meet people for meetings, have a snack and get out of the bustle of the overall event.  I passed on it this time and instead opted to hold meetings off-site at a dinner and cocktail party and found that San Diego was ideal for this because of the proximity of the convention center, hotels and venues.  As a result I had 57 meetings and/or conversations that yielded the conclusions I will share.

State of the Wireless Industry
How can I not continue to be bullish!  Data adoption and utilization rates are soaring.  What is a remarkable about face was the change in message about the US wireless data market.  For 9 years we have lagged both Asia and Europe in our path toward wireless data deployment, adoption and usage.  We were seen both at home and abroad as lagging the world by 12-24 months in almost every aspect of this evolution.  The usual suspects were the operators dragging their feet to extract the maximum value from their voice based business, and our lack of a single network standard (like Europe’ ubiquitous GSM).  This equated to an unspoken conspiracy of big business and governmental collusion that left early adopters’ without the benefits enjoyed by users across both oceans.

At this conference the tune has definitely changed as cited by the powers that be that US data penetration, data usage and application innovation and advancement place America at the forefront of the wireless industry.    I agree to some of this, but not all of it.  What gets lost in the bluster is whether you include or exclude SMS traffic into the equation.   Our teens and young adults have become so text messaging-centric that much of the non-voice traffic on the networks makes us look very data hungry.  Never the less, the carriers are monetizing data services well, preserving ARPU and growing pure data traffic quarter over quarter.

Network pressures were a frequent topic of discussion as lead by news of AT&T’s iPhone driven demands on their data network.  The FCC Chairman highlighted the need (which is true) for more bandwidth.  And as I found, the pace of “cutting the cord” to a wireless only lifestyle has been accelerated by the economic downturn.  4 years ago I worked on a Mobile IP solution for seamless handoff between WWAN and WLAN, to find no audience.  Now it is now topical.  VOIP through a WLAN when available on a smartphone to offload traffic from the macro cellular networks is finally becoming the reality that was predicted.

Operator Observations
I will always have a warm spot for the cellular companies.  Their lives aren’t easy these days although no one’s is.
·         Verizon will lay off some more people in the coming months.  They also have the dilemma of losing landline customers to wireless.  While some will stay with Verizon Wireless many are attracted to fixed rate unlimited plans.  The problem that is getting magnified is the bitterness of the Vodafone partnership (Lose a landline customer’s revenue of $1, then get them back as a Wireless sub and collect revenue of only 55¢).

·         Sprint is just trying to “hold on”.  They truly need their 4G offering to be perceived as a differentiator.   Good news for them is that their latest ad campaign (irreverent, clever observations about the power of the Sprint network) is the first in years that is playing well.

·         AT&T will see their mixed blessing in the iPhone transform as their US distribution monopoly ends with Apple next year.  Look for a heavy push into Android.

·         T-Mobile reinvents itself as the innovator who will exploit their lead with Android and the relationships they have with HTC and Motorola to deliver compelling devices in Q4.  More to come in the way of message and social networking centric handsets.

·         US Cellular is sitting out there all alone like a PT boat surrounded by battleships and aircraft carriers.  They continue to do well in terms of retention in their tier 2 and tier 3 markets by providing superior customer service and localized marketing.

·         I would have liked to see some of the other carriers at the conference including Metro PCS, Cricket and the Canadians.  However, the overall carrier presence was almost non-existent at this event.  It was both a sign of the budgetary times and the fact that vendors will go to them at their headquarters.

Several people spoke to me about customer service quality.  As is mentioned further on in my notes, an awareness that the customer experience is not ideal in our industry is not a new discussion (cellular and cable co’s vie for the bottom spot), however insiders of varying aspects of the industry asked, “What are customer’s willing to put up with?” I see this as everyone keying into the AT&T network constraints caused by iPhone pressures on their network. This would have been a good breakout session and could be supported by hard research (if anyone was willing to sponsor it).  I like it a lot because there is a body of research over 10 years long around this topic that demonstrates just how bad various factors (network, billing, and customer service) can get before customer’s churn.  However, all of that data is based on voice experience.  It would be great to see what the response and reactions are for customers who judge their carrier based on data network performance.  What are data user’s expectations? How does a data user evaluate delivery and what is it relative to? Can there be device dependent differences?  Does it vary from Carrier to Carrier, or across rate plans and usage levels?  As far as I could tell this is a topic where blood (customer dissatisfaction) is in the water and the sharks (mobile operators) don’t know whether it is safe to attack (mobile data quality).

Applications and Developer thoughts
All carriers are looking seriously at how to work with the Android platform.  It is really the only viable counterbalance for the iPhone developer platform.  Many people also commented that with tens of thousands of apps on the various app stores (@30 globally) that finding their application has become the next source of frustration for both the developer and the user.  Adding “categorical search” to this process will be the next step.  As has been pointed out for 3 years, search engine based navigation should emerge as the user interface of choice.

A good analogy for what mobile software developers are facing right now is an hourglass.  3-4 years ago when most development was in Java it was critical to pick the right platform(s) to develop for.  Then in the past few years delivering to a mobile internet experience (WAP) garnered the greatest leverage of resource.  Between all of the above, plus “apps” for a myriad of app stores, widgets (which I still can’t clearly define) and platforms, the path is again complicated.  Several conversations involved trying to navigate the best strategy for the next 2 years, and then another to satisfy a 100% IP based wireless environment thereafter.

Conclusion – The Carriers need an infusion of talent from media and internet industries
I want to put this theory out there about the next step needed to move our industry forward.  “Telco thinking will stifle progress toward improved profitability.”  My core argument is that carriers don’t understand how to think about the customer experience in 2009.  They have believed that if the network works, the devices are sound, the pricing fair and the billing accurate, the customer’s experience will be good.  This yields utility: basic needs at a commoditized price.  The problem here is that the two factors that make a utility into an experience are missing: content and care.  There is tons of content out there and a sincere rush to deliver it.  How to best deliver that is still being ironed out.  How to build any kind of relationship with the users is what the carriers completely lack.  They do not know how to communicate effectively with their base, nor are they sincerely willing to invest in this relationship at any other time than prior to voluntary churn.  The customer experience is defined by “moments of truth” or “touch points”:  Usually driven by the customer and their problem.  Correspondence (e-mail, direct mail, bill stuffers, SMS, Voice Mail) and in person (call in to care or stopping into a retail store) all provide opportunities to build a bond. Because of the customer base magnitude, the basic relationship has become impersonal and sometimes antagonistic.  This is not very effective for the carrier, nor satisfying for the user.

Contrast this to the internet based companies (Games, Social Networks, and Communities).  They have no 1 or 2 year contracts and in many cases have no way to proactively contact the base.  They monetize in a variety of ways with very uncertain recurring revenue models.  What are their primary goals:  1) Gain users/subscribers and 2) Hold on to them.  Carriers call “holding on to them “retention”.   Internet businesses call it “Stickiness”.  If their site is sticky, people have chosen to stay with them.  The only way they can make it sticky is to be intensely focused on the customer experience.  Not once a year, but daily.  The moment of truth is upon every log-in.  By virtue of unique users, log-ins, dwell time and spend, users vote daily on their satisfaction level.  The more satisfied customers are in this environment, the more they spend.

I think it would behoove the carriers to think more like an internet-based vendor in their approach to the customer base.  Talk to them a lot and in a new ways.  Use in-call messaging, constantly survey and give the results back, and open up options for everything (to customize their experience).  By helping the user optimize their experience, the wireless carriers will move above the dreaded “just a pipe” commodity and back to status as an appreciated supplier.  However, it will take some new skill sets and dedicated investment to do this.  Why can’t this switch just be flipped?  This is largely because the talent isn’t already in their cities, and will need to be recruited, and then relocated.  Basking Ridge, Atlanta and Kansas City are not the internet innovation hubs that San Francisco, Austin and Boston are.  Lastly, you need this high-priced imported talent at the headquarters to affect the culture.  Remote vision and execution people don’t work out.  They need to pull the organization along with the full blessing and support of the top execs in a very visible way to succeed.

The move from retention to stickiness will be hard.  T-Mobile is already on this page and is lucky to be in Seattle where there is a greater talent pool.  I hope the others dive in soon.