Ho's Perspective: Arms and arms dealers in the wireless switching war

William Ho is a leading industry analyst, consultant, and commentator at 556 Ventures.

William Ho

There's a war going on out there in the wireless space and it's for switchers. As American wireless penetration crossed 100 percent, organic subscriber growth--that is, acquiring a person without a cellular device to become a customer--has slowed.  CTIA's latest wireless industry report data shows wireless penetration at 110 percent  at end of 2014. Although the penetration rate will increase with additional account connections through tablets, automobiles and generally, the Internet of Things, the carrier community has been focused on switching, or poaching rivals' customers, as a competitive threat. Longtime industry veterans will note that the business of switching isn't new but lately has been more pronounced than in years past. 

The biggest switching rivalry had been between AT&T Mobility and Verizon Wireless. But as we all have seen, a surging T-Mobile US has up-ended the apple cart and has thrived by eating into all rivals' subscriber bases. Yet those carriers are fighting back, either directly or circling the wagons in retention efforts targeting its high-value and loyal customers. There is no doubt that the switching game transcends both postpaid and prepaid. Each market is brutal in its own way but for the purposes of this discussion, postpaid will be the main focus. Carriers know that pricing and network play dominant roles in the switching war. What are some of the arms that carriers employ and who are the arms dealers that fuel and benefit from the situation?

Arms

In general, carriers' weapons are mostly price related. Yet, carriers with the lowest rate plans don't always garner the largest market share, otherwise T-Mobile and Sprint, as price leaders, should be at the top. But rate plans and associated marketing levers have always been instrumental in targeting the likely fence jumpers.  Here are some some substantial levers, or arms, that have in fact contributed to today's volatile switching environment:

  •  Equipment installment plans (EIP) coupled with no-contract plans: T-Mobile's move to no-contract "Simple Choice" plans and its success has been a catalyst in moving the industry away from the two-year contract model. The new model argues that service pricing was more transparent whereas the old contract model subsidized handsets and inflated service pricing. Yet without handset subsidies, customers are confronted with the true device cost, sometimes with flagship smartphones tallying $600-$700. EIP lessens the sting by breaking those payments down over 18 to 30 months. Coupled with $0 down marketing, carriers enhance customers' buying experiences and set future buying behavior and expectations.  Rather than walking out of the store with several hundred dollars out of pocket in the old contract model, device pricing is portioned into the monthly bill. This model's effectiveness points to carriers' (e.g., AT&T Next, Verizon Edge, Sprint Easy Pay, etc.) increasing quarterly EIP adoption metrics.
  • Switching credits: In early 2014, T-Mobile instigated the use of monetary payouts as a weapon to offset the contract early termination fees, up to $650, customers faced.  As the market evolved to more customers adopted EIP plans, Sprint and T-Mobile and have each appended their switching arsenal with their own ecosystems for competitors' device trade-in and device financing payoff. The customer emerges without device payment debt and some down payment money for a new device from the trade-in. While T-Mobile and Sprint are heavily advertising total switching cost coverage, AT&T and Verizon have not been as aggressive in courting switchers as their focus has been aimed at retaining high-value customers. Still, the two larger carriers have kept their options open and are playing when appropriate, as each have varied the switching credit values per line.

  • Rate plan promotions: Many years ago when the number of minutes and messages drove decision making, carriers changed their rate plan portfolios but responses took weeks and in some cases, months.  However, with data as today's critical buying feature, carriers have employed limited-time increased data threshold promotions to present an urgent call-to-action environment.  With the help of modern back office billing and provisioning systems, carriers have also decreased their competitive response time from weeks to days. Rate plan portfolios are less permanent allowing for promotion flexibility based upon churn, gross addition metrics and time of year (e.g., Valentine's Day, Mother's Day, Black Friday, fourth-quarter selling, etc.).   
  • Marketingspecifically social media: Advertising and public relations are long-time marketing foundational elements.  Traditional print and television advertising now are losing share to the relatively inexpensive online outreach. Beyond email, online presence is now tablestakes in messaging to the mainstream and tech journalism community as well as influential bloggers. The growing importance of social media as platforms for brand extension, promotion and even customer care have carriers covering their bases at major sites including Facebook, LinkedIn, Google+, YouTube and Twitter. Twitter in particular has been an important platform for carriers' public, analyst and investor relations professionals monitoring news (breaking or scheduled releases), brand sentiment and leaks. Aside from T-Mobile CEO John Legere's heavy use, most notably T-Mobile is catering to its target millennial segment using a small cadre of tech-focused Twitter users as ambassadors in furthering its device and plan promotions.

    Depending on its marketing focus, social media is developing as an important platform to reach switchers, customers and the media to craft a carrier's promotions and messaging. 

Arms dealers

The term "arms dealer" is an uncomfortable and negative one but in this article's context, it applies to those with no horse in the wireless race but whose company or business model benefits from the ongoing competitive wireless environment. In some cases, their products further fuel the competitive environment. In almost all cases, these companies are positioned as independents and if lucky, become a staple industry recognition.

  • RootMetrics describes itself as an independent mobile analytics company conducting metro, regional and national drive tests that emulate users' smartphone experiences.  The company is by far the most visible and successful in positioning its work in shaping carriers' public network perception.  With network being a key buying or switching factor, RootMetrics' bi-annual reports (airport, metro, state and national) from the drive testing and award categories (i.e., network reliability, network speed, call, text and data) provide enough content for carriers' marketing departments to craft regional or national network awareness campaigns to assist switching.  At least three carriers have each cited RootMetrics in their advertising or investor relations material. Though those within the carriers' engineering organizations might grumble at the technical depth and methodology of the reports, the marketing groups are more than happy to engage RootMetrics in service subscription and/or licensing report citations for advertising.
  • Big box retailers including Walmart, Best Buy, Target, Costco and Sam's Club have sufficient scale and distribution to take advantage of the switching environment outside of carrier retail stores. These retailers may be seen as the ultimate arms dealers as they are one-stop, carrier-agnostic shops that generate high volume store traffic that factor in each carrier's distribution goals (e.g., drive EIP plans). At the same time, big box retailers are "friendemies" as retail staff focuses on selling the device and may direct a customer from one carrier to another. Moreover, big box merchants' trade-in programs may have more generous device payout than at carrier retail, providing additional customer incentive. 
  • Lastly, J.D. Power and Associates is a well-known market research company that gives out awards from user panel surveys that cross many industries, including the automobile and telecom.  In the wireless carrier space, J.D. Power provides network, customer care and purchasing satisfaction awards that have helped certain carriers' marketing efforts. The many years of J.D. Power award experience may have influenced RootMetrics since J.D. Power awards and studies are also bi-annual.  While these awards do not surgically target and influence a segment like millennials, long standing J.D. Power brand recognition serve to reinforce a carrier's positioning across a mainstream audience.      

The wireless industry is a very dynamic and competitive space. More arms and arms dealers will invariably surface. Until then, customers in the near term continue to be in the driver's seat.

William Ho is a leading industry analyst, consultant, and commentator at 556 Ventures. He has over 25 years of experience in the fixed, Internet and wireless sectors. Follow him on Twitter @billho888.

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