Mobile Sands

August 8, 2009

How Unlimited Voice at $50 or Less May Change Everything

Unlimited Nationwide Voice – Now for $50 or Less

18 months ago, on Feb 07, 2008 Sprint became the first major US carrier to launch an unlimited voice & data plan – for $119.99/month.  Verizon responded within 12 days with a $99.99/month unlimited voice planAT&T  immediately matched it & so did T-Mobile.  On Feb 28, 2008 Sprint lowered the price of its $119.99/month “Simply Everything Plan” to $99.99/month and few days later launched a $89.99/month unlimited voice plan.  Carriers called their offering revolutionary and there was talk of a price war.

In January 2009, Sprint’s Boost Mobile subsidiary launched a $50/month prepaid unlimited voice, text, PTT and data plan. Boost uses Sprint’s iDEN network and Sprint probably offered this plan because there was lot of spare capacity on its iDEN network after several quarters of steep subscriber losses. Within 8 weeks of launching this plan, Boost signed up 764,000 new prepaid subscribers – growth that took everyone in the industry by surprise. It was a game changing event. Boost, of course, is not the first unlimited flat-rate voice service. Both, MetroPCS and Leap Wireless, have been offering unlimited voice for $50/month for years. But Boost is the first one to offer unlimited flat rate on a nationwide network.  Virgin Mobile (a Sprint MVNO) announced a $50/month voice + data plan in April. Though Verizon initially criticized Sprint for halving the price for unlimited voice, it started testing an unlimited plan of its own called StraightTalk with MVNO partner Tracfone (an America Movil subsidiary) in June.

Carriers Use MVNOs and Subsidiaries to Offer Lower Rates

Unlike unlimited voice plans offered by major carriers in 2008, this year’s unlimited plans are being offered through MVNOs or subsidiaries. These MVNOs or subsidiaries use prepaid billing, offer a smaller range of handsets, do not require long-term contracts and do not offer any handset subsidies  High-end smartphones like Blackberry and Palm Pre are not part of the handsets offered by the MVNO, and customers may not get certain features they get on the main network.  Consumer now have a choice – they can go with the expensive “full-service” brand (Sprint, Verizon) or with the “discount” brand (Boost, Tracfone).

Service providers in other industries have tried such strategies in the past – often with limited success. This was the idea behind “Ted from United” and “Song from Delta”. Just like MetroPCS and Leap Wireless were offering unlimited voice service before Sprint and Verizon jumped in, Southwest and Jetblue were offering low-cost airfares before Ted and Song. With Ted and Song,  United and Delta tried to emulate Southwest and Jetblue’s cost structures by using single a class of planes (Airbus A320s for United and Boeing 757 for Delta), charging for in-flight snacks, and paying lower salaries to crews. They tried to differentiate against Southwest and Jetblue by using their national networks and frequent flyer programs. However, by doing so, they could not maintain sufficient differentiation between the discount and full-service versions.   Customers earned the same frequent flyer miles whether they flew Ted or United and were able to use the entire network of the full-service airline. Yes,  there were no first class cabins, but most customers did not care. By 2008, both Delta and United had discarded the sub-brands, and today United and Delta operate more or less like discount carriers.

What’s Next?

Though Ted and Song did not survive, they did help convince United & Delta that majority of consumers really don’t care about their “full-service” offerings; that it is better to charge a lower fare and sell snack boxes on board than to charge more and bundle-in meals. It also forced many carriers to simplify their fleets and re-negotiate labor contracts. The airline business was changed forever and Ted and Song were the harbinger of these changes.

Unlimited nationwide voice offered at half-the-price of comparable services, but through a prepaid, subidy-free, business model qualifies to be a similar disruptive innovation. And its impact is likely to be far-reaching. For instance, it may:

  1. End the current, handset subsidy-based business model
  2. Move from postpaid per-minute billing to prepaid flat-rate billing
  3. Change the set of must-have services. Integration with facebook may become more important than three-way calling.

Such far reaching changes will affect everyone in the wireless value chain – from handset vendors to network equipment suppliers.

  1. If handset subsidies go away, it will force handset vendors to compete on the basis of their brands and cost structures rather than carrier relationships.
  2. As ARPUs fall, operators will push equipment vendors to lower network cap-ex and op-ex, creating opportunities for some and eliminating the business of others.
  3. Change in must-have services will allow technology suppliers to make a stronger case for technologies like VoIP over EVDO/HSPA/LTE or femtocells that offer lower-cost but may notalways offer services parity.

Change is in the air. And though it may not benefit everyone in the industry, it will keep the engine of innovation humming.

    June 8, 2009

    Visiting the Sprint Store to See Palm Pre

    Filed under: Smartphones — Tags: , , — AJ @ 1:03 pm

    I was among the legions of smartphone enthusiasts who walked into Sprint stores this weekend. The Pre was, as expected, sold out by mid-saturday. I tried a trial unit and I must say, I was not disappointed!

    All the cool features that Palm has been touting in its advertising – from multi-touch to the ability to run multiple applications – were there and worked really well.  I really liked the keyboard. It was much better than typing on the iPhone’s screen and felt more responsive than QWERTY keyboards I have used on Blackberry and Motorola Q. Though Palm does not have an large App store, the device comes pre-loaded with several great apps like Pandora, facebook, Google maps, and youtube – all of which worked nicely when I tried them. And the browser renders multimedia-heavy pages beautifully (I tried www.lonelyplanet.com).

    Bloomberg estimates that a total of 150,000 Pres were sold this weekend. According to salesperson at the store I visited in Boston, they were allocated 60 devices, and were sold out by 11 AM on saturday. They were expecting 40 more devices on Monday and a similar number on Tuesday. I am 61st on the waiting list at this store and was told to expect a call on Tuesday evening.

    While I was waiting for my turn to try out the Pre, I noticed Sprint’s Airave femtocell (displayed in a glass box near checkout) and asked the salesperson what it was and if I needed one. She replied that it was router that expanded wireless coverage but no one who lives in Boston really needs one; maybe in certain high-rises or in far-out suburbs. After taking a dig at T-Mobile’s coverage in the city, she calmly reassured me that “since Sprint uses the same technology as Verizon, our network is as good as theirs.” Ingenius!

    May 8, 2009

    Palm Pre May Revive Sprint’s Fortunes

    Filed under: iPhone, Smartphones — Tags: , , , , — AJ @ 8:44 pm

    Palm Pre has been getting rave reviews from all those who have seen it and many believe if there was ever an iPhone killer, this is it.  In a few weeks, Pre will be available exclusively on the Sprint’s network and combined with all the operational improvements Sprint has done in the last 18 months, it may very well revive Sprint’s fortunes.

    What’s special about Pre?

     It has singular design vision – just like the iPhone. Almost two years ago, Palm managed to hire Jon Rubinstein, previously Apple’s head of hardware engineering and the guy behind Apple’s product design revival over the last decade – from iMacs to iPods (see details in Newsweek story). As WSJ reported in December 2007,  Jon has been actively involved in designing Palm’s smartphones and setting its strategy. Plus, as the Executive Chairman of the company, he has given “design” a seat on the board.

    Palm started building buzz around the Pre at CES 2009 and it wowed everyone who saw it. Here is a link to a video recording of Pre’s CES debut. And here is another video that shows some of the really cool features of the phone – including its advanced multitouch capability, QWERTY keyboard, and amazing graphics.  At the heart of Palm Pre, is a new operating system called WebOS. According to a recent article in The Industry Standard, developers who have created apps on WebOS agree that it lives up to its hype. And according to Fast Company, Palm Pre can give iPhone 3.0 (the next-gen iPhone) a run for its money.

    Though Palm will not have the tens of thousands apps that Apple boasts at the time of launch, it is working on getting all the top applications on the device before launch, from Google and Facebook to integration with MS Exchange and Pandora.  Just like iPhone, its browser is based on WebKit and beautifully renders web pages. And yes, it has a music store too – from Apple’s arch-rival – Amazon. 

    Sprint has dry powder

     Palm Pre may be able to work a charm at Sprint only because Sprint (under CEO Dan Hesse) has aggressively trimmed its capital and operating expenses over the last 18 months, and has maintained positive free cash flow despite losing almost 6 million post-paid subscribers. 

    Sprint has countered some of  the subscriber losses by winning pre-paid subscribers (its Boost service added ~700K subs in Q1’09) and adding more wholesale subscribers (like Amazon Kindle).  But more importantly, it has slashed cap-ex (Q3’07: $1.2B, Q1’09: 0.3B), and trimmed operating expenses (SG&A Q3’07: 2.7B, Q1’09: 2.2B). As a consequence, it generated $536M of FCF in Q4’08 and $796M of FCF in Q1’09. At the end of March 2009,  Sprint had $4.5B of cash and cash equivalents – a significant war chest to compete with the biggies.  (All numbers from Sprint Investor website)

    A resurgent Sprint – small, nimble and hip?

    If Palm Pre lives up to its hype, it would help Sprint reverse post-paid subscriber losses.  Consumers want cool devices, and just like Apple, Palm has its cadre of loyalists.  Not only can the Pre win new subs for Sprint, it can create a positive “hip” halo around Sprint.  The Pre, combined with the growth of Boost Mobile, could help Sprint reverse the trend of subscriber losses and may even add 5M between March and December 2009.

    The world (yes, that is correct) needs Sprint. The US has been the center of wireless innovation – from new air interfaces like CDMA and WiMAX to devices like Blackberry, iPhone and now Pre – because it has carriers that need to compete.  And for competition to be vibrant, Sprint needs to be successful.

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