Some of the recent competitive promotions from wireless service providers are concerning for the industry as a whole. Telecoms can learn from the overall value destruction experienced in other industries, such as airlines, where lower price pressure and higher costs through customer incentives left many of them bankrupt and caused an enormous loss of shareholder and company value.
It is no secret that the underdog, T-Mobile US, is the maven behind the recent wireless pricing plan reductions and also offers of unlimited data – with rollover – and handset incentives. Sprint has added to this fight for market share with their “cut your AT&T and Verizon bills in half” campaign. The impact has already been felt from AT&T Mobility and Verizon Wireless in terms of these two operators having to provide other incentives to both retain existing subscribers and attract new subscribers – all margin-reducing efforts. Yes, Verizon Wireless is touting its national coverage superiority over Sprint and T-Mobile US, but in the major metro areas, where most of the subscribers live, there is not much coverage superiority, and subscribers understand that.
Quality is subjective and difficult to explain to most subscribers, so the meaningful marketing differentiator for the networks has been speed, in terms of what technology standard they are on – “4G,” “4G LTE,” and “4G XLTE.” By virtue of the technology being a standard in terms of differentiation, the bottom line is that there is none from a network perspective, other than having first-mover advantage. This has created a technology rat race, which shortens technology life cycles and hurts operators further in terms of reducing their return on investment timeframe. Furthermore, after these multibillion-dollar upgrade expenses, there is no guarantee the competitive benefit can be converted to increased share or increased profit if competitors make the same upgrade.
My suggestion to the large operators is to leverage their technical and operational knowledge and start to drive propriety technology/feature customization from the standards that will be exclusive to them within their geography, which is now possible and practical as networks are shifting from being hardware-based to software-based. Operators are traditionally very active in the standardization bodies and come up with the innovative ideas that end up becoming feature standards, so why not put this innovation to use as a competitive advantage? An excellent way to achieve technology differentiation is to drive true open wireless technology standards. With open wireless standards, operators would be able to invest in their own innovation roadmaps to compete. Today’s wireless standards are closed by vendors with controlled feature releases for their own margin preservation. However, the vendors have to realize that the value destruction occurring today with operators will move vertically down and impact the whole industry negatively.
In conclusion, to support my view on differentiated platforms from history; when Verizon Wireless was CDMA and AT&T was TDMA/GSM, there existed real technology/network differentiation that either operator could leverage. The technology evolution life cycle was also a lot longer as there was less pressure to upgrade with real competitive benefits. So operators, leverage your billion-dollar network capital expenditure spends with vendors to ensure what you invest in allows you to truly differentiate to justify the highest revenue per user.
Sanjay Ambekar is an independent thought leadership contributor with extensive experience in the wireless industry. Ambekar can be reached for comments or questions at [email protected].
Editor’s Note: The RCR Wireless News Reality Check section is where C-level executives and advisory firms from across the mobile industry share unique insights and experiences.
