Sprint and Palm Pre – Is it a game changer?

Here is Sprint’s customer story that I took right  from their Q1 2009 Report -

For the quarter, total wireless customers declined by approximately 182,000, including net losses of 1.25 million post-paid customers – comprising 531,000 CDMA and 719,000 iDEN( read NexTel) customers (including a net 94,000 customers who transferred from the iDEN network to the CDMA network). The company also lost 90,000 prepaid CDMA customers. The company gained a net 764,000 prepaid iDEN customers and 394,000 wholesale and affiliate subscribers. The company achieved total subscriber growth on the iDEN network.

Sprint’s Direct Postpaid subscriber churn is 2.25% and prepaid subscriber churn is 6.86%. These numbers are better than their churn rate in 2008.

Over last several years, wireless industry has matured. Network reliability and call quality are no longer differentiating factor for the consumer. Now the future of the wireless growth is dependent on the ability to offer innovative products and services which can attract customers from other service providers along with the ability to maintain the existing customer base by reducing the churn and superior customer service. So the innovative products and services along with superior customer service is going to be the key for growth.

We have seen the success of AT&T and iPhone. Verizon has also seen significant subscriber growth by having exclusive agreement with Blackberry Storm. We now know that devices have the potential to take precedence over the operator. Devices can very well be latest arsenal in the war over customer specially when the net wireless subscriber growth is almost flat.

I see Sprint and Palm Pre exclusivity in this perspective – it is an attempt to get more and more customers excited about Palm Pre and entice them to move to Sprint. However, I do not believe that this will have any significant top line impact on Sprint subscriber growth. It is simply too little too late.

Let us start with Palm first. I’ve seen some rave review about Palm Pre and had a chance to look at it in the store as well. However, this is not a game changer like Blackberry or iPhone – this is not first in any category. It has nice and cool features may be better than iPhone but I don’t think that it can create a fan following of its own – apart from almost extinct Palm fans. I’ve not seen anything that will make me cringe to switch. However, it is a good device. It will definitely sell like any other devices but I do not see it to get to an iconic status of iPhone or Blackberry.  Palm will also get hurt by the aggressive marketing from Apple. Apple just reduced the base price for iPhone to $99 and it has already grabbed the lime light away from Palm Pre.

For Sprint, Palm Pre is not what iPhone was to AT&T. Also Sprint has their exclusive agreement with Palm only through year-end. Both AT&T and Verizon said that they will start offering Pre once exclusivity with Sprint expires. This is good for Palm but I’m not sure why an AT&T or Verizon subscriber will move to Sprint knowing very well that they could get the same device in next 6-8 months.

Palm Pre is not a game changer for Sprint and I do expect the challenges to continue for Sprint. Sprint 4G WiMax has the potential to change the game if Sprint can execute. We will continue to watch next couple of quarters and see if there is any meaningful impact of this exclusivity for Sprint.

Technorati Tags: Sprint,Palm,Palm Pre

Verizon’s divestment continues….

Verizon continues to shed its rural assets. In a deal announced earlier last month, they have decided to divest their assets in 14 states – predominantly in rural markets. This is definitely a part of the strategy that Verizon is carefully executing since last 5-6 years – first with the divestment of Hawaiian assets to Carlyle Group and then they sold off  Maine, Vermont and New Hampshire access lines to FairPoint and now assets in 14 states to Frontier. It is definitely good for Verizon – they are heavily investing on the assets with a growth profile and divesting assets which are not strategic for their business.

Here are some interesting facts about this transaction -

• 4.8 million access lines (13% of total switched lines)
• $4.4 billion in revenue
• Approximately 11,000 employees.
• 43% of their total square miles in their wire line footprint
• 37% of their  total wire centers.

Essentially Verizon is reducing its footprint in non-FIOS areas and improving its operational efficiency by increasing the density. Verizon will maintain its footprint in around 27 million households and aggressively going after 70-80% FIOS penetration. Verizon continues to shift its wireline business more towards growing broadband and video through the rollout of FIOS.

So what this means for Frontier – if these assets does not make sense for Verizon then why it makes sense for Frontier to pay approximately $1800 for each access line? In my opinion, Rural ILECs needs to consolidate and improve their footprint so that they can operate efficiently. Density really matters for any ILEC. As per Frontier’s own estimate, they are expecting to realize a synergy of over $500M with this transaction. This transaction will make Frontier 5th largest ILEC in US with significant rural presence. The new company will have 37 households per sq mile (compare with Verizon around 128) with approximately 70% access lines in the rural areas. From operations perspective, this will generate significant saving for Frontier as they already have operations in 11 out of 14 states being acquired through this transaction. Frontier will grow their foot print in 24 states and  add only 3 new states – Washington, North Carolina and South Carolina – through this transaction.

As we have seen in similar  transactions (Carlyle Group, FairPoint), system separation from Verizon and then integration with their own OSS/BSS will continue to be a major challenge. Frontier has allocated approximately $192 Million as CapEx and OpEx for this initiative. After listening to their Investor call, I feel that Frontier management is fully aware of the challenges and they are applying a very cautious approach to this transaction – Frontier will continue to use Verizon’s services through TSA in 13 states and operate the current billing platform. They are not considering to integrate or migrate these 13 states on their platform by closing. Frontier also does not have any hard date for this migration and they can continue to pay Verizon an inflation adjusted fee as long as they wish to keep these applications. Only West Virginia with 13% of the access lines will need to be converted by the closing. This will definitely give them enough room to plan and execute the system integration activities. Frontier management also touted their previous experience in integrating Rochester Telephone, Commonwealth Telephone and Global Valley Networks in the past. They also pointed out that they have successfully consolidated 5 billing systems into one over past 5 years and migrated 1.7M access lines!

For next year or so, Frontier management will be busy in executing this transaction. The BSS/OSS integration itself will take significant resources. Key to the success will be unflinching focus on execution.

Verizon in the cloud?

Well I mean  Cloud Computing!

Verizon decided to join already crowded space of cloud computing service providers along with IBM, Cisco Systems, Hewlett-Packard and Amazon as well as their main rival AT&T.

In today's economy, most of the companies are very reluctant to make major capital investments and they are actively considering the cloud computing model which could provide them the flexibility along with significant cost savings.

AT&T in a partnership with EMC (EMC) is also going to provide cloud services. AT&T is using EMC's Atmos technology, which is designed to help service providers build and develop cloud storage systems.

The Computing-as-a-service (CaaS) is already gaining ground in the market place given the current economic environment. This model is going to be much more popular where there is a peak seasonal demand for data – for example retailers will like the service as this will free-up their capital investment in massive data center build out for peak seasonal demands. I also think that some non-core business critical application will be a perfect fit for this type of service.

This is more an strategic move for both Verizon and AT&T as they are experiencing erosion in their traditional fixed line telephony business. Both have made acquisitions that gave them technology to support the cloud services. In 2007, Verizon bought Cybertrust, which provided managed network security services. AT&T acquired USinternetworking, a Web hosting company, in 2006.

This is a purely commoditized market and there are very limited scope to differentiate the services between different service providers – Verizon will continue to pitch the reliability of its network along with added security and encryption features that it can provide by using Cybertrust technology.

This was an expected move on part of both Verizon and AT&T. It will be interesting to see how they are able to grow this business.

Bing – Search Engine battle heats-up!

Technorati Tags: Bing,Google,Yahoo,Acer,Android

You might not had a chance to experience the latest search engine from Microsoft.  I have been using it for nearly a week now and I am pleasantly surprised with the search results and user experience. Microsoft describes Bing as a decision engine – much more than a typical search engine. Here is my run down on the new service and what this means for the information consumers.

I can attest that Bing is not your typical search engine as all of us came to experience by using Google and Yahoo. User Interface is well thought out. There is a right navigation that provides all related searches along with my search history. In a typical Google search, you have to click on every link to navigate to the link and see if the information is relevant. Bing has a feature called Hover next to the search result. You can simply rollover your mouse and it will show you the content of the link. This is definitely a time saver. Bing also have integrated video and picture in the search results. I searched  for “Obama”  on Bing. I instantly got a navigation menu on top right with options to look at Obama’ images, issues, Facts, Biography, Childhood, Speeches and Videos. You can also play the videos by just rolling over your mouse on the image.

Bing is able to understand my intentions for a search. So it is not just searching for information on the web but is searching for the information that I can use. For example – when I searched on “Swine Flu”, I got a medical information from Mayo Clinic. Bing is partnering with various content providers to address the information needs for specific domains. I searched for “Bos to Ind” with the intention of looking for flight options from Boston to Indianapolis. Bing came-up with fare predictor and informed me that fares are expected to rise along with a link to buy the tickets.

Bing also has a cash back feature – they will give you a cash back if you purchase through Bing.

I think that the idea and thinking behind Bing is great and execution is so far so good. It is a content rich decision engine with all the bells and whistles of a typical search engine. I do expect Bing to generate initial buzz in the search market place and attract more traffic. From a long term perspective, it depends on the execution in part of Microsoft and how they manage to keep delivering the rich and informative content.

Bing is definitely a game changer in the Search marketplace. Google is not going away anywhere and I fully expect them to try to counter this by copying some of the advanced decision features from Bing as well as adding more contents in the search result. Microsoft is definitely on the offence by directly taking the battle to Google’s home turf. Google is on offence for a while now with Google Apps and Android so it will be interesting to see how they react to Bing. Whatever the outcome of this battle of titans – information consumers will be the real winner! So it is time for all of us to enjoy the game…

Don’t be surprised - AT COMPUTEX , Taiwanese firm Acer unveiled its new Aspire One netbook sporting the Google’s Android Mobile Operating System. Acer aspires for this Android based netbook to be the first of several in its line-up, to complement its more expensive Windows OS offerings. It should be hitting shelves in the Q3 2009.

Non-Traditional ways of Managing the IT cost

In the current economic environment, most of the IT Managers are finding themselves in a very difficult positions – they are asked to reduce the IT spend and at the same time demand for the IT services are growing. It is quite understandable that other functional areas within the organization will need more IT services to reduce their cost. For example, Supply Chain group in one of my client’s organization achieved significant cost savings by automating the booking request/booking response and shipment document preparation processes. Any measures to manage the IT cost should account for the growing demand for the services as well.

There are several traditional ways of managing the IT cost – it starts with renegotiating major contracts to laying-off employees to cutting the capital and operational budgets. All of these options are commonly used by IT Managers to immediately deliver the bottom line reduction. Basically the first option is to curtail the discretionary spending and then see if it can help in managing the overall spend.

I would like to discuss some of the non-traditional ways of managing the IT cost in this post. Although all these options are fairly known to IT Managers but they are rarely used in a strategic way to manage the ongoing operations.

This brings to the interesting topic of finding non-traditional ways of managing the IT cost.  IT organizations are traditionally very poor in managing the demand for the IT services. I have seen very few organizations who have established a formal discipline and even less who have mastered the art of for managing the IT demand. Typically IT met the rising demand for services by simply fulfilling it. The demand prioritization process is simply not defined. Building a governance around the demand management process and getting the buy-in from all other business units can help in streamlining the services which will result in significant cost savings.

Another often ignored area is application portfolio rationalization and management. Most of the IT organizations has grown organically over a period of time. Over the years, typical stove-pipe applications were developed to meet the departmental needs. This has created a complex and very heterogeneous application landscape. Most of the organizations have addressed server consolidation and application software standardization over the last 5-8 years. So you can see standards for specific servers, Operating Systems, Databases and application servers. However, few organizations have addressed the issue of application harmonization.

System Integration is another major contributing factor in the IT cost structure. Typically integration is an afterthought in the application development process. This usually results in an “accidental” point to point interfaces which are very cheap to develop but prohibitively expensive to maintain and manage. All of us have seen increasing interest in SOA based technologies. If implemented correctly, SOA-based system integration approach can provide long-term sustainability and reusability of the IT assets.

Renewed focus on demand management, application harmonization, standardization and SOA-based integration approach can provide the needed leverage to build an agile IT which can withstand the vagaries of the economic ups and downs.

Technorati Tags: IT,Cost cutting,demand management,application harmonization,SOA,Integration,CIO

Time Warner to Spin-off AOL

Time Warner decided to finally spin-off AOL as a separate publically traded company. I’ve been following this transaction for a while now and it feels like both parties missed the opportunity. Some of you may remember couple of years back, a python tried to swallow an alligator in Florida. Both died in the process!

AOL bought Time Warner in 2001 in a $147B deal. Within 2 years, Time Warner took a charge of $100B to account for the diminishing value of AOL. AOL started with approximately 26M dial-up subscribers in US and as of 2008 they had 6.3M subscribers. Probably the business school professors will analyze and teach the rise and fall of an empire in more details. I always felt that AOL management never understood, planned or executed a solid broadband and content strategy. All of us knew that sooner or later people are going to go for the DSL and high-speed internet access. Dial-up access was not going to support the internet driven society which even AOL was marketing heavily. They never had a strategy to supplement their constant subscriber  losses in the dial-up business with broadband or content business.

I also felt that AOL was using the Dial-up subscriber base as a stepping stone to build their content business. The subscriber losses were just a matter of time with the hope that they will be able to build a strong content business to support the growth. Unfortunately, they were not able to execute on it.

AOL has three major parts: the MediaGlow content studio; People Networks, which includes Bebo, as well as AOL’s communications assets like AIM instant-messengering service; and its Platform-A advertising unit. AOL has bought recently Userplane social-media apps unit and its Truveo video search service as well. Some of us may not know that TMZ is a joint venture of Telepictures Productions and AOL. Going forward, if AOL has any hopes for revival or survival then it has to find a niche for all these services. All these services individually compete with some of the well know brands. It also has to figure out the monetization and compete with other providers in this space including Google, Yahoo, and Microsoft among others.   They now have a good leader in Tim Armstrong and hopefully he can figure all this out and build a path forward for the company.

So what is in it for Time Warner apart from getting rid of a big drag on its stock prices. Some of their businesses including Film and TV will continue to do fine but I’m not sure about the magazine publishing business. They may consider to spin off Time Inc as well at some point of time to consolidate on their Film and TV business.

Another perspective on IT Cost Take out

Reducing the IT cost was on top of the agenda for most of the CIOs even before the current economic melt down. So no one is really surprised with the renewed interest in finding innovative ways to reduce or manage the cost of the IT.

Traditionally IT is always perceived as a cost center and this contributes to the way we try to manage the  cost. This is essentially one sided approach which takes into account the cost but not the value. The dialogue about the IT cost should start with the IT value first. The services and innovation from IT are mostly taken for granted and most of the organization often focus on the cost of the IT. The cost of the IT can only be put in the perspective if we can also quantify the value created by the IT. This will make the choices very clear – reduced IT cost will mean reduced IT value, if I can simplify the equation. However, this equation is not clear and that to some extent complicate the problem.  IT organizations should first do this exercise and complete a value analysis. There are several benchmark data defined in terms of IT spend as %age of revenue for various industries. IT spend may range anywhere for 2% to 20% depending on the industry but essentially it is a factor of revenue and not factor of the value produced  by IT. One can make an argument that value finally contributes to the revenue but I would like to see how much revenue both top line and bottom line will be impacted by controlling the IT spend.

Benchmarks more often generate debate and sometimes turns out as a target given to CIOs – if my competitor can run their IT organization at 5% of the revenue then why am I running at 10%? This type of discussion and dialogue is very understandable. It is a good starting point for introspection  and analysis. However, this approach is too simplistic. This needs to be analyzed in the overall context of the entire business and not just the IT. IT cost may be higher due to the problem somewhere else in the organization. There may be difference in the business processes. Higher IT cost may be offsetting some other cost.

So I would like to  make a case for analyzing and documenting the business value for IT first and then focus on managing the cost. This will give a clear starting point.

This is an interesting topic. More to continue…