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.