Churn rates have risen consistently in the mobile industry with average customer lifetimes little more than two years now, half their level a decade ago.

Prepaid churn is the main culprit here, driven by promotional SIM activity in developing markets (prepaid churn in Asia-Pacific is almost 100% per annum): operators should focus on pushing out targeted promotions to existing users to build longer-term, more valuable customer relationships.

By contrast, the postpaid market, which accounts for the majority of operator revenues, has seen churn improve, though this has become costly to manage as smartphone subsidies stretch operator resources.

Strategy Analytics Wireless Operator Strategies service examines key questions such as:

What is the average lifetime value of customers by prepaid, postpaid and blended?

How strongly has postpaid churn recovered from its worst at the peak of the recession?

What are the trends in prepaid churn rates in Europe? Asia?

Which operators have been most innovative in addressing churn and the handset subsidy issue?

Client Reading:

https://www.strategyanalytics.com/default.aspx?mod=reportformatsviewer&a0=7252

https://www.strategyanalytics.com/default.aspx?mod=reportabstractviewer&a0=7250

Day one of MWC was dominated by the usual array of sexy devices with ever increasing feature lists and ever diminishing true differentiation. Today, we saw more of the same with some more color on tablets plus Microsoft and Nokia driving down the Windows Phone specs and price points to potentially enable the next 1B smartphone users.

More significant for me today were the reactions and statements of leading operators. Operator alliances to promote TD-LTE as well as branding RCS under the Joyn moniker as well as significant discussions of privacy issues were all front and center in Barcelona today.

Joyn apps for Android are being shown off at MWC, and in the coming months they will be joined by iOS apps and devices with the capabilities built in.

There is clear consumer demand for enriched messaging and voice services, and Rich Communications provides mobile

network operators with solutions to address these consumer needs.

? Anne Bouverot, GSMA

We also see the industry moving forward on privacy guidelines issues today by the GSMA being a much needed initiative given the tsunami of apps and the inevitable rising tide of opportunities for abuse.

Further evidence of operators and service providers looking to partner to grow the entire mobility pie can be found in the m-payments arena where Vodafone was top of mind with planned global offering partnering with Visa for NFC.

The operator keynote panel which included China Mobile CEO Li Yue, Vodafone CEO Vittorio Colao, and Ralph de la Vega, CEO of AT&T's mobile business as well as Franco Bernabe, CEO of Telecom Italia painted a picture of an industry with significant challenges in declining arpu, escalating investment costs, growing competition from OTT players and of course those pesky regulators.

On December19^th. AT&T - discouraged by massive DoJ and FCC opposition - ended its bid to add capacity with the acquisition of T-Mobile USA. This leaves AT&T hunting for alternative ways to acquire sufficient spectrum, even though it was finally able to complete the purchase of Qualcomm’s 700MHz Spectrum on December 27^th.

But where does this leave T-Mobile USA?

On December 20^th. Deutsche Telekom (DT) CEO Rene Obermann speaking to his own corporate blogger suggested that T-Mobile USA would need to move to LTE technology eventually; and would also require additional spectrum. He made clear however, that the $3 Billion cash settlement from AT&T would be used initially to reduce DT corporate debt not to further enhance T-Mobile USA’s network that was just upgraded in 2011 to dual carrier HSPA+ and is currently providing sufficient capacity for current customers.

Rumors of T-Mobile USA’s difficulties are exaggerated…

As of end of third quarter of 2011 T-Mobile USA served 33.7 million customers only slightly down from 33.8 million at the end of third quarter 2010. 10.1 million of those customers are now using 3G/4G smartphones up 40% from a year earlier. OIBDA margin was 31% in the third quarter of 2011, up from 28% in the third quarter of 2010 due largely to lower losses from equipment subsidies that were reduced by the launch of T-Mobile’s unlimited Value plans. These Value plans allow customers to subscribe to new services without an upfront payment for a bundled handset. These plans have reduced ‘costs per gross add’ and lowered the cost of subscriber retention.

Overall, T-Mobile USA had a slim but maintainable third quarter net income of $332 million on service revenues of $4.67 billion.

This year therefore, T-Mobile survived disruptions to its retail channels including the discontinued retail partnership with Radio Shack; handled the uncertainty of the AT&T acquisition; and held Contract Customer churn down to 2.4%, although Prepaid churn jumped to 7.2% from 6.6% between the second and third quarters.

T-Mobile is maintaining its customer base and making money.

Challenge is Migration to LTE

The challenge for T-Mobile USA is to fund future growth to compete with the three other large players in the US market – AT&T, Verizon and Sprint - as well as ‘no contract’ low cost prepaid regional operators - Leap Wireless, MetroPCS and US Cellular - all of whom are migrating to LTE.

In November T-Mobile announced that its nationwide ‘4G’ (HSPA+ at 21Mbps) network now covered 208 markets across the US reaching more than 200 million POPs.

But how will T-Mobile migrate this network and its GSM PCS customers to LTE without AT&T?

Possible Migration Path to LTE

We have reported that migration to at least a Hybrid HSPA+/LTE network is key to long term profitability. TMoNews the unofficial blog of T-Mobile USA recently described a possible low cost path for T-Mobile’s LTE migration. See: ‘Editorial: Why T-Mobile Should And Will Deploy LTE (The Technical Edition)’

“At this point in time, T-Mobile is just now refarming PCS spectrum. In a majority of the markets where T-Mobile has both PCS and AWS spectrum with no AWS used, it is quite likely that they will deploy HSPA+ only on PCS because most of the remaining markets only have 10MHz of AWS and 30MHz or more of PCS. AWS will likely be reserved for LTE in these areas.”

“In areas where they’ve got plenty of AWS spectrum and they’re using it for HSPA+, they’ll dedicate about 10MHz of PCS to GSM and 10MHz to HSPA+. If they have 20MHz of PCS or less in a market with lots of AWS, there will be no deployment of HSPA+ on the band, but there will be scaling back of GSM to 10MHz to prepare for LTE. T-Mobile will deploy LTE.”

 “T-Mobile USA has been preparing for LTE on their core network and backend infrastructure for over two years now. … T-Mobile USA has deployed all the necessary components to run IMS on their core network and (has) made a new Wi-Fi Calling solution that uses it. As far as we know, they are the first in the world to commercially deploy IMS for voice, SMS, MMS, and other circuit-switched services. It would be trivial for T-Mobile to change the client software to make it run over LTE or HSPA+. By preparing all the core network and backend infrastructure for LTE this far ahead, their nationwide LTE deployment costs will much lower.” 

Financing the Path to LTE

The key question is whether T-Mobile USA can finance this migration without bringing in new investors. Even if the migration could be done for as little as $6 Billion, additional spectrum will eventually be needed. DT is unlikely to provide that and is being very cautious because of concerns about European market growth and the financial risk of its 40% share of Greek telecom group OTE. DT is also planning to expand in several areas of its European business rather than in the US. 

Nor is DISH Network, who has offered to Partner With T-Mobile likely to be able to finance a T-Mobile upgrade as it focuses on its own rollout.

Meanwhile T-Mobile USA is pursuing business as usual adding ‘no contract’ plans to keep prepaid customers; and offering aggressively priced deals for the Holidays.

And Oh Yes - directly targeting AT&T and iphone4 in its Ads with its attractive T-Mobile girl – Carly Foulkes

Skype today launched Video for iPhone, iPod Touch and iPads. This new version of the Skype service application software lets users make and receive video calls from iPhones, iPod touch and iPads, with instant messaging for other Skype users, over both Wi-Fi and AT&T's 3G network.

Was it a test for this iPhone video application that brought down Skype's Video Network Last week? The story going around last week was that a new release for Apple software - possibly the Skype iPhone Video application announced today - had a problem and triggered the Skype server failure when installed first on one and then several Skype 'supernodes'.

But don't blame the Apple software application.

Skype's supernodes act as both offline message (IM/SMS) relays and as Skype's Chief Information Officer noted yesterday "a directory, supporting other Skype clients, helping to establish connections between them and creating local clusters typically of several hundred peer nodes per each supernode."

The initial crashes brought down 25% to 30% of the Skype supernode servers - just before the normal daily peak. This in turn led to traffic overload that created extensive delays in the support servers responsible for offline instant messaging. This resulted in long response delays to some to Skype Windows clients and 20% of these had an old software bug that then caused them to crash.

The official Skype story was released yesterday by Lars Rabbe, Skype's Chief Information Officer, who describes the "snowball" effect that blocked most Skype users for 24 hours on 22^nd.- 23^rd. December 2010.

"50% of all Skype users globally were running (an older) 5.0.0.152 version of Skype for Windows, and the supernode crashes caused approximately 40% of those clients to fail. These ... included 25–30% of the publicly available 'supernodes', (that) also failed as a result of this problem."

"The failure of 25–30% of supernodes in the P2P network resulted in .. massively increased... load as (supernodes) reconnected to the peer-to-peer cloud... just before our usual daily peak-hour (1000 PST/1800 GMT)". As users tried to reconnect to the system, they generated "traffic to the supernodes that was about 100 times what would normally be expected at that time of day" and overwhelmed the remaining supernodes bringing the whole system to a standstill.

It is interesting that some sources focus blame on Microsoft, not just Skype's network, servers and software, but maybe the problem is more profound.

P2P Server Architecture.

Serious questions need to be asked about a network service architecture that allows:

• Application software to crash what should be 'carrier class' servers performing network functions
• P2P software that causes both network and user device based clients to crash as a result of network overload problems
• Network server problems that spread automatically across a large number of supernodes

Network servers need to be especially resilient and intelligent in how they 'fail-over' in a distributed networking environment; but a robust Service Architecture is always a pre-requisite.

Let other P2P and 'Cloud' service providers beware.

On a positive note Skype brought in massive extra capacity to stabilize the network and was also able to restore Group Video Calling functionality in time for Christmas.

Software Release Deployment

Lars Rabbe also committed to review Skype's "testing processes to determine better ways of detecting and avoiding bugs which could affect the system.". Hopefully this promise includes:

• 'Old fashioned' regression testing of all old versions of client software
• Large scale network testing that does not impact live users - especially at peak traffic times!

These are rules that traditional service providers have followed for decades. Perhaps a little more respect for the "old fashioned" network operators and their software release processes is warranted.

At CTIA in San Francisco last week, away from the fanfare around LTE rollouts and the next dozen tablet devices (ok, I exaggerate a little), Sprint had an announcement which will have significantly higher impact on mobile broadband adoption and revenues: Sprint ID. 

Sprint ID promises to up the ante on personalization and ease current feature phone users into the smart phone ranks.

Sprint ID offers instant personalization along key themes/packs where the operator has done the heavy lifting of identifying and group related applications of interest to different persona from wallpaper to ringtones to apps. While the one click marketing line is not quite matched by reality given pesky little things like accepting terms and conditions etc, Sprint ID is a significant breakthrough in my opinion as:

• it broadens the market appeal of Smart phones to current feature phones users with a simple to understand offer in a range of device price points including the critical $49 and $99 levels.
• it tackles one of the biggest weakness of all app stores: discoverability of content and simple personalization.

Three handsets were featured at launch of Sprint ID: Sanyo Zio™, Samsung Transform™, LG Optimus S™. These three devices cover key price points in the Sprint portfolio and provide customers with a range of form factors, industrial design and brand to meet their tastes. Interesting to note that both LG and Sanyo retain the right to put their own packs on their handsets as well. This is a big win for LG as its Optimus S™ will be available for under $50 with contract giving the vendor a much needed boost in the smartphone space. Samsung meanwhile continues to shine at Sprint occupying the lucrative $149 spot with its Transform™. All three devices of course require a Sprint Everything Data plan.

However, for me the more significant impact is that operators and oems are finally realizing that customers don’t buy phones or services or apps… what they really want are positive experiences

… be that socially connected, sports, education, health and fitness, fashion etc. This is something that our User Experience team has been evangelizing for the last 7+ years. Whether its 80k apps on Android or 250k on Apple store or 10K on RIM, one common experience has been exasperation at the huge waste of time, energy and emotions in finding ANYTHING!!! Which happens first, eyes glazing over or fingers cramping with so much scrolling? Either way the net result is often a disappointing experience which the early smart phone coolaid drinkers have learned to live with.

Newbies to the smart phone arena, will certainly have less tolerance and spend less time to personalize their device and enable applications. Sprint ID is well tailored to the next wave who are taking tentative steps into the smart phone space

David Kerr

dkerr@strategyanalytics.com

September 23, 2010

While there has understandably been a lot of attention given to consumer apps post iPhone and the plethora of application stores that have emerged, business mobility and enterprise mobility offer huge potential from horizontal to vertical applications and from smartphones to iPads and tablets to superphones.

In both NA and W. Europe, business customers account for under 30% of users but are the dominant streams of both revenue and profits for operators. On the device side, premium priced models from RIM, Nokia, and Microsoft Mobile licensees as well as the iPhone have long been key drivers of profits in a market where low single digit margins are the norm.  The explosion of smartphone choices has led to the battle ground moving beyond the corner office, to other executive and now increasingly the midlevel manager.

With a new range of devices competing for space in the corporate market, the issue of corporate versus individual liable has become an increasing priority for IT decision makers. Add on the complexity of managing an expanding list of OS (Android, iPhone, Windows Mobile, Symbian, Palm, MeeGo, Bada from Samsung) and the growing importance of mobile portable devices with access behind the firewall and one can already feel a corporate migraine forming…. And that’s before we even discuss device management, mobility policy, device retirement etc. etc.

I am looking forward to CTIA Fall (San Francisco October 5-7) and in particular to the Enterprise Mobility Boot Camp moderated by Philippe Winthrop of the Enterprise Mobility Foundation. The boot camp spread over two days will address many of the issue listed above with our own Andy Brown featured in an analyst roundtable on October 6^th.  I look forward to meeting you there. Don’t hesitate to contact Philippe for passes to this the deep dive enterprise mobility event.

David Kerr

David Kerr
Snr. VP - Global Wireless Practice
Tel: +1 617 614 0720
Mob: +1 262 271 8974

The inevitable movement to tiered pricing which started with Verizon Wireless acknowledging its plans to do so for LTE and has been accelerated with the much anticipated data plan announcement by AT&T this week.  So, what next?

• Will we see significant priced based competition for mobile data among the top US operators?
• Will we see significant movement in share of adds for AT&T as iPhone wannabees are tempted by a plan of only $15?
• What impact will lower data plans for smartphones have on AT&T’s Quick Messaging Devices and Verizon Wireless equivalent?
• How long before we see family data plans and shared usage across multiple devices?

The move by AT&T is a smart play to extend the smartphone momentum as the low hanging fruit of Apple aficionados, multimedia techies and style seekers willing to pay top dollar has been significantly penetrated.

There is no doubt that the iPhone remains the coolest device on the marketplace and the end to end user experience remains easily the best in class. So, reducing the TCO to attract the next 20% of customers to a paid data plans while educating customers about data usage levels and managing the traffic risk is very smart business in my opinion.

The lower price points will help AT&T maintain its current leading share of smartphone users and may be attractive to casual social networkers

• Although the 50 photos allowance is not exactly generous! For casual messenger, and social network status checking and moderate email the new DataPlus plan is quite attractive overall and will likely attract a portion of customers who would otherwise opt for a Quick Messaging Device from AT&T or a competitive offering from Verizon Wireless.

I do expect to see some modest price competition among the big operators

• with T-Mobile most likely to drive prices lower given their need for scale and to protect their predominantly youth centric customer base. but also expect an increasingly strong Verizon Wireless handset line up to compete strongly.

The impact on Quick Messaging Devices is in my opinion likely to be modest

• as a traditional qwerty remains overwhelmingly the input of choice for heavy messengers in the US although there is definitely room for lowering the $10 mandatory data plan on featurephones

Family data plans and data plans which allow access across multiple devices are in the pipeline

• but will probably not make an appearance until 2012+ as part of LTE offerings.

From a device vendor perspective, the move to lower priced iPhone plans is likely to put further pressure on vendors like LG who have yet to make a credible offer in this space as well as RIM who will find more competition in the consumer space.

The lower pricing on data plans will be music to the ears of ambitious new entrants like Huawei, ZTE who plan to bring mass market priced devices to the US & Europe. The lower TCO of smartphones as a result of downward pressure on service prices boost their addressable market.

May you live in interesting times as the old Chinese proverb goes. Well in the information, communication and entertainment industry we certainly do. Some very interesting questions face our industry whether we look at:

• the outcome of much delayed Indian 3G auction or
• the battlegrounds around HSPA+ and LTE or
• the surging Android ecosystem vs. weakening Symbian or
• the upside potential for WebOS under it new owners
• the potential disruption caused by mobile cloud phones and device

Every major technology advancement has lead to a massive disruption in the handset and infrastructure vendor community.

• In 3G, Motorola’s slim myopia led to its near ruin and has provided huge growth for Samsung and a foothold in international markets for LG and SEMC.
• On the infrastructure side 3G was expertly grasped by Huawei and ZTE leading to a new wave of M & A and a new world order which counts Nortel as a victim and seriously challenges ALU.

So how will the migration to 4G change the playing field?

• Who will benefit most on the operator/service provider side?
• Will Cloud Phones be disruptive in LTE?
• Will operators find a path to realign the traffic/revenue mix with mobile broadband devices?

I would welcome your thoughts on these key questions. Also don’t forget to join our client webinar on Thursday May 27.

David