Craig Moffett is accustomed to playing the role of Mr. Bringdown for AT&T and Verizon – and he apparently has no plans to abandon that role any time soon, as a report released this week reveals. Moffett, who recently started his own financial research firm, has a reputation for analyzing companies’ operational data in great detail, yielding fresh insight on entire industries – chiefly telecom and cable. And his new research, co-authored with Nick Del Deo and titled “After the Smartphone” is no exception.
Moffett and Del Deo’s key point is that wireless industry growth rates have slowed sharply as smartphone adoption reaches a saturation level and that potential new growth areas are not large enough to replace the “ebbing smartphone growth engine.”
The authors then spend the next 100+ pages debunking nearly every attempt the Big Two telcos have made recently at putting a positive spin on their wireless businesses.
Those shared pricing plans the carriers put together with the goal of making tablet data plans more palatable? According to Moffett and Del Deo’s analysis, a customer with three devices who previously would have been hit with an overage charge on at least one device every four months will now incur such a charge only once every seven years, cutting into carrier revenues considerably.
Those wireless landline replacement offerings that a number of carriers have launched? They are included in AT&T and Verizon’s post-paid subscriber totals, perhaps exaggerating how good those totals look, the authors argue.
New revenue opportunities in the Internet of things? The authors are skeptical about the revenue potential for wireless carriers from connected cars, home security systems and mobile payments.
The authors also note that carriers already have increased the amount of time between device upgrades and will now start looking at lowering their device subsidies. But now that T-Mobile’s Un-carrier strategy is working and Sprint is set to get cash infusion from its new owner Softbank, the wireless market is increasingly competitive, the authors note. And that means reducing device subsidies could be difficult.
Meanwhile, in resolving the Bill Shock issue, carriers like AT&T and Verizon put themselves at a competitive disadvantage against T-Mobile and its unlimited data plan, Moffett and Del Deo argue. To settle the Bill Shock issue, carriers with monthly data allotments agreed to send text messages when customers approach their allotment. The upshot, according to the authors, is that “each and every time a smartphone chirps . . . with a new ‘data alert’ message, a very different message is reinforced: wouldn’t you be better off with my competitor’s unlimited data plan?”
Other things to think about
While it’s difficult to dispute many of Moffett and Deo’s arguments, I do have to quibble with them on a couple of issues.
First, they see the trend toward Wi-Fi offload as a substantial threat to carrier revenues.
I’ve no doubt the Wi-Fi offload trend will accelerate and that it will have a dampening effect on revenues to some extent. But the authors don’t talk about opportunities the carriers are exploring to monetize Wi-Fi offload – a topic I wrote about earlier this year. While such opportunities aren’t a panacea, I think they have the potential to mitigate the impact of Wi-Fi offload on carrier revenues.
Second, the authors are unenthusiastic about the idea of carriers generating revenues by giving third parties such as content providers the ability to pay for wireless data delivery. The idea would be to make the third-party offerings more attractive to consumers because using those offerings wouldn’t eat into customers’ data allotment.
The authors argue that the carriers have a strong argument that such offerings would not violate Net Neutrality rules. But they argue that “the concept of Net Neutrality was never really about prioritization and the preservation of freedom of speech so much as it was about the economics of who pays what to whom: Net Neutrality, at its core, is about preserving the free-rider model for Internet companies, at least in the access portion of the network .” Accordingly Moffett and Del Deo expect a “bitter struggle” over the idea of third parties paying for airtime.
I’m not disputing that analysis. But what I do question relates to a previous analysis that the authors did about the cable industry which, in general, they view more positively.
The authors argued in that analysis, issued several weeks ago, that cable companies would need to begin imposing broadband caps to retain their profit levels. If the cable companies do that, though, they will face some of the same Net Neutrality issues as the telcos – and for the same reasons, the authors argued.
Despite those concerns, Moffett Research continues to view the cable industry more optimistically than they do carriers like Verizon and AT&T. That suggests to me that either the firm’s analysis of the cablecos may be overly optimistic – or that its analysis of the telcos may be overly harsh.
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