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July 2008

Thought Leadership for the Wireless Industry
In This Issue
New Phase in "Battle for the Home"
How Will Wireless Be Affected by the Economic Downturn?
Announcing the New England Mobile Summit

New England Mobile Summit
October 21, Boston
Conference organizer and chair

Mobile Internet World
Oct. 22-23, Boston
Advisor and Speaker

Wireless Influencers 2008
Oct 26-28, Laguna Niguel, CA

CTIA Wireless IT & Entertainment
Sept. 10-12, San Francisco

Presentation to VC Community (private)
June 12, Palo Alto

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This "battle for the home" is entering a new phase, driven by new technologies, a shifting competitive landscape, and a tough economy that will cause consumers to take a holistic view of their communications spend.  As a companion piece, please see my July Fierce column, on how wireless will be affected by the economic downturn.

I am also pleased to announce an event I am organizing and chairing, The New England Mobile Summit:  a provocative discussion about how New England can advance as one of the world's wireless epicenters, featuring the region's senior-most thought leaders and innovative companies.   It will be held on October 21 in Boston as part of the Yankee Group's Mobile Internet World.  Contact me to find out more about participation and sponsorship opportunities. 

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Next Phase in "Battle for the Home"
The first phase of "the battle for the home" saw second lines displaced by wireless and broadband, incursion by cable into the primary home line market, and the growth of wireless "family share" lines that are now in more than 40 million U.S. households.  A typical "connected" household spends approximately $250 per month today on communications if you include a typical cable plan, broadband, two wireless lines, and one fixed line. The percentage of households that have "cut the cord" stands at 10-15% today, depending on whose study you read. 

But there are two new realities.  First, even with all the "displacement", overall household communication spending has been growing.  In a tough economy, we cannot count on that continuing.  Second, as core wireless penetration matures, "wireless" growth will come from taking a larger share of household communication spend (data can't be the growth driver forever!).  So the "battle for the home" is entering a new phase. 

A mobile phone and a broadband connection are the two "necessities" of communications today.  Everything else is various degrees of "nice to have".  In this economic cycle, I think consumers are going to take a more holistic look at their household communication spend, plot it against rising prices for just about everything in their lives, and factor in the dizzying array of digital temptations - wireless data apps, DVR, console gaming, pay-per-view content, and so on that are competing for a shrinking amount of disposable income.  I think an increasing number of households will determine that the traditional fixed line is an underutilized "luxury".

The competitive landscape is starting to shift and the "household share" market is being attacked on numerous fronts, mainly by "pure play" wireless providers.  Upstart wireless companies such as Metro PCS, who initially targeted the landline market with unlimited local wireless service, are now taking on the "family plans" of the major wireless carriers and overall household share:  four lines of unlimited local, LD, and text cost $100 per month.  T-Mobile's $10 per month @Home service, which leverages WiFi-equipped cell phones and the home broadband network, is now being marketed nationwide.  Sprint just introduced the first commercial Femto cell service in the United States, called AIRAVE.  The unit acts like a home base station, and serves the dual purpose of improving coverage and allowing unlimited local and LD service for up to three lines for $15 per month when in range of the base station.  AT&T said at a conference last week that they ordered seven million Femto units, and Verizon has announced plans to test Femtos - even though both are somewhat conflicted by the concept.

There are also VoIP offerings, using either 3G cellular networks or Wi-Fi, that don't require a separate operator "subscription".  TruePhone and Fring are two examples, available in the iPhone App store and for other devices as well.  So far, VoIP on cellular has mainly been used in high tariff markets and for international calling.  The quality and reliability of these services will improve over time, and will become more mainstream offerings on "open" devices such as the Google phone and for use over data-centric networks such as Sprint's WiMax service.  In the past, operators were loath to support VoIP.  Now, if subscribers are doing it through a $20-30 data plan they might more prepared to allow it. 

How Will This Settle Out Strategically?

At the highest level, we are seeing an erosion of the distinction between voice and data networks, and between fixed and wireless networks.   Not every participant in the service provider value chain will look at the "home" in the same way.   A pure play wireless provider wants to increase its share of "total minutes" and perhaps start displacing home broadband with wireless.  A telco such as AT&T must balance wireless growth with access line loss; and cable companies use phone (and eventually wireless) service as a Trojan Horse to grab an increased share of household spend.

This new front in the "battle for the home" will, in my view, result in some important changes to the way services are offered and priced.  Some likely scenarios include:

  • Combining wireless and wireline minutes/lines.  This would be the obvious strategy for the AT&Ts and Verizons of the world, and each has taken the occasional tentative stab at the concept.  The distinction between landline and wireless is disappearing.  Telcos want to increase their share of household lines/minutes, and also reduce churn of (especially) fixed lines to competitors or what I call "alternative options".    
  • Integrating fixed and wireless broadband offerings.  This is an obvious one that I am surprised has not been more aggressively pursued.  Verizon and AT&T should offer a discounted "bolt on" of their 3G mobile broadband service to any of their home broadband customers, say for $30 per month.  AT&T should be crying every time one of their DSL subscribers is using Verizon's BroadbandAccess service for mobility.
  • Battle of the "Triple Play".  We have been in a comfortable zone with "triple play" services:  TV, Internet, Phone for circa $99-129/month.  Better landline displacement options from wireless might cause some customers to think about unbundling these services.  Plus, we are overdue for some price competition in cable and residential broadband, which could break up the triple play duopoly.  We could also see options for adding on service to Triple Play services, such as wireless voice or mobile broadband.  
Customers will look more closely at their total phone/wireless/broadband/cable spend, and will start rationalizing in this era of economic challenge.  This will force the telcos to be much more creative, such as offering a "total voice" package to the household - unlimited minutes across wireless and wireline, for circa $100-150/month, plus some creative solutions for service and feature integration (such as voice mail) across both networks.  Then add a combo fixed/mobile broadband package for $50/60-ish.  Sprint might have trademarked "Simply Everything", but what about the "Kitchen Sink" plan? 

As some of the above scenarios develop over the next couple of years, we will also need to start thinking differently about how to "count" or measure who has what.  "Access lines" and "subscriber penetration" will become outmoded terms.   We could measure total "lines", "subscriptions", or "share of voice communication minutes".  We should also adopt some new ways of looking holistically across a household - for example at "household ARPU".  Conversely, we could take this down to the individual subscriber's total comms spend, and measure it by operator. 

All this is good fodder for discussion.  What is near certain is that the framework will change over the next few years. 

How WIll Wireles Be Affected by the Economic Downturn?
So far, the wireless industry has been relatively unaffected by the economic downturn.  But that could change.  Read my July Fierce Wireless column.
New England Mobile Summit
I am organizing and chairing the New England Mobile Summit:  a provocative discussion about how New England can be one of the world's wireless epicenters, featuring the region's senior-most executives, thought leaders, and innovative companies.  The Summit will be held October 21 in Boston, as part of Mobile Internet World

There are limited sponsorship and participation opportunities still available.  Please contact Mark Lowenstein

subscribers receive a $100 discount.  Please use code MIWMS32.