CTO of HP’s Gaming business talks about the wireless mobile industry

For the folks who think that whenever I blabber about telcos losing their competitive business model I am going senile, it seems I am not the only one.

Many industry experts and visionaries are viewing it in the same light.

Here is an article on a very forthcoming CTO of HP who runs his very informative blog here.

Rahul Sood:

Here’s a tough problem with multiple answers.

I’m trying to explore different wireless business models.

The wireless business has been shifting in a big way. People are using less voice, therefore less minutes are being charged to them. Users are starting to shift their usage to more data. Up until recently the data plans were unlimited so while the number of users might be increasing, the overall ARPU (average revenue per user) is dropping. In Asia and Europe texting is huge, voice simply isn’t.

So one can assume the following chain of events is true: LESS ARPU -> LESS PROFIT -> LESS INVESTMENT IN NEW TECHNOLOGY -> LESS COMPETITION -> CRAP SERVICE. I whipped this flow together in 30 seconds, please feel free to rip it apart.

Now there are ways carriers can lean out cut costs and increase margins, but this type of thing can only go on so long before they need to grow their business again. They cannot keep cutting at the cost of innovation, this happens in multiple industries, the wireless industry is no different.

I remember back in the day when a small cell phone company would make a sale, they received residual payments off of every activation they sold. Now there is no such model, the margins are just too tight, the competition is fierce, and the market is pretty much saturated.

Today Google and Verizon came up with some interesting "ideas" regarding Net Neutrality, specifically in the wireless space. The problem I see is if such ideas were to become reality we would likely see the same push in the fixed broadband space because cable providers are facing similar issues. More people are using the internet, less people watching TV, therefore they only need data, and so forth.

So how much should the consumer pay for a wireless phone plan? What should be included in that plan? If you were the CEO of a small carrier how would you adapt your business in the face of this challenging environment?

The obvious answer to many consumers is "who cares if the carriers make money…" — but this is why companies like Verizon and Google are getting together to chat.

I certainly have gathered great ideas and I’m putting them together. I think we have something unique we can offer the market, but aside from that the carriers do face big challenges – and as partners I believe it’s good to help them overcome such challenges. Thoughts?

Eric J Shoemaker:

I believe that there is no need to pay for talk anymore. Wireless carriers should just give away minute, even internationally. I say this is because if I so choose, I can just talk through my unlimited Data. This is the same with cable… I would rather have faster internet and be able to watch the shows I want through the internet. When I want. Carriers/Cable companies keep fighting this instead of embracing the ability to give the consumer what they want. My advice: Just embrace it, come up with a competitive pricing scale and their you have it problem is solved. I think that a pay for use/without overages is a great idea.

Kal El:

There are two types of users, which translates into 2 price points:

1. Consumer: willing to pay ~$45-$55 for lower Data w/ higher usage of Voice.
2. Prosumer: willing to pay ~$100 for unlimited data/voice.

Sprint is charging $10 in addition for 4G. This is definitely based on a higher profit margin then the 3G plans in effect.
As companies face these cut throat times, they will make the Most profit based on equipment and insurance. But they still will make money on the plans.
They might not make what they did a few years ago, but a profit is a profit.
Companies will need to keep customer satisfaction high in-order to retain and get new customers. (Sprint has shown this last QTR)
It is cut-throat, but competition will help the consumer wallets, and keep the companies sharp.

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Kyith

Kyith is the Owner and Sole Writer behind Investment Moats. Readers tune in to Investment Moats to learn and build stronger, firmer wealth foundations, how to have a Passive investment strategy, know more about investing in REITs and the nuts and bolts of Active Investing.

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Kyith worked as an IT operations engineer from 2004 to 2019. Currently, he works as a Senior Solutions Specialist in Insurance Start-up Havend. All opinions on Investment Moats are his own and does not represent the views of Providend.

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