+ Wireless Telecommunications Providers Meghan Brown, Kathryn Buchan, Nicole Grover, Elizabeth Reamer

+

Wireless Telecommunications Providers

Meghan Brown, Kathryn Buchan, Nicole Grover, Elizabeth Reamer

+Table of Contents

Industry Structure Industry Background Barriers to Entry

Advertising Strategies Primary Advertising Strategies Top 3 Company Profiles

Data Analysis Advertising Intensity Analyzing Advertising Patterns Prisoner’s Dilemma Case Study

Analysis and Recommendations

+Industry Evolution

Motorola “brick” phone sold for $3,995 in 1983

+

By the end of 2012 the number of mobile connected devices will exceed the number of people on earth

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

0

50

100

150

200

250

300

350

400

Number of Wireless Subscribers in US

Year

Wir

ele

ss S

ubscri

bers

(M

illions)

+Industry Products

Total Industry Revenue (2011): $195.8Billion

Equipment, 10.0%

Data, 30.0%

Voice, 60.0%

Industry Revenue

+Industry Competition

~1600 companies

Highly Concentrated HHI = 2714 CR4 = 94.7%

36.5%

32.1%

15.4%

10.7%5.3%

Market Share

Verizon WirelessAT&T Inc.Sprint Nextel Corp.Deutsche Telecom AG (T-Mobile)Other

+Table of Contents





+Barriers to Entry

High and Increasing High cost of Spectrum Licenses High cost of network infrastructure Market nearing saturation

96% of US population currently subscribes to cell phone services

+How do these issues affect current players?

+

Firms have attempted to lower the cost of spectrum licenses and infrastructure through consolidation In 2011, AT&T made an

attempt to acquire T-Mobile

FCC ruled NO. Consolidation in the industry has reached its limit

http://hothardware.com/newsimages/Item16626/Wireless_Carriers.jpg

+

Firms are seeking new ways to limit costs employment outsourcing

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

0

50

100

150

200

250

Employment

Year

Industr

y E

mplo

yees (

T-

housands)

+Customer churn

Churn rate- # of customers an industry player loses over a given period of time

Most user surveys rate quality issues as primary reason for changing carriers

Most firms have an average monthly churn rate of 1.5%-3.5%

This indicates high level of competition in industry

+Open Access Requirements

Any Phone, Any Service Decrease Provider

Differentiation Decrease Subscriber Loyalty Increase Subscriber Churn

http://rmc.library.cornell.edu/ezra/images/ezra2_w.gif

+

Increasing

Consumer churn?

+Table of Contents





+Combative Advertising

Shift consumer preferences, but not expand category demand, in a mature market

Product differentiation creates inelastic demand

Could just be undercutting profits


Comparative advertising – a form of combative advertising


Prisoner’s Dilemma is a possible outcome

Optimal strategy = no one advertises

Dominant strategy = advertise

+Informative Advertising

Differentiate providers on the basis of: The variety of phones

that are compatible with the service

The speed and range of the networks

Data storage capabilities

Payment plans


Reducing consumer search cost may have pro-competitive consequences

In wireless telephone service provider industry: Very concentrated Mature market

Informative advertising instead leads to advertising war


Expanding primary demand?

Signaling high quality rather than increasing competition Only efficient, high quality

firms can afford expensive ad campaigns

+Table of Contents





+

#1 wireless phone operator in terms of sales and subscribers

informative advertising showcase the capabilities of network and devices “It’s not just about putting a device and a price in the

advertising.”

+

“Rethink Possible”

“It’s What You Do With What We Do” ads “showcase how mobility helps power human

ingenuity in creative and entertaining ways”

Lumia 900 released April 8 “At all levels, this is a notch above anything we've

ever done”

first Spanish language commercial aired on April 9th

+

Brand Names: Sprint PCS, Clear, Boost, Virgin Mobile

“All. Together. Now.”

offers unlimited data usage for smartphone users

+Table of Contents





+High Advertising Spending

1. Procter & Gamble

2. AT&T

3. General Motors

4. Verizon Communications

5. Comcast

High market concentration high advertising elasticity

Advertising as barrier to entry

Prisoner’s Dilemma?

Top 5 Advertisers in 2011

+Ad-to-Sales Ratio

Depends on the type of product, advertising elasticity of demand, and the price elasticity of demand:

Industry ad-to-sales ratio is moderately high differentiated products, a low price sensitivity of consumers, and/or a high advertising sensitivity

Mergent Online, 2011

Company Name Total Revenue (Million $) -

2011

Advertising (Million $) –

2011

Ad to Sales Ratio (%) - 2011

Verizon Communications

110,875 2,523 2.3

AT&T Inc. 126,723 2,359 1.9

Sprint Nextel Corp.

33,679 1,400 4.2

Industry Average 39,111 1,135 2.9

+Ad-to-Sales Ratio

Industry Name

Ad/Sales Ratio % 2011

Wireless Providers

2.9

Grocery Stores 0.8

Beverages 5.1

Commercial Banks

0.4

Hotels 1

Motocyclces 1.6

Fairly high ad/sales ratio for wireless telephone service providers compared to other industries

http://www.seattletimescompany.com/advertise/adtosales.htm



+Number of TV Ads Aired

Sprint Nextel’s ad/sales ratio is the largest, yet comparatively small number of ads

Incredibly concentrated industry

2011 Data from Prof. Liaukonyte

+Table of Contents





+Analyzing Advertising Patterns – Day Part AT&T

1. Prime

2. Late Fringe

3. Afternoon Daytime 2

Sprint

1. Prime

2. Overnight

3. Late Fringe

Verizon

1. Prime

2. Overnight

3. Late Fringe

The day part in which you choose to advertise corresponds with how many people see your advertisement which is related to how much you will pay for that time slot.

+Why does Day Part Matter?

Three Reasons

1. Competitive Industry

2. Similar Services

3. Similar Target Market

+Analyzing Advertising Patterns – TV Programs

AT&T

1. Slice of Life

2. Feature Film

3. Situation Comedy

Docum

enta

ry

Dram

a/Adv

entu

re

Feat

ure

Film

Game

Show

Loca

l Spo

rts S

how

Inst

ruct

ion/

Advice

News Doc

umen

tary

Loca

l New

s

Networ

k New

s

Susp

ense

/Mys

tery

Situ

atio

n Com

edy

Slice-

of-L

ife

Soap

Ope

ra

Spor

ts M

agaz

ine

Spor

tsca

stTa

lk

Varie

ty-G

ener

al0

5000

10000

15000

20000

25000

AT&T: Number of Ads Aired by Program Type

Program Type

Num

ber

of

Ads


Sprint

1. Slice of Life

2. Feature Film

3. Sportscast

Docum

enta

ry

Dram

a/Adv

entu

re

Feat

ure

Film

Game

Show

Loca

l Spo

rts S

how

Inst

ruct

ion/

Advice

News Doc

umen

tary

Loca

l New

s

Networ

k New

s

Susp

ense

/Mys

tery

Situ

atio

n Com

edy

Slice-

of-L

ife

Soap

Ope

ra

Spor

ts M

agaz

ine

Spor

tsca

stTa

lk

Varie

ty-G

ener

al0

1000

2000

3000

4000

5000

6000

7000

Sprint Nextel: Number of Ads Aired by Program Type

Program Type

Num

ber

of

Ads


Verizon:

1. Slice of Life

2. Feature Film

3. Sportscast

Docum

enta

ry

Dram

a/Adv

entu

re

Feat

ure

Film

Game

Show

Loca

l Spo

rts S

how

Inst

ruct

ion/

Advice

News Doc

umen

tary

Loca

l New

s

Networ

k New

s

Susp

ense

/Mys

tery

Situ

atio

n Com

edy

Slice-

of-L

ife

Soap

Ope

ra

Spor

ts M

agaz

ine

Spor

tsca

stTa

lk

Varie

ty -

Gener

al0

2000

4000

6000

8000

10000

12000

14000

Verizon: Number of Ads Aired by Program Type

Program Type

Num

ber

of

Ads

+Why does Program Type Matter?

Consider the conditions that allow for combative advertising.

We see that the only way to differentiate from competition is to advertise.

Prisoner’s Dilemma ensues.

+Table of Contents





+Prisoner’s Dilemma Case Study:

Sprint is attempting to engage AT&T and Verizon in prisoner’s dilemma advertising.

Why? Beneficial if you can get others to play.

Truly Unlimited campaign.

+Advertising Patterns 2011

Janu

ary

Febu

ary

March

April

MayJu

ne July

Augus

t

Sept

embe

r

Octbo

ber

Novem

ber

Decem

ber

0

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4000

6000

8000

10000

12000

14000

Number of Television Ads By Month - 2011

AT&TSprintVerizon

Month

Num

ber

of

Ads

+Will it Work?

Maybe, but combative advertising making false claims is heavily monitored by the NAD.

Is Sprint’s Truly Unlimited Ad enough to get you to switch wireless providers?

+NAD as a Deterrent to Prisoner’s Dilemma

Since 2008 there have been 9 cases brought before the NAD that involve AT&T, Sprint and Verizon.

3 of which were Verizon challenging Sprint over its claim as “America’s most dependable 3G Network.”

+Table of Contents





+Analyst Recommendations – Verizon (VZ)

+Current Analyst Recommendations (VZ)

Verizon (VZ) holds the #1 market share (36.5% of wireless market).

Current stock price as of April 16, 2012 is $37.30.

Overweight = Buy Investors believe

Verizon will outperform other stocks.

Feasible since they hold #1 market share over AT&T by about 4%.

+Analyst Recommendation:Investment Opportunities

Mobile advertising cellphone is the ‘third screen’

‘Spectrum chasers’ Clearwire LightSquared

+Firm Recommendations

1. Shift spending from advertising to customer retention.

a. Customer loyalty programs

b. Customer service

2. Invest in wireless infrastructure.

+Any Question?Thank you!

Documents

+ Wireless Telecommunications Providers Meghan Brown, Kathryn Buchan, Nicole Grover, Elizabeth Reamer