Direct 2 You's Progress and Execution

Since Sprint's Direct 2 You announcement, the market availability has been increasing. We should expect that given this is a big bet and instrumental in countering churn and perhaps new customer acquisition.

Here's a timeline:

• April 14 - Direct 2 You announcement
• May 18 - Initial markets: Kansas City, Chicago, Miami
• June 29 - San Francisco, New York, Los Angeles, and Denver
• July 13 - Dallas, Detroit, Tampa, Washington DC

Additional markets have also been telegraphed for the summer:

• Atlanta, Boston, Houston, Minneapolis, Orlando, Philadelphia, Phoenix, San Antonio, Seattle and St. Louis

Given it's already mid-July, the end of summer is technically September 22 and there are 10 markets left to announce if they meet their summer commitments, news releases technically can come in mid-August and mid-September.  But from a macro view it'd be helpful to help CY 3Q15 churn statistics.

Beyond these large markets, there has to be additional planned going into the fourth quarter holiday selling season. This will test this concierge concept, especially if one of the value propositions is stress relief. 

If Sprint executes, Direct 2 You will be in 21 markets in parallel with approximately 4,500 points of postpaid distribution, thanks to the RadioShack deal.  The elements are there for improving churn and customer acquisition in a perfect world.   However, with T-Mobile's recent strong plan and North America roaming offers, it won't be so simple. 

Finally for cars people:

Anyone notice that the Fiat 500 is Direct 2 You's new face, replacing the Ford Focus?


OLD

NEW

Bullet Point Analysis: Jump! on Demand - more than just device leasing

WHAT IS IT?

Jump! on Demand is T-Mobile’s variation on Sprint’s device leasing idea that started with the iPhone (i.e., iPhone for Life).  The lease term is for 18 months and users may trade-up up to three times (or upgrade to different smartphones [“superphones”]) in a year.  An enterprising customer can milk six upgrades within this term at months 1, 2, 3 and then in months 13, 14 and 15 (or variations).  

Jump! on Demand’s availability begins on June 28, 2015 and to kick the program off, a limited time promotion of an iPhone 6 (16 GB) at $15/month will be the go-to market poster child.  While this shares the Jump! moniker (Un-carrier 2.0), there isn’t any direct connection aside from the theme of quick device upgradability.

ANALYSIS

From a macro view, just copying Sprint’s leasing scheme isn’t enough based upon T-Mobile’s in your face/pro consumer market positioning. The big consumer benefits are:

• 18 month term vs. the Sprint norm of 24 months
• Ability to swap smartphones.  Customers may swap three times in a year (12 months) at AND a maximum of six times in 18 months.
• When a customer upgrades or swaps a smartphone, they receive a new, not refurbished, smartphone. 

WHAT’S IN IT FOR T-MOBILE?

• Customer retention: Every carrier’s base have those early adopters who want the latest and greatest.  Jump! on Demand appeals to that base with up to six swaps in the short 18 month lease term.   This in essence furthers these customers’ device addiction.  Additionally, the Jump! on Demand’s device portfolio contains the most desirable flagship ‘superphones’  (for now, i.e., iPhone 6, iPhone 6 Plus, Galaxy S6, Galaxy Note 4, LG G4).
• New customer acquisition: Any way to get a flagship device for cheap will draw attention. Coupled with plan promotions and lower pricing against the big two carriers, Jump! on Demand is a big and important weapon in the T-Mobile marketing arsenal. 
• Overall net additions: In the Q1 earnings call, T-Mobile increased their postpaid net add guidance from 2.2/3.2M to 3/3.5M. Note also that they added 1.1M postpaid customers in 1Q15 and that they intended to ‘front load’ the adds.  Of course front load could mean three quarters instead of the first half of ’15.
• Better vendor pricing leverage:  Though the price may be a wash from the customer facing view, large carriers with more scale look to limit their device acquisition costs. If a carrier can drive more volume, lower per unit price usually bears fruit, which helps in the whole profit picture.

WHICH COMPANIES WILL FEEL THE MOST IMPACT?

·      In the following order:

1.     Sprint – because the company is an alternative value leader against T-Mobile and those customers who are drawn to the once unique leasing scheme has been topped.  This also moves the focus for specifically those “Cut Your Bill in Half” Verizon and AT&T customers onto T-Mobile.  If the decision makers are device centric and price sensitive, then T-Mobile will be a prime consideration.

2.     Verizon Wireless – T-Mobile is specifically gunning for Verizon because that’s where the majority of the industry’s postpaid users are.  The Never Settle for Verizon campaign (a Test Drive [Un-carrier 5.0) on steroids) kicked off on May 5^th with a trial period from May 13th to the 31^st was extended until June 27.  Extending a switching campaign usually means that it is working.   

3.     AT&T – T-Mobile has historically targeted AT&T back in the same GSM technology days. I place AT&T last since of the big two, Verizon is the bigger fish in terms of postpaid base. Moreover, AT&T’s retention efforts have paid off tremendously in uber low churn metrics.  The aggressive $0 Next messaging has also been widely by AT&T as a key component of customer retention.

• Apple stands to gain in terms of T-Mobile volume based upon specifically the $15/month promotion.  Normally $27.08/month, T-Mobile’s $12.08 discounting is akin to a subsidy but T-Mobile PR cringed at that word.  Regardless of whether it’s filed as a marketing cost, the discounting is real.  Perhaps like in a car leasing analogy, a lower monthly price may be had with assigning a higher residual at lease end.
• Samsung, LG and possibly HTC may likely see more flagship device volume movement since Jump! on Demand calls for new and not refurbished devices. Logically, if there is the possibility of long term device swapping, more units should be in the pipeline. However, the iPhone promotion may increase the volume gap in Apple’s favor.
• Refurb and secondary market companies will sell increase business volumes. Though it’s logical that ‘used’ devices will feed the insurance side and some will find its way into MetroPCS, the secondary market whether domestic or international will see some benefit.

COMPETITIVE RESPONSE?

• There are now two national players offering leasing. AT&T and Verizon may hold off but they cannot ignore this device payment approach. The concept is simple and by all accounts from Sprint’s initial success, customers like it.  T-Mobile adopting the approach validates the concept in the marketplace.  AT&T and Verizon will have to respond and it has to be before Q4.  If not, they will be even more vulnerable.
• Sprint will need to modify its leasing approach, at a minimum expanding the term options, also before Q4. Matching the number of times to upgrade also needs careful consideration and figuring out a positive business case. Sprint has already stated that they can get favorable device pricing given SoftBank's global buying power.  Sprint needs to have a plan in place if it is to keep its positive net add momentum of which device leasing plays a crucial role. 
• Aside from national players, regional players may or may not join. Large regional carrier US Cellular joined the equipment installation plan fray.  For that carrier, an EIP is now competitive tablestakes against competitors, and a component of returning to positive postpaid net adds (after a couple of years in the negative territory).   

Can't Knock Sprint for Trying Hard, Now Direct 2 You

WHAT IS IT?

Direct 2 You is the company's latest action at building differentiation to stand apart against competitors.

 In a In a nutshell, it's concierge and personalized direct to the customer fulfillment of a previously placed order for customers who are upgrading.  Though it's positioned as a national program, only Kansas City, Chicago and Miami were announced.  As part of the announcement, Sprint notes a fleet of 5,000 branded cars and job creation numbers of 5,000.ANALYSISThere is no doubt that Sprint is trying out a lot of ideas to get itself out of the hole. CEO Claure deserves much of the credit in lighting a fire and compounding a sense of employee urgency in the company's restoration journey. Direct 2 You comes at the heels of the free unlimited international data (albeit 2G & only 15 countries)/text roaming announcement and RadioShack distribution deal in which immediately after the bankruptcy decision,  Sprint soon opened some sales doors.  Intertwined was a very 'political' announcement in a important spotlight market, Chicago where infrastructure investment and job creation (300) led the headlines. Here are some Direct 2 You pros:

• The effort is for only upgrades, which means that this is a customer retention effort. There is no minimum bill spend on attaining this concierge service.  Rewarding and cementing loyalty directly impacts churn. While 'Cut Your Bill in Half' and RadioShack store distribution expansion is about acquiring gross adds, Sprint needs better ways to fight against T-Mobile's switching momentum.
• The markets are important and 'friendly.' Starting off in the home HQ market, it gives Sprint some political capital for local job creation, rather than the very visible downsizing in recent past. Chicago as a market has been long discussed as a revitalization of the company story even in the Hesse era. Continuing that on top of meeting public commitments to re-elected Mayor Emanuel only makes sense. Finally, Miami is Claure's old home and obviously heavily Hispanic (a segment Sprint is heavily courting).  
• The effort is through an outsourced partnership, one that has a long history of residential/office fulfillment. There are no Sprint employees in the mix but ostensibly, the job creation is non-direct and there should not be any Sprint CapEx spend.
• Direct 2 You fulfillment is on the customer's schedule, seven days a week during business hours, and subject to where the customer decides to meet.  If customers cannot work around doing fulfillment around this flexibility, there's something wrong.  
• Sprint is working with a delivery zone structure where the representative can be dispatched productively according to meeting customers' time requirements. Further, there's linkage to Sprint systems and additional devices in case there is a customer's change of heart in a device.
• Finally, the fleet of 5,000 Sprint branded vehicles serve to further the company's brand awareness, much like everyone knows a Best Buy Geek Squad car or telephone or cable company truck.

Yet some cons and questions bug me:

• How much does this cost and how will this effort hit the bottom line? Clearly, it's a retention effort that hits the marketing and cost of goods sold line. This may be a wildcard from the financial standpoint but will market goodwill (e.g., Sprint for Chicago) pay off in terms of business and government accounts?
• Sprint says that in the delivery zone concept, it may not be economically feasible to meet a customer who may be outside a delivery zone. Financially, it makes sense but there may be the odd ball cases of high-value customers outside of those zones. Of course, marketing and public perception will be tested once those cases have media focus.
• Is this a beta effort? How long will the commitment be there? Yes, it's national but unlike T-Mobile that can paint itself in a corner with an Un-Carrier X.0 moniker, Sprint can get out if it gets too expensive and suffer ridicule. I supposed this could be a double-edge sword.

Competitive response may not be forthcoming as the big two of AT&T and Verizon Wireless does not have to do anything as they're still in the driver's seat.  T-Mobile has always prided itself as a leader of innovative things (i.e. Un-Carrier) and they have market momentum.  It's likely that competitors will paint this effort as a desperation gambit.  For Sprint, to its credit, they're trying things and cannot be faulted for that. But what's the cost and anticipated churn impact? We'll have to wait to see in calendar year 3Q and 4Q15 to see, won't we?

Tier One Carrier's Chief Marketing Officers - An early '15 Update

In the dynamic wireless business, there has been executive movement. There's no surprise that since the first post back in August 2013, there has been much movement.  Of the big four CMOs, only AT&T's David Christopher remains in the position.  There was an update in February 2014 when Jeff Hallock took over the duties from Bill Malloy at Sprint. However, Mr. Hallock's days are winding down as incoming CEO Claure announced Hallock's departure in November by the first quarter 2015.  As of this post, the end of 1Q15 is nearing and an announcement should be forthcoming.

On to the new faces, Verizon Wireless' Nancy Clark and T-Mobile's Andrew Sherrard. 

Nancy Clark

A Verizon contact stated that Ms. Clark took over from Ken Dixon in Fall 2014, who returned to a regional president's role in the Northeast. Perhaps the most visible campaign in Mr. Dixon's tenure the May 2014 branding for XLTE, positioned as an enhanced LTE experience.  Ms. Clark is the latest CMO in a long line of executives with deep operational experience. Mr. Dixon and Marni Walden before him all served as regional presidents.  

Senior Vice President & Chief Marketing Officer, Verizon Wireless

Nancy Clark is senior vice president and chief marketing officer for Verizon Wireless, the largest wireless company in the United States, with responsibility for growth and marketing initiatives for the company including brand management, customer loyalty, and introduction and delivery of mobile products and services.  A premier technology company, Verizon Wireless operates the nation's largest and most reliable 4G LTE network. 

Previously, Clark was head of the Operational Excellence Organization for Verizon, focused on identifying and implementing process improvements companywide.  Prior to that, Clark was president of the Northeast area for Verizon Wireless, responsible for the company's operations in the New England, New York Metro, Philadelphia Tri-State, upstate New York and Washington/Baltimore/Virginia regions.  She had also served as vice president of National Operations and president of the Great Plains region.

Clark began her telecommunications career with the former GTE, working in finance, marketing and sales positions for the company's Texas and California markets. When Verizon Wireless was formed in 2000, she joined the Midwest area and was responsible for sales channel operations, and then served the area as vice president - customer service.

Clark holds a bachelors degree in finance from Michigan State University and an masters of business administration from the University of Houston.

She is on the board of Safe Horizon, the largest victims' services agency in the United States, which assists more than 250,000 children, adults and families affected by crime and abuse throughout New York City each year.

Here's a YouTube video in which Ms. Clark talks in her previous head of Operational Excellence role. Sprinkled in the talk were clearly marketing themes. 

Ms. Clarke has surely been through the competitive wringer in the ultra-competitive 4Q14 in which Verizon Wireless faced one of its toughest quarters ever with attacks from Sprint and T-Mobile.  It'll be interesting to see if any new positioning develops beyond the steady network message of old.  Network parity is coming in '16 as T-Mobile and Sprint buildout their respective footprints towards 300 million population covered.   

Not many CMOs beyond Mike Sievert use Twitter but Nancy Clark does have a handle (@nancybclark) but her activity appears minimal.  


Andrew Sherrard

Andrew Sherrard joined T-Mobile in 2003 and currently serves as Executive Vice President and Chief Marketing Officer. Mr. Sherrard is responsible for strategic development and execution of all marketing, product development, pricing programs and activities that will help to drive revenue, customer growth and improve the customer experience for each of our brands. Prior to T-Mobile, Mr. Sherrard was a Marketing Manager for Clorox, responsible for developing and implementing the business plan, growing volume, market share and profit. While at Clorox, he also served as Brand Manager for GLAD and Pine sol, responsible for leading cross-functional teams, developing marketing strategies and plans, and managing profits and loss. Mr. Sherrard holds a Bachelor of Science degree from the United States Military Academy at West Point.

Mr. Sherrard is a 12 year T-Mobile industry veteran who was ironically the interim CMO for about six months before Mike Sievert joined T-Mobile and named CMO in November 2012. After this, he reverted to his role as Senior Vice President of Marketing.   For fans keeping score, in February, T-Mobile announced through a February 2015 SEC filing, Mike Sievert's new COO role. Underlying this SEC filing was a broad executive reorganization that moved Andrew into the CMO role.  

It's interesting that Mr. Sherrard made the jump to telecom after a career in the consumer packaged goods (CPG) industry, however, current COO Sievert also started out at Procter & Gamble (P&G). We can get a sense of Mr. Sherrard's marketing thoughts in a YouTube video recounting T-Mobile's transformation to differentiate itself as the UnCarrier.  Marketing geeks will appreciate the background, thinking for the carrier's path, and detailed marketing strategy.   At the 4Q14 earnings call, CEO Legere admitted that he and Mr. Sievert 'stole' the work that Mr. Sherrard started, which ultimately became the UnCarrier campaign. 

Unlike his predecessor, Mike Sievert, who is a frequent Twitter user, Mr. Sherrard doesn't appear to have a Twitter handle. A new UnCarrier (or is it Un-carrier?) announcement is slated for March 18, we'll see if the T-Mobile marketing playbook of press, social media and advertising continues. 

Bullet Point Analysis: Sprint's RadioShack Store Deal - A Lot of Positives

What is it?

RadioShack's bankruptcy allowed Sprint to partner with General Wireless Inc., a subsidiary of Standard General LP, RadioShack’s largest shareholder (a hedge fund), to increase Sprint branded retail distribution by approximately 1,750 stores, more than doubling Sprint's current 1,100 company store count. The transaction is subject to approval by the bankruptcy court.

The plan at that point will be to establish co-branded (Sprint and RadioShack) stores where Sprint and RadioShack would sell their separate services. 

Analysis

Although it didn't make company's FY3Q14 earnings call deck, it's better late than never.  

The deal has many wins for Sprint since:

• Above all, the company expands their distribution base to help with gross additions (postpaid and prepaid brands) and get potential subscribers in the door interested in the much campaigned "Cut Your Bill in Half Event" that will continue into 2015.

• Distribution count will exceed surging rival T-Mobile. In the FY3Q14 earnings call, CEO Claure stated that Sprint was 500-600 less than T-Mobile. With the new stores, gets T-Mobile's count in one swoop, bringing the total Sprint count to over 2,800 retail points of distribution.  

• Those 1,750 stores have been cherry picked.  Logically, these new stores would not cannibalize existing Sprint retail traffic, and serve the right Sprint target demographic - Verizon and AT&T prime customers.

• The stores will be co-branded but Sprint is the primary brand. Sprint and RadioShack says that each brand's customers may be cross-marketed to but the ability to share lease space costs should not be overlooked. Sprint will only occupy a third of the store space so relative to operating a full store, Sprint in theory has lower costs.

• With all the negativity of a declining brand and controlling costs, headcount cuts have been an unfortunate tool. However, Sprint will need employees to operate these stores. RadioShack employees who are already trained at selling mobile devices and plans are logical candidates. In theory, it's an easy transition as reps will only need to focus on Sprint plans versus the many prepaid MVNO options and those of Verizon and AT&T. In fact, because of the breadth of knowledge, these reps will know what competitors' plan weak points may be. 

Yet there are questions. 

• Like many deals, the financial and commitment terms were not divulged so it's undetermined how good of a long term financial deal this is.  

• The deal needs the blessing of the bankruptcy court and if that is given in short order, this doesn't mean that Sprint can move in immediately.  The store rep human resources process will need to be address, planning the look and buildout of a third of every store will need to be done.  Given this, the impact of the 2015 gross additions look to be in the back half of the year.

• This last point can be both a positive and negative.   By taking over these 1,750 stores, Sprint takes out the same number of distribution points for postpaid rivals AT&T and Verizon (no T-Mobile) and Tracfone prepaid brands (US Cellular in some markets).  The big "BUT" is the amount of wireless business a declining RadioShack generated for competitors. If it's immaterial, then it's not that great of a loss for those competitors.

Overall, this deal is one of the best moves Sprint has jumped on since the beginning of CEO  Claure's tenure.