ARPU

Verizon’s Q2 earnings indicate difficult voice migration

Verizon reported earnings and the results were in some ways alarming. The company’s net income fell 21%. Neglecting the Alltel acquisition, revenues grew less than 2%, about a third of prior-year levels. While wireless and FiOS were strong, Verizon (like AT&T) saw business and wireline revenues decline.

The announcement that the company will cut another 8,000 jobs will hearten Wall Street, and many attribute this to prudent response to revenue decline, but we think it’s really something different. Like all wireline/wireless providers, Verizon is finding it attractive to transition its wireline voice customers to either a wireline package like FiOS that creates ARPU, or to wireless. In the case of wireless, the result is a reduction in operations costs, since wireless has no “installation” or outside plant maintenance on a per-customer basis.

In short, Verizon and other operators are now looking at getting out of the wireline voice business, at least in the sense that they’re actively hoping to migrate any voice user to something more profitable.

Tech IPOs show need for monetized online services

The IPO success of OpenTable last week may be an indicator that the Internet advertising bubble is bursting. There have been a host of ad-related IPOs this decade following up on the ever-popular “you don’t have to pay for…” theme that was briefly tried for Internet services in the late 1990s.

The economic downturn is blamed by many for the fact that nobody seems to be able to make the ad model work, but we believe that the initial bad experiences of advertisers with things like click fraud created a skepticism that manifest itself in demands for better metrics. That, in turn, has made advertisers wonder if they get what they pay for even where there’s no fraud involved, and that’s not an easy issue to resolve. More people are now stepping up and suggesting that people are going to have to start paying for stuff, something people actually resist less than the VCs do. Pay-for-service models look an awful lot like a service provider business model, after all.

Sprint layoffs are cautionary ARPU tale

Sprint is a poster child for the “Value of ARPU.”

Consumer telephony is enormously impacted by the cost of customer acquisition and the reduction of churn, and a lot of “costs” are more related to sustaining the relationship than to providing services.  In that situation, it pays to have a lot of arrows in the quiver to mine revenue from each relationship.

When the other interexchange carriers (IXCs) got bought, Sprint was left on the table with no local exchange wireline business, which left it only wireless.  Every customer it loses means a special marketing effort is needed to reach out to restore, where AT&T and Verizon can mine their bases with every bill they send out, at no incremental cost.

Sprint was slow to realize it had a special advantage in being mobile-focused, as well as the special risk of ARPU management and the associated challenges with churn.  They didn’t address the issues, and buying Nextel just diverted them and increased the base of mobile-only customers, which increased all these risks.