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Mar 10, 2016

A Tale Of Two Phones

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“Mr. Watson, come here, I want to see you,” said Alexander Graham Bell, as he made the first ever phone call 140 years ago yesterday. And, of course, I’m sure Mr. Watson came running from the other room, probably wondering why they couldn’t have invented video conferencing instead. How times change; when the landline phone rings at my house, the kids barely look up from their smartphones and no one makes a move to answer the thing. And so it rings and rings until voicemail finally kicks in…and no one bothers to check that either. If you want to talk to one of us, call us, not the house. And yes, we all have video conferencing, but on our own personal little screens.

My family is hardly alone in this; dropping the landline phone altogether was the original definition of “cord cutting,” and the business has been in decline for a decade. Instead, mobile continues to be the ultimate solution, and maintains an almost constant state of evolution to ensure it stays relevant. That is key, because voice calls are clearly not the core reason why we carry these devices anymore. So to fine-tune my comment above, if you want to “talk” to one of us, send a message or group chat – don’t call.

While the innovation continues to march forward, I’m not sure that the mobile business is as healthy as it could be. Outside of a couple of well-known brands, most handset OEMs struggle to sell enough volume to make the whole thing worthwhile, at least in the U.S. market. And at the same time, thanks to no-contract pricing and the disappearance of subsidies, consumers are now holding onto their phones for longer and longer. It’s amazing what happens when we all realize that the $200 smartphone of yesterday now costs us the full price of $600 or more. Indeed, according to one of our recent surveys, 50 percent of consumers hold onto their phone for at least two years, and 25 percent for more than 2.5 years, which is not great news for the OEMs. Or even, for that matter, for the carriers, who benefit from increased loyalty when we buy a new phone, contract or no contract, as the additional payment is typically part of a multi-year payment plan.

We’re starting to see subsidies of one form or another creep back into carrier marketing initiatives. The Samsung S7, for example, launches today, and many carriers are already promoting it as a “buy one, get one” (BOGO). Sure, technically, it’s not a subsidy per se, but it’s awfully close. Someone, somewhere is taking a hit to make this promotion work. And the S7 is far from being the only deal in play right now. Even the iPhone 6s benefits from the occasional BOGO, such as the one currently available from AT&T.

I understand the reasoning behind such moves – particularly a BOGO, where the goal is to make two lines safe from churn, or persuade two consumer lines to jump over from another network. But I can’t help but think that there have to be better ways of protecting the base through increased service value or features, rather than a cost-cutting exercise that is usually immediately copied by your nearest and dearest competition. Of course, that begs the question of what else a carrier can do to differentiate themselves – and that’s clearly a hard question to answer. There are some current examples in play, such as AT&T’s NumberSync and T-Mobile’s BingeOn, which allow the carriers to move beyond the traditional price, coverage and speed discussions. They are clearly not enough on their own – at least not for the broad target audience – but they are a very positive step in the right direction.

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