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Wireless Telecommunications Providers
Meghan Brown, Kathryn Buchan, Nicole
Grover, Elizabeth Reamer
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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
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Industry Evolution

Motorola “brick”
phone sold for
$3,995 in 1983
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By the end of 2012 the number of mobile connected devices
will exceed the number of people on earth
Number of Wireless Subscribers in US
400
350
Wireless Subscribers (Millions)
300
250
200
150
100
50
2016
2015
2014
2013
2012
2011
Year
2010
2009
2008
2007
2006
2005
2004
2003
0
2002

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Industry Products

Total Industry Revenue (2011): $195.8Billion
Industry Revenue
Equipment,
10.0%
Data, 30.0%
Voice, 60.0%
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Industry Competition

~1600 companies

Highly Concentrated

HHI = 2714

CR4 = 94.7%
Market Share
10.7%
5.3%
36.5%
15.4%
Verizon Wireless
AT&T Inc.
Sprint Nextel Corp.
Deutsche Telecom AG (T-Mobile)
32.1%
Other
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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
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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 TMobile
 FCC ruled NO.
Consolidation in the
industry has reached its
limit
http://hothardware.com/newsimages/Item16626/Wireless_Carriers.jpg
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250
200
150

100
50
Year
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
0
2002
Industry Employees (Thousands)
Employment
Firms are seeking new
ways to limit costs 
employment outsourcing
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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
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Open Access Requirements

Any Phone, Any Service
 Decrease Provider Differentiation
 Decrease Subscriber Loyalty
 Increase Subscriber Churn
http://rmc.library.cornell.edu/ezra/imag
es/ezra2_w.gif
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
Increasing
Consumer churn?
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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
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Combative Advertising

Shift consumer
preferences, but not
expand category demand,
in a mature market

Product differentiation
creates inelastic demand

Could just be undercutting
profits
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Combative Advertising

Comparative advertising – a form of combative advertising
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Combative Advertising

Prisoner’s Dilemma is a
possible outcome

Optimal strategy = no one
advertises

Dominant strategy = advertise
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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
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Informative Advertising

Reducing consumer search
cost may have procompetitive consequences

In wireless telephone
service provider industry:
 Very concentrated
 Mature market

Informative advertising
instead leads to advertising
war
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Informative Advertising

Expanding primary demand?

Signaling high quality rather
than increasing competition
 Only efficient, high quality
firms can afford expensive
ad campaigns
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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
+


#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.”
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
“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
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
Brand Names: Sprint PCS, Clear, Boost, Virgin Mobile

“All. Together. Now.”

offers unlimited data usage for smartphone users
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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
+
High Advertising Spending
Top 5 Advertisers in 2011
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?
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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
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
Mergent Online, 2011
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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
http://www.seattletimescompany.com/advertise/a
dtosales.htm

Fairly high ad/sales ratio for
wireless telephone service
providers compared to other
industries
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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
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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
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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.
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Why does Day Part Matter?

Three Reasons
1.
Competitive Industry
2.
Similar Services
3.
Similar Target Market
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Analyzing Advertising Patterns – TV
Programs
AT&T: Number of Ads Aired by Program Type
AT&T
2.
3.
Slice of Life
Feature Film
Situation
Comedy
20000
Number of Ads
1.
25000
15000
10000
5000
0
Program Type
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Analyzing Advertising Patterns – TV
Programs
Sprint Nextel: Number of Ads Aired by
Program Type
Sprint
1.
7000
6000
Slice of Life
2.
Feature Film
3.
Sportscast
Number of Ads
5000
4000
3000
2000
1000
0
Program Type
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Analyzing Advertising Patterns – TV
Programs
Verizon: Number of Ads Aired by Program
Type
14000
Verizon:
Slice of Life
2.
Feature Film
3.
Sportscast
10000
Number of Ads
1.
12000
8000
6000
4000
2000
0
Program Type
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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.
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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
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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
Number of Television Ads By Month - 2011
14000
12000
10000
Number of Ads
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8000
AT&T
6000
Sprint
Verizon
4000
2000
0
Month
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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?
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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.”
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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
+
Analyst Recommendations – Verizon
(VZ)
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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%.
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Analyst Recommendation:
Investment Opportunities

Mobile advertising


cellphone is the ‘third screen’
‘Spectrum chasers’

Clearwire

LightSquared
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Firm Recommendations
1.
2.
Shift spending from advertising to customer
retention.
a.
Customer loyalty programs
b.
Customer service
Invest in wireless infrastructure.
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Any Question?
Thank you!