Hi, I'm Raj Shah. I'm the industry lead for telco, media, and high tech for Publicis Sapient. I'm joined here today by Craig Moffitt, who's the founder of Moffitt Nathanson. It's a research boutique focused on the telecom, media, and tech industries here in the United States. We're here to talk about the state of the telecom industry, some ideas for where growth could occur, some reactions to trends that are happening in the marketplace today, and just to get Craig's general sense of what is the art of the possible here for our clients.
Thank you for having me. It's a pleasure to be here.
We'd love to just get your one thought reaction, one word reaction to some of the names and the players and the trends in the industry here. So if you don't mind, I'll say a word and then you give me your reaction.
Okay, I'm not going to try to keep it to one word myself.
No, that's fine. That's perfectly fine. So let's start with Verizon.
Verizon needs to reinvent the value proposition, perhaps more than any other carrier. They have done, I think, a magnificent job over the last really 20 years of best network, but what's the next act after best network? Because maintaining best network is more challenging. And so their customers demand best network and excellence. They're going to have to reinvent that value proposition quite urgently, I think.
AT&T, I think they have some balance sheet challenges still in the wake of the Time Warner and media diversification, so they have some financial issues to work through. But I think AT&T also has a value proposition differentiation challenge in that in some ways, maybe a larger challenge than Verizon in that they don't come from a legacy of best network. And you'd be hard-pressed to say for the average consumer, what is it that AT&T is actually best at? It is a hard position to defend to say I'm pretty good at everything without being the best at any one thing. And I frankly struggle myself to see what are they absolutely best at.
For me, T-Mobile, the challenge is focus. They have, I think, so many opportunities that come along with the fact that their network is better than it has ever been. Their brand is stronger than it has ever been. That the challenge will be whether it is executing against the rural opportunity, executing against the business services opportunity. How do you avoid the distraction of sort of chasing butterflies and get the whole company and the whole organization pulling in the same direction around executing against those opportunities?
Comcast has always struggled, I think, to define its overall portfolio. And the telecommunications side of its business is executed wonderfully. And for me, the question is the pivot from traditional wired to an increasingly blended wired wireless offering. And they seem to be making that pivot well. I admit that this is maybe a personal bugaboo of mine, but I've always struggled to see exactly what the connective tissue is between that business and NBCU and Sky. And trying to sort out that challenge to me is always at the top of the list when I think about Comcast.
5G to me is still an enterprise story and not a consumer story. And for me, the real challenge is for the carriers, that is, is how do you ensure that you've got a place at the table in 5G and that 5G doesn't become a private network story that the carriers are left out of?
It's a capacity challenge. The product clearly works, and I think it has an enormously valuable and important place in especially rural and edge markets, although the government with the Jobs Act is arguably trying to make sure there are no more rural markets over the long term. But the struggle for me is how do you, in a world where the compound annual growth rate of mobility service is 35% per year for usage and just as fast for fixed, how do those two services coexist? The value of a bit is so much higher for mobility than it is for fixed that the obvious incentive is to make sure that nothing that you do on the fixed side interferes with the mobile side, and that's a real challenge.
To some extent, you have to wait, right? The prepaid market, this hasn't been the prepaid market's time in part because we've been in such a powerful and long economic expansion, and the prepaid market tends to underperform during expansions and outperform during contractions. It's been a long time since we've had a contraction partly because of the Fed. If the Fed is no longer in the mode of ensuring that we don't have the contractions, we'll have contractions. Arguably, the Fed is trying to create a contraction. And so if we have a contraction, I think the prepaid market will be ascendant again. The basis of competition in the prepaid market is no different than the basis of competition anywhere else. It's price, network quality, and brand experience, and hopefully it's about something other than just price.
Postpaid market is, I think, if our theory is right that we're starting to see real deceleration in the overall market and we're starting to see some economic deceleration and potentially contraction if we go into a recession, then pivoting from postpaid to prepaid will be important. The prepaid market is not like it was five years ago, wholly separate from postpaid. Now, particularly with the acquisition of TrackPhone, the largest players in the prepaid market are all within the same umbrellas of the main carriers. And so that pivot is easier to make. But I think that you'll start to see a lot more focus on prepaid going forward and a little bit less focus on postpaid. And postpaid always competes for its segment of customers. And as I said, I'd like to see the experience become more of the basis of competition rather than just price and network quality. But I think a lot of the battle is actually going to be fought on the prepaid side in the next few years if, in fact, we're heading into a weaker economy.
Small business market right now is booming. We're still in that post-COVID recovery. The carriers in general have never quite graduated into thinking about verticals in a particularly sophisticated way. So the wireless service or the broadband service for a flower shop is exactly the same as it is for bars and restaurants or anything else. My guess is, and as long as the market is growing fast enough, that's probably okay. If the market decelerates and stabilizes, then creating a little bit more differentiation around verticals is probably a wise idea and probably overdue.