What’s going on in Phoneland?

Connecting the dots on some news stories from Phoneland.
First, the CEO of Ericsson has been sacked:

Kim McLaughlin, Ericsson Ousts Vestberg as CEO After Turnaround Plans Stall
Vestberg’s departure caps a turbulent period for Ericsson, which is cutting jobs while battling fierce competition from from Huawei Technologies Co. and Nokia Oyj. The company said last week it would accelerate cost cuts after reporting four straight quarters disappointing revenue and profit. Vestberg has faced questions on probes into alleged corruption in Asia and Europe, and last week the company rejected a report in Swedish media that it may be inflating sales by booking revenue before some clients are invoiced.

As usual, that’s the proximate cause, but the deep structure is that 4G tech has been rolled out worldwide already, and no one’s buying much these days.

With much of the so-called fourth-generation networks already built in the U.S. and China, Vestberg had vowed to improve profitability, but the stock has declined since reaching a more than seven-year high in April last year.
Vestberg had carved out new business units targeting media and enterprise customers to get back to growth, while investing in a next generation of so-called 5G wireless technology, which represents the next wave of spending at Ericsson’s telecom carrier customers. However, he refrained from big, dramatic moves like Nokia’s purchase of Alcatel-Lucent SA, opting instead for a partnership with Cisco Systems Inc. for Internet products like routers.

So, he’s out for thinking small bore, and we’re seeing the hiccups from the 4G/5G transition in Phoneland.
Second story: Steven Russolillo says that Apple is ripe for a Rally, despite the fact that market watchers are negative on the giant:

Much of the bearish thesis is due to weakening iPhone sales, which account for more than half of revenue. The iPad isn’t selling as well as it used to and the jury is out on the Apple Watch. Tech investors are allergic to anemic growth, which explains why the tech-heavy Nasdaq has lagged behind the Dow industrials and S&P 500.
Still, Apple has been punished more than enough. The iPhone slump appears priced in. And while the next iPhone, expected later this year, likely won’t be a significant upgrade, there is optimism that sales growth will soon bounce back. Analysts forecast iPhone unit sales will rise 5% for fiscal 2017, which ends next September.

The real question is not about stock price (or profits, either, with $10.52 billion in the March quarter), but about consumer buying behavior. Will we have to wait for a new mobile device — like AR/VR goggles? — before there is another huge surge in consumer demand for mobile? Watches aren’t the future, but goggles will be, I bet. Not a 2016 trend, though. Maybe 2017?
The third and last data point for today: Aaron Pressman digs into AT&T’s efforts to convince Wall Street its wireless business is healthy. His argument reviews the standard argument that postpaid subscribers — the ones signed up for monthly accounts — are generally considered to be better sources of reliable revenue than prepaid subscribers, who generally ‘spend less for service, buy cheaper phones, and tend to defect to other carriers more frequently’.

The bottom line is that so far this year, AT&T’s postpaid subscribers grew only 1% while prepaid subscriptions increased 21%. That’s disturbing to Wall Street, based on the ruling assumption that postpaid customers are preferable.
Thus, Stephens has been trying to push some new math on the analysts. In essence, his argument is that the best customers in prepaid are actually a lot better—and more profitable—than the worst customers in postpaid.
The average service revenue AT&T collected from postpaid customers who have left—and who mostly had not upgraded to smartphones yet—was only $35, he said during a conference call with analysts on Thursday afternoon. But the new prepaid customers signing up with Cricket are bringing in “closer to a $41, $42” of average revenue. Additionally, it costs less to acquire a new prepaid customer and less to provide them with customer service, he noted.
“So from that standpoint, the economics are better, and it is being shown in our margins,” Stephens told analysts, pointing out that while total wireless revenue was down slightly, profit margins were at record highs.

So AT&T has landed in a different dimension, where the economics are reversed, with T-Mobile and others screwing up the numbers for postpaid, while the supposedly poor prepaid sector looks good. However, this may be only true for a short transient period.
And the back office transitions around cable and internet, suggest other churn as the world is turning:

The telco is shedding expensive-to-maintain cable TV customers at its U-Verse unit while adding less costly satellite TV customers for DirecTV. AT&T is dropping broadband Internet customers who connect via older DSL lines while trying to add fiber optic broadband customers. And it’s trying to move corporate customers from traditional managed networks to cheaper virtualized networks. If all of the transitions succeed, both revenue and profits should grow.

Putting all the dots together? The consolidation in Phoneland is accelerating. Old technology is maturing, while new technologies and business models are only slowly emerging, which is leading to the downdraft at Ericsson, and financial analyst disdain for Apple and AT&T. The slowing rate of purchasing — by telcos and consumers, both — is leading to consolidation, the classic market maturation that comes right before a new era of breakthroughs and growth. But those breakthroughs won’t be in 2016.

As Good As It Gets?

Putting the burden of retraining in a digital world on the backs of the workers may be as ‘enlightened’ a policy as we’ll see, in the postnormal economy.

Reading a piece on AT&T’s CEO, Randall Stephenson, and his plans to retool the company for an accelerating and vastly different world, one in which his company will be competing with Google and Amazon, not just traditional phone companies. And to get there, the company will have to retrain — or replace — many of its 280,000 workers.
But today’s businesses are not going to take on the burdens of such a massive training effort: they will instead expect workers to dig their own hole and sharpen their own shovel, as I put it. Before anyone can get reengaged with their job, they have to get reengaged with their work, on a personal level. As I wrote,

This is where a truce has to be called and each individual commits to personal program of engagement in what they consider their calling, which may only obliquely line up with the job that the company has that person doing. This involves reading, reflection, discussions with other like-minded people, and sharing and growing those thoughts in groups, offline and online. My expression for this investment, where the individual reengages with their own work, in a sense independently of the company (or companies) they may be working for, is this: Dig your own hole, sharpen your own shovel.
And this will involve time. Each person will have to carve out time for this engagement: it won’t just happen.

AT&T seems to be making this corporate policy.

Quentin Hardy, Gearing Up for the Cloud, AT&T Tells Its Workers: Adapt, or Else
In an ambitious corporate education program that started about two years ago, he is offering to pay for classes (at least some of them) to help employees modernize their skills. But there’s a catch: They have to take these classes on their own time and sometimes pay for them with their own money.
To Mr. Stephenson, it should be an easy choice for most workers: Learn new skills or find your career choices are very limited.
“There is a need to retool yourself, and you should not expect to stop,” he said in a recent interview at AT&T’s Dallas headquarters. People who do not spend five to 10 hours a week in online learning, he added, “will obsolete themselves with the technology.”
Companies’ reinventing themselves to compete with more nimble competitors is hardly a new story. Many have tried, and a handful have even succeeded. Mr. Stephenson wants AT&T to be among those few.
In the last three years, he has spent more than $20 billion annually, primarily on building the digital business. DirecTV was acquired in a $63 billion deal last year, and several billion more was spent to buy wireless businesses in Mexico and the United States. Even for a company with $147 billion in 2015 revenue and over $400 billion in assets built up over more than a century, it’s a lot.
That can’t happen unless at least some of his work force is retrained to deal with the technology. It’s not a young group: The average tenure at AT&T is 12 years, or 22 years if you don’t count the people working in call centers. And many employees don’t have experience writing open-source software or casually analyzing terabytes of customer data.
If you don’t develop the new skills, you won’t be fired — at least AT&T won’t say as much — but you won’t have much of a future. The company isn’t too worried about people leaving, since executives estimate that eventually AT&T could get by with one-third fewer workers.
Mr. Stephenson declined to project how many workers he might have by 2020, when the cloud-based system is supposed to be fully in place. One thing about cutting people in an aging work force, he noted, is that “demography is on our side.” Other senior executives say shrinking the work force by 30 percent is not out of the question.

AT&T’s Vision2020 program for employee education is based on workers giving up time on nights and weekends — uncompensated — but with the company reimbursing the cost of courses up to $8000/year.
My bet is that this is the new basis for strategic commitment to an educated workforce: the company will pay the out-of-pocket costs, but the worker still has to hold down a full-time (or more than full-time) job, and to dedicate serious amounts of ‘leisure’ time to coursework, time that normally would be spent on outside interests, family, or moonlighting. Depending on your perspective, this looks like a fair deal, an additional encroachment of work into the personal time of workers, or just the way things are, now.
And this might be the best deal workers can get, in an economic climate of endemic recessionary philosophy mixed with the threat of becoming obsolete in a marketplace driven by high technology, and being hollowed out by automation, AI and algorithms, and free-trade outsourcing of work abroad.

Originally published on medium on 13 February 2016.