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Al Moschner probably wouldn’t blame you if you’ve never heard of Cricket Wireless. But if he has his way, you’ll know about his company soon enough.
As the executive vice president and chief operating officer of the nation’s seventh-largest wireless carrier, Moschner directs marketing and branding efforts for Cricket’s products and services. A subsidiary of Leap Wireless International founded in 1999, Cricket serves 5.3 million prepaid customers in select communities in 25 states, or about a third of the country. Though that focus has served Cricket well over the past year–total revenues for parent company Leap Wireless increased 10.2 percent from the second quarter of 2009 to the same period this year–the carrier isn’t standing still. Even as it stays true to its prepaid roots, it is embarking on plans to attract new customers, expand into smartphone content services, and develop the network necessary to become a national carrier.
Last Tuesday, just before Cricket released its first smartphone, the Sanyo Zio, Moschner dropped by CNET’s San Francisco offices to talk about how his company and the wireless industry is changing. We covered a range of topics, including the growth in prepaid, an impending music service, cheaper data plans, and, of course, a CDMA iPhone.
Leap Wireless
Q: You operate your own network, yet you also act as an MVNO (mobile virtual network operator) for Sprint. Why be an MVNO, too? Why not just funnel people onto your own network?
A: It’s about national reach. An important part of our strategy is to become national. We’re not going to stop building out our own infrastructure, but given that real growth in the industry is with prepaid users, we need to be a national carrier today. And more importantly, if you believe that a significant shift of sales is moving to a national carrier footprint, the only way for us to be relevant is to be national.
Q: What’s driving the growth in prepaid? Is it just the economy?
A: The economy is a very significant piece of it. It’s forcing people to question if they can afford a $100-per-month wireless bill. The second is that folks are looking for value. We provide value in our space. We can offer voice and data much cheaper than other carriers. The third point is that consumers are no longer viewing prepaid as something that only someone else buys. There used to be that overhang in [prepaid] for good reason. If you go look at what prepaid was 15 years ago, it was more expensive than postpaid, it offered crummy devices, and it was difficult to get. Now, all of that has changed and prepaid has gone mainstream. We’re offering just about everything that the major carriers offer, but at prices that are very compelling.
Q: Is the typical prepaid customer changing as well?
A: Yes, the stigma is gone. Before, we were oriented mainly toward customers making less than $50,000 a year, but we’re broadening our appeal to anyone interested in value. We’re not apologizing anymore.
Q: Why is Cricket getting into smartphones?
A: In the past, the No. 1 reason people left our Web site without making a purchase was that we didn’t have a BlackBerry. Now we do. We also wanted to offer good, easy, and inexpensive access to the Internet. Would our customers love [the] iPhone? Absolutely. But [the] iPhone wasn’t necessarily the only solution. Android was a great solution.
Because of the ubiquity of the operating system with multiple hardware competitors, we’re seeing price curves that are eye-popping. For a carrier like us that is focused on delivering low cost, that’s great. Prices will drop and we’ll see how the proprietary guys respond. (Cricket’s new $55 per-month data plan for the BlackBerry and Zio includes unlimited talk, text, picture mail, Web browsing, e-mail, and international text.)
We’re also having conversations with some tablet manufacturers. It will be interesting to see if we can deliver that product to consumers with effective rate plans. Though our data plans are unlimited, we’re giving serious consideration to price points that meter the amount of data for more value.
Q: Are there any wireless products that wouldn’t be appropriate for your customer base?
A: I would only leave out anything that involves high cost and high price. We’re charging $299 for our BlackBerry; that’s at the upper range of what our consumers consider a reasonable price. Our sweet spot is between $99 and $199. We considered Netbooks, but we couldn’t get them down to that price point.
Our customers say, “We love knowing what we’ll pay every month, but you need to give us devices that we want to use.” Now that we’re moving to a national carrier, we need to act like one. So we’re upgrading our handset lineup to not be so cost-focused, but be much more value-focused. The distinction isn’t big, but it’s important.
Q: Why go into music services?
A: If you think about music as a product or a delivery mechanism, how is it bought today? You need to have a PC or a credit card. Well, 50 percent of our customers don’t have PCs and more than 60 percent don’t have credit cards. Our plan is to develop applications and services that take some of the great services that the industry has and create one for this population.
In music, not only does it have applicability to this demographics, but also a wide range of users because it’s so value-oriented. We plan to be the first carrier in the industry to provide a converged mobile-music platform that will effectively let you purchase it and use it on an unlimited basis.
Q: You mentioned services built around camera phones. What do you mean?
A: You may have a great camera on a phone, but what’s the utility of a camera? About zero. The only thing you can do is send an MMS or an e-mail. Why not build a complete ecosystem around that? No one has built around the fact that you have an excellent camera in your hand. You have storage needs and you have printing needs.
Q: How have the major carriers responded to your expansion plans?
A: T-Mobile was the low-cost leader of the majors, but I think Sprint has leapfrogged them. [Sprint CEO Dan Hesse] has been very clear that Sprint is going down a multibranded, prepaid path. And they’re spending a lot of effort in that no-contract space. Meanwhile, AT&T and Verizon are using wholesale arrangements. Our intent is not to compete with the majors directly. Simply replicating what they’re doing isn’t enough.
Q: Do you expect more carrier consolidation?
A: All I can do is point to history. For industries that get to a point where the only way to gain market share is to take it from each other, consolidation has to occur. I don’t think that the wireless industry is different. Will consolidation occur? Yes. But technology dislocation is an issue as well. We just got 3G and now we’re getting to 4G. That technology dislocation has to occur before you’ll see significant changes in the landscape. There are too many moving parts until that migration settles out.
Q: For failed MVNOs like Disney Mobile and Mobile ESPN, what do you think they did wrong?
A: The MVNO business has very thin margins. Whatever you decide to do, you have to generate a fair amount of volume. It’s a classic economic problem. You’re either low-volume/high-margin, or high-margin/low-volume. Either way, the returns are the same. Those that failed were very niche, high-cost, high-delivery models that were going after an expensive customer that was an inherently low-volume business.
Q: What are your 4G plans?
A: We’ll have trial markets running next year. If that’s successful we’ll start building out markets by the end of 2011. We haven’t awarded any contracts yet. An interesting question is, what’s a customer’s appetite going to be for broadband? It will depend on what the user profile will be, but I think that LTE is going to be valued, consumption is going to go up, and we’re going to be in a continual race to get spectrum
Q: Do you think the federal government is playing the correct role in making spectrum available?
A: The current FCC gets it and understands that the ability to clear more and make more available is the right U.S. policy and the right industry policy. We don’t have a policy on the Net neutrality debate, so we’ll let the big guys figure that out. Our view is that devices will be very personal, very ubiquitous, and based on technologies that are global. The carriers that support that notion will be successful.
Q: Will basic phones that just make calls continue to be in demand?
A: Yes. It’s mostly a generational issue. A BlackBerry is going to be in my hands until I’m no longer a wireless user. But talk to twentysomethings, and they all have a smartphone of some kind. There’s also a reason that we have a $30 rate plan. That’s all anybody wants to consume and they’re a very material part of our business. Voice matters.
Q: Would Cricket be interested in a CDMA iPhone?
A: Absolutely. The iPhone has changed the way people think about mobile communication. It’s a terrific device and one that my customers would enjoy having at the right price. If I offered the iPhone for $550 I wouldn’t sell too many of them, but I would sell a few. For right now we’re riding the Android horse, as we believe the Android horse has a cost curve in the industry.
Q: What’s your opinion of the Android OS?
A: It’s interesting. I saw this play out in 1995 when I was at IBM and I watched the choices that Apple made. It’s making the same choices now–and I’m not suggesting they’re wrong–which is controlling the platform, controlling the experience, but still being in the hardware business. Android offers what Microsoft at the time offered: a platform that’s hardware-agnostic. That drives much lower price points, which helps to gain share. Apple will continue to innovate, but it will be very hard when there’s a share monster competing with you at price points that you can’t meet.
Q: What about BlackBerry?
A: I’m a loyal BlackBerry fan, but I’m concerned about them. They’re proprietary and they’ve been slow to the party with opening up their interface and providing the browser and HTML experience that everybody else has. They have a loyal following that will stick with them, which is their advantage, but if they ever mess that up I’d really worry. If they don’t mess with that, I think they’ll be fine. But there is capability that they need to add.
Q: Do you have any plans to expand into postpaid?
A: We’ve built an infrastructure around providing prepaid services. That’s not going to change anytime soon. That model’s working just fine. Our customers want us to keep doing what we’re doing while offering more devices and national coverage.
