Dumbfounded! Will smart phones immobilize wireless carriers? Part I: identifying the vulnerabilities

America's Network, March 1, 2004 by David Chamberlain

Just how well prepared are the nation's service providers when it comes to managing the emergence of smart phone devices? It's an important question because smart phones are growing more innovative by the day. Fancy technological marvels such as the Treo from Handspring and the MXp-200 from Motorola offer the operating system, processing power and storage of a PDA married to the data access capabilities of the modern 2.5G or 3G network. That's good news for service providers desperately seeking to boost profit margins. They view these new phones as a means to lure scores of eager new partners to the mobile dance floor--or at least, enticing them to stay at the dance a little bit longer than usual.

Sprint PCS business marketing director Jeff Adelmann, for example, is clearly excited at the emerging wave of slick, smart phones offering tremendous new capabilities and software applications. "This is the first time we've seen Windows Mobile or PalmOS in handset-sized devices," Adelmann notes. One of his major competitors, AT&T Wireless, has even gone so far as to declare this "the year of the smart phone."

The problem is, when the music is over, it's the service providers who must turn out the lights. They are responsible for keeping the customer satisfied. And that may not be such an enviable task, since the more high-tech the product becomes, the more frustrated the customer can get.

EXPENSIVE SUPPORT

Take the experience of Intuwave, a U.K.-based company that has looked at the costs of customer support. Product manager Richard Seward says his firm found that customer service calls from smart phone users last roughly four times longer (25 minutes) than the six-minute calls from users of more traditional handsets. Using some back-of-the-napkin figures, Seward points out that even a modest population of smart phones can wreak financial havoc at a carrier. "Using a weighted cost of $2 per minute, each smart phone costs $100 per year. The cost to a carrier (such as Orange) having only 20,000 smart phones is in the neighborhood of $2 million."

Ouch! Will the cost of support be worth it? And how does that translate to the U.S. market? There are mixed forecasts for smart phone adoption, but Probe Group of Cedar Knolls, N.J. cites the generally declining market for PDAs worldwide as the basis for its relatively pessimistic forecast of 10 million smart phones in the hands of North American users by 2007.

Combined with Intuwave's estimates, smart phones could wind up increasing customer care costs by in the U.S. by $1 billion by 2007. The additional 8.3 million hours of tech support would require hiring over 4,000 highly-trained tech support reps. The carrier can't break even on customer support costs unless the smart phone customer has at least 10% greater ARPU.

WHAT, ME WORRY?

Most carriers appear to believe that smart phone users are generally tolerant of weaknesses in device functioning. In part, that's because they might be getting tech support from a variety of places. Verizon Wireless spokesperson Brenda Raney points out that "nobody buys a $600 phone because they want to play games with it. They travel a lot for big companies and are likely to have access to their own tech support or help desk."

Pragnesh Shah, vice president consumer service & sales support for Sprint PCS, agrees that tech support might be less of an issue for more technically proficient smart phone users. Those corporate users, Shah says, "are generally very astute users who recognize that there are many vendors involved in their overall experience with their smart phones. In many cases the actual end user is a lot savvier and can do a lot of the troubleshooting themselves."

The point is, customers are smarter and so are the phones. "There is a trend that is making the devices more robust and more user-friendly," says Adelmann from Sprint PCS. The handsets and applications are also thoroughly tested, he notes.

SELF-SERVICE?

Jason Gordon, product manager, mobile devices division of Microsoft, points out that there is now a new ecosystem behind smart phones. "In the past, there was only the carrier, the handset vendor and the infrastructure vendor, and it's not unusual for the latter two to be the same company," Gordon says. If something went wrong with a handset, it could be brought into a retail location and firmware reflashed or the handset could even replaced if need be. "Windows Mobile is designed for customers to do more for themselves," Gordon says.

That's the idea behind the Windows Mobile Start Services application from Microsoft. After buying a Windows Mobile phone, the new user goes to the carrier's Web site to set up phone functions and add wallpaper, ring tones and games. After the initial setup, that page continues to serve as the customer's page to update the phone and to buy services.

When customers can't fix a problem themselves, they end up contacting the carrier's customer care department. Verizon Wireless starts by keeping technical issues out of the customer service queues. Verizon's Raney says an interactive voice response system diverts smart phone users having technical questions directly to tech support reps rather than first speaking with a CSR that's trained on billing and coverage.