Upfront 2003: Technology

Ten years ago, the long distance business was one of the largest advertising categories, with more than $1 billion in spending, as AT&T, MCI and Sprint tried to coerce consumers into leaving one for the other. Now, the long distance business has receded far into the background. While AT&T and MCI are way down in spending, Sprint doesn’t even advertise long distance anymore.

That’s not to say the telecom category is dead. As a matter of fact, it’s booming, thanks to wireless, which has become reminiscent of long distance a few years back.

Despite 60 percent saturation in the United States, which, analysts say, may be the limit, spending among the top five wireless firms—Verizon Wireless, AT&T Wireless, Cingular, Sprint PCS and Nextel—jumped 32 percent in 2002, way out of proportion with subscriber growth, which, for some, has hit a wall. Cingular, for instance, saw its first drop in subscribers in 2002, as did Sprint PCS.

So if growth has slowed, why all the spending? For the same reason the long distance companies spent like mad in the ’90s: churn. With little brand loyalty in the category, customers are easily lured into switching services by price, phone selection and new so-called third generation, or 3G, services that include more robust Web surfing and color screens.

The carriers are trying their hardest to build brands. Take Verizon Wireless, whose Test Man character, introduced in early 2002, has become a successful hook, cited by some financial analysts to explain the company’s larger-than-average growth.

Telecom advertisers have jumped into cross-media promotion in a big way. Verizon Wireless was integrated into a February episode of ABC’s hit John Ritter-helmed sitcom 8 Simple Rules for Dating My Teenage Daughter. The question remains: Is Verizon benefitting from clever marketing, or from spending more money than any other brand in the world in 2002? (Verizon laid out $661 million last year, per Competitive Media Reporting.)

Rivals like Cingular and AT&T Wireless are no doubt pondering that. Meanwhile, they’re hedging their bets by continuing to boost their own spends. The outlook for 2003 is more of the same. Though spending sagged a little in the first quarter, analysts say fourth-quarter outlay should be huge and spending will continue to grow.

In one positive sign, WorldCom appears to be back on track, though this time around it is known as MCI. The new company, analysts say, is in good shape to compete, largely because it doesn’t carry any debt, a huge advantage over players like Verizon, which owes about $65 billion.

Meanwhile, the tech category continues to slump. Tech was the No. 13 category in spending, per CMR, and the first sequentially to cut its spend in 2002 versus 2001. The reason? Lackluster outlays for most of the big tech brands, like IBM (up 5.8 percent) and Intel (down 23 percent), and not much new blood. Dell, which continues to defy economic conditions, was the only standout, with a 142 percent jump in spending.

In an industry so closely tied to the economy, predicting a rebound is a fool’s errand. To make the picture even gloomier, there is no blockbuster product set for 2003. Microsoft’s biggest new product launch is a revamp of Office set for this summer, but that’s likely to be a relatively low-key launch.

There are some bright spots, however. Intel, for example, is betting big on Centrino, a new wireless technology it is backing with a $300 million global investment. AOL and MSN, meanwhile, must try to convince users rapidly fleeing dial-up for broadband to keep their services, which could mean bigger marketing investments. AOL took the lead with a high-profile, $35 million campaign that broke during the Academy Awards featuring actress Sharon Stone.

The stakes are high for both online dynasties, but especially AOL, which cut its ad spending by 22 percent last year. After parent company AOL Time Warner took a $99 billion loss for 2002, the company has to move quickly to hook users on its broadband content. Otherwise, it will find itself in the position of long distance companies—presiding over a dead-end industry in rapid decline.—

Prime-time Network Spending in 2002: $974.7 million*
Hot Buttons: Wireless?both technology and services?will fuel growth. Telecom rivals competing with cross-media promotions.

Category: Technology
PERIOD: Jan 1, 2002 – Dec 31, 2002

Advertiser: Prime-Time Network TV $$$
Verizon Communications Inc.: $247 million
Sprint Corp.: $220.8 million
AT&T Co.: $150.9 million
SBC Communications Inc.: $102 million
Microsoft Corp.: $98.3 million

Top Programs for Tech Advertising: Expenditures
ER: $26.8 million
Law & Order: $24.4 million
The West Wing: $22.5 million
Source: Nielsen Monitor-Plus