Advertising Age recently published its annual review of spending by the 100 leading advertisers. I was curious to see how the telecoms companies ranked in their data, and spent some time crunching the numbers.
First headline: The telecom players ranked in the survey end up as follows:
- AT&T: 2nd overall, with spending of $3.2 billion in 2007
- Verizon: 3rd, $3.0 billion
- Sprint: 15th, $1.9 billion
- Deutsche Telekom (T-Mobile): 52nd, $0.8 billion
- Alltel: 93rd, $0.36 billion
(The only company spending more than AT&T and Verizon in 2007 was Procter and Gamble.)
Let’s crunch those numbers a bit. First, let’s look at how much these companies spent in relation to their revenues:
- AT&T: 2.7% of revenues
- Verizon: 3.2%
- Sprint: 4.7%
- T-Mobile: 5.9%
- Alltel: 4.1%
With the exception of Alltel (more on them in a minute), the trend is very clear among the first four players on the list: the smaller they were, the greater a proportion of their revenues they spent on advertising. It’s obvious why: if these companies want to have a similar impact to the larger companies, they need to spend as close as possible to their larger competitors, but that amount is a (much) greater proportion of revenues for them. In fact, only Verizon actually approaches AT&T in size of spend (and it increased its spend 8% in 2007 while AT&T reduced its spend by 4%, perhaps thanks to the advertising Apple did on its behalf with the iPhone, but likely also because it was able to consolidate spending once it had unified its brands).
This is a massive scale advantage for the larger players, and a massive scale disadvantage for the smaller ones. For Sprint and T-Mobile to even remotely compete with the two big guys, they have to eat into their profits considerably more, which creates further disadvantages. Alltel, as to some extent a regional carrier rather than a national one, perhaps spends its money a little more carefully, realizing that large national campaigns are going to hit a lot of people not in its core service areas.
Another interesting set of data to look at is the media these companies spread their advertising over, and the portion of total spend that goes to each. One might think it would be fairly similar, especially for the larger players, but in fact there’s quite a range, as you can see from the chart below.
Alltel spends 71% of all its ad spending on TV advertising, while Verizon only spends 42% on TV. Verizon and Sprint spend 32-35% of their money on newspaper advertising, while AT&T thought that medium was worth only 15% of its spend. Meanwhile, Internet spending is a fraction of the total for all five carriers: from 5% for Alltel to 8.8% for Verizon. However, this reflects overall Internet ad spending trends as much as carriers’ reluctance to advertise there: Verizon is the third highest spending company on Internet advertising, while AT&T is eighth. But what drives this difference in the media used for advertising? Even if you allow for the fact that the balance between mobile and wireline offerings is different for these five carriers, that doesn’t seem to explain it. They just seem to have fundamentally different views of what’s likely to work best for them.
On another note, there’s no category in here yet for mobile advertising - for all the hype, it’s still tiny. and even Internet advertising, another category telcos could have a stake in, is just 4% of total advertising spend today (although rising relatively quickly). But it amounts to just $4 billion in total for the US in 2007, not a big pie for telcos to try to take a slice of. TV advertising seems a much better bet, to the extent that they can take a chunk away from the cable operators, with almost $35 billion of spending in 2007. Meanwhile, the cable companies themselves (with the exception of conglomerate Time Warner) don’t make it into the top 100 at all.
