DesiSi

Here's a sharp contrast between two telephone companies:

• Cingular offers a choice of more than 200 cell phones, 50 pricing plans and 43 choices of various optional services, bundles and discount packages.
• CBeyond, a smaller company focussed on small business, offers a choice of four cell phones and eight service options.

The financial performance of the companies shows an interesting gap. CBeyond, although smaller, is generating higher growth and much higher margins:

• Cingular revenue grew 10% in Q4 of 2006 and normalized operating profit grew 38%. (Cingular no longer reports financials because the company is now 100% owned by AT&T.)
• CBeyond revenue grew 32% YoY in the first quarter of 2007, while operating profit grew 68% and gross margin rose 2 points to 70%.

The gap, of course, could be attributed to the fact that CBeyond is still a small company.

But that would be to overlook some crucial differences in the company's business model. By offering a limited menu of service choices and by focussing on a narrow segment which is typically underserved by the large telephone companies, CBeyond has an ability to reap profit through simplicity. Fewer choices means fewer operating costs and more focussed selling. The 70% gross margin tells the story.

**Other Thoughts**

The Wall Street Journal's Informed Reader blog says many consumer devices suffer the same sort of feature creep that Cingular wireless customers are drowning in: "The strange truth about feature creep is that even when you give consumers what they want they can still end up hating you for it."