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The Ten Most Important Events of the First Quarter

HTC OneEnd of March greetings from sunny Dallas, Texas.  Normally, we take the end of the quarter to evaluate key long-term trends and see how they might change as a result of events.  We are trying a new end of quarter theme starting this week, highlighting ten key events (in chronological order) that shaped the quarter and likely the year.


More Brilliance from HTC – Will Anyone Notice? (and other events of the week)

Before getting into the quarter’s defining events, we’ll touch on this week’s news.  First, HTC launched their new version of the One (also called the M8 – see picture).  Generally, the reaction was as positive as the M7 received.  However, Ars Technica has a review that is not as flattering (click here for the article).  It is an absolutely gorgeous device, but, as the review points out, there’s a lot more to improve.


How do you improve upon the recently announced split of Harris Broadcast into Imagine Communications and GatesAir?  Launch products and frameworks designed to improve the efficiency of content delivery.  Imagine Communications announced the deployment of their new TV Everywhere platform on Thursday in advance of the National Association of Broadcasters (NAB) Show.  They also announced a new framework called MediaCentral which is based on modular (as opposed to proprietary) standards.  These announcements clearly show the rapid pace Imagine Communications will run to promote standards-based, cloud-based solutions.

cca sprint pictureWhile not a defining moment for the quarter, Sprint Chairman Masayoshi Son did make an impressive speech to the Competitive Cellular Association convention in San Antonio (video of his speech is here).  “Let’s Fight Back” was his rallying cry, as Son promised device support and capital funding for rural carriers.  The nearby map shows the possibility is substantial.  How the CCA members respond to Son’s impassioned plea for increased partnership means the difference between an effective Sprint enterprise data offering versus city-centric SMB services.


Ten Events That Shaped the Quarter

The first quarter of 2014 was filled with large, defining events.  Mega-mergers, landmark court rulings, and CEO changes fill the quarterly timeline.  Rather than attempt to priority sort each opportunity, we have decided to list them in chronological order.  Here are the Sunday Brief Top Ten of Q1 2014:


  1. January 8:  T-Mobile announces Uncarrier 4.0:  ETF Buyouts.  The wireless world was rocked by this annoucnement and it’s my pick for “most impacting event” of the first quarter.  Upping the ante from AT&T’s $450 to $650 per line put to rest any concerns about whether T-Mobile had the moxi to go for Family Plan gold.  As we will see below, their action sparked a series of pricing actions in the first quarter, including changes to AT&T’s Share Everything and Sprint’s Framily plan (which was technically announced on January 7 but managed to capture only one day of headlines).
  2. January 14:  D.C. Appeals Court remands Net Neutrality Order. While many analysts saw this ruling as inevitable, the D.C. Appeals Court ruling that “Because the Commission has failed to establish that the anti-discrimination and anti-blocking rules do not impose per se common carrier obligations, we vacate those portions of the Open Internet Order” rocked the communications world.  This announcement was accompanied in the first quarter by the disclosure that Netflix, one of the largest consumers of the Internet, has struck special transport deals with Comcast and that other service providers (see this week’s disclosure about a possible Apple/ Comcast arrangement) were contemplating the same.  While a Netflix deal will not impact Comcast’s first quarter results, a “pay for premium performance” alternative like the one being discussed with Apple would certainly change the competitive landscape.
  3. william baer photoJanuary 28:  FCC and DOJ greet Sprint/ T-Mobile merger with skepticism.  The first article to appear outlining resistance to the deal appeared in the Wall Street Journal.  It was accompanied by a New York Times interview given by William Baer, the assistant attorney general for the antitrust division at the Department of Justice where he stated “It’s going to be hard for someone to make a persuasive case that reducing four firms to three is actually going to improve competition for the benefit of American consumers.”  Mr. Son appears to be undeterred by the skepticism and has made an effective case, both this week to the CCA and previously to the US Chamber of Commerce, that a three carrier system is inevitable.  Meanwhile, thanks to T-Mobile’s effective actions, the gap between #4 and #3 shrinks every quarter.
  4. February 1:  AT&T announces dramatic pricing plan changes (and takes aim at Verizon in the process).  It’s hard to believe, but it’s been less than two months since AT&T took the dramatic step of lowering prices for most family plans.  We wrote extensively on why their initial launch was extremely confusing, but AT&T has been consistent with their messaging and offer – $160 for four lines of unlimited voice and text with 10GB of monthly shared data.  Although this does not include the monthly price of the phone (which could be as high as $27 depending on the device), AT&T’s plan has resonated in the marketplace.  They followed up their early February offer with lower prices on one and two line bundles in March.  One of the interesting things to watch for in the first quarter is to see the effect of this on Verizon’s net add performance.
  5. bill-gates-steve-ballmer-and-satya-nadella-greet-microsoft-employeesFebruary 4:  Microsoft names Satya Nadella as their new CEO.  Microsoft’s stock is back to levels not seen since 2000 ($330 billion in equity market capitalization as of Friday’s close), and it’s not because of the Nokia acquisition.  Despite a very tepid response to his appointment (“Picking a core insider down the hall from Mr. Ballmer is an underwhelming pick relative to the high hopes that investors had when this process started” was the reaction from one Wall Street Analyst), Nadella has wasted no time shaking up Microsoft, starting with this week’s announcement of Microsoft Office for Apple’s iPad.  Nadella is an excellent pick because he can streamline the bureaucracy without destroying it.  He will bond with CIOs in 2014 far better than most of those who were rumored to have been considered for the position.
  6. February 13:  Comcast announces that it is buying Time Warner Cable for $45 billion, rebuffing Liberty Media/ Charter’s January offer.  While it happened mid-quarter, it’s the event that has everyone talking.  It’s definitely the most polarizing and politicized event of the quarter, and promises to make lots of headlines throughout the spring and summer (starting with Cohen’s Senate hearing testimony on April 9).  The merger pitts one Washington insider, David Cohen of Comcast, against many consumer groups and states who are allies of the current Administration.  In the meantime, both companies are continuing with substantial capital investments (Comcast with Xfinity and Time Warner with their Maxx project) as they attempt to improve their customer experiences (see the Tempkin Group’s assessment here to see how far they both have to go).
  7. February 19:  Facebook announces that is is buying WhatsApp for $16 billion, raising the communications stakes with Google and Apple.  Along with the significant speed of transformation occurring at Microsoft, Facebook’s use of their soaring stock price to cement whatsapptheir social network leadership is the most underreported story of the first quarter.  Over the past year, Facebook’s equity market value has grown by nearly $90 billion.  That number had been as high as $119 billion until Facebook went on a shopping spree.  WhatsApp is the face of mobile messaging across the globe, and Oculus is the face (pun intended) of virtual reality in the gaming community.  Eye-popping figures for both companies, but essential to maintaining competition against Google and Apple (who had many acquisiitons of their own).
  8. February 24:  Samsung announces the Galaxy S5 and entirely revamped Gear lineups. Samsung used the Mobile World Congress to launch several new devices, including the Galaxy S5 and the completely revamped Gear lineup.  Both models are being aggressively pre-sold by each of the large wireless carriers with an official launch date of April 11.  samsung-gear-fit-03We wrote extemsively about the devices here and within the article there are many links to in-depth reviews.  I seem to be the only one who is fascinated by the use of the Taizen operating system on the Gear devices (especially in light of Motorola’s new watch design which is based on Android).  We are in the early innings of wearable technology development, and Samsung’s announcement showed the world how large the opportunity can be.
  9. March 3:  Disney and Dish Networks sign a wide-ranging agreement that allows Dish to transmit over the top (OTT) content to customers.  Decoupling transmission type from content has been an ambition of many service providers, especially DirecTV and Dish.  The Colorado-based satellite provider turned a routine retransmission negotiation into a transformational event which allows Dish to transmit live or recorded ESPN content over the Internet to subscribers of Dish’s upcoming Internet service.  In the process, it has elevated the value of last mile connectivity, and forced other content providers to revamp their OTT negotiations.
  10. March 14:  The Commerce Department announces that it is transitioning the function of the management of the Internet to the “global community.”  Regardless of individual libertarian leanings, this Friday afternoon announcement surprised many in the Internet world.  However, as we wrote about in a previous column called “ICANN Freedom,” the possibility of multiple core root files concerned many Netizens (and, if additional actions like the ones announced in March were not taken, Brazil was likely to be the first to break from ICANN).  Many critics were surprised at the unilateral nature of the announcement as opposed to its content.  More to come at the ICANN meeting in April.


That’s our take on the first quarter’s most pivotal events.  We welcome your comments and feedback as always.  Next week, unless there is breaking industry news, we’ll do a deep dive into the Wearables Wars.  Until then, if you have friends who would like to be added to The Sunday Brief, please have them drop a quick note to sundaybrief@gmail.com and we’ll subscribe them as soon as we can (and they can go to www.mysundaybrief.com for the full archive).  Have a terrific week!


ft worthSpring greetings to everyone from Las Vegas (81 degrees, sunny on Monday and Tuesday) and Dallas (60-80 degrees and windy).  The Patterson family even ventured over to Ft. Worth on Saturday with out-of-town friends for our first visit (picture is from the Ft. Worth stockyards).  A great town full of fiercely independent yet friendly residents.  

Windstream CEO Jeff Gardner impresses at COMPTEL

Las Vegas was the site of this spring’s COMPTEL show, which was well attended.  Under the leadership of new CEO (and former Congressman) Chip Pickering, the show featured Windstream’s CEO Jeff Gardner as the keynote speaker.  Jeff is a terrific presenter who matter-of-factly speaks about a company in substantial transition:

  1. jeff-gardner-comptelplusAccording to this Fierce Wireless article, Windstream has a voice relationship with 25 percent of their consumer customers where they operate as the incumbent local operator, down from 85 percent in 2005 (compare: AT&T disclosed in a recent filing that 70% of their voice customers had left for other options);
  2. As a result of the line losses, Gardner’s argument is that there is plenty of competition on the consumer side (for voice);
  3. Business competition (especially in the regions where Windstream operates as a competitor to the incumbent) is dependent on 1) access to last mile fiber facilities, and 2) interconnection rates.  Gardner emphasized access to last mile facilites (commonly called channel terminations) and the establishment of “fair and balanced Points of Interconnection (POIs)” in the business marketplace.

There’s a lot more in a second, wide-ranging interview here.  Windstream is one company we have not focused on much in The Sunday Brief, but, given their increasing integration of Paetec and the acquisition of medium-haul fiber acquisitions (which Windstream purchased for nearly a billion dollars including debt in 2010), the company may be worth a deeper dive.  Windstream’s strategy appears to be a lot closer to CenturyLink’s (e.g., Savvis) than Frontier’s (e.g., AT&T Connecticut/ SNET acquisition) at this point.

isp peering arrangementLevel3 and Cogent Agree to Join Forces…

Knowing that the headline would be sure to turn heads (especially with the Level3 and Cogent readers of The Sunday Brief), it’s probably best to finish the sentence “… to propose new interconnection measures as a result of the Comcast/ Time Warner Cable merger.”

There has not been a lot of talk about IP transit providers recently.  Like retransmission disputes on the video side of the cable business, the talk about transit only happens when something goes wrong (specifically, agreements break down).

For those of you new to the world of IP Transit, here’s a very simplified use case:

a)      A Nashville-based Netflix customer orders a downloaded copy of Bad News Bears in Breaking Training from the Netflix library.

b)      This does not happen to be one of the titles hosted by Netflix on their local (Nashville) servers.

c)       Netflix generates an IP query to their servers in California to retrieve the obscure title.

d)      This data is transmitted back through an IP Transit provier (Level3) from California to Nashville as quickly as posisble.

e)      At an interconnection point, Level3 hands off this traffic to Comcast.

f)       Comcast transmits this traffic through their network to the customer’s home.

If it were a more popular title (or the customer is located right near the Netflix servers in California), steps b) and c) might be eliminated.  However, the topic this week was the size of the interconnection pipe in described in e).  Level3 and Cogent both filed comments with the FCC this week calling attention to the availability of connectivity to the Internet Service Provider (ISP) network.

Level3’s filing states the interconnection conundrum very succinctly:

“Both tolls on edge providers and tolls on transit providers pose the same risks to the free and open Internet. That is, just as an ISP has the incentive and ability to charge tolls to edge providers in order to generate revenues (and which generate significant negative externalities), it has the same incentive and ability to charge tolls to transit providers to generate revenue. If an ISP’s tolls were charged and paid, transit providers, which operate in a highly competitive market which has seen tremendous price compression over the years, would have no choice but to pass these significant, additional costs on to those who purchase transit from them—the very edge providers that the Commission was attempting to protect from such tolls.

While the precise size of the tolls demanded vary from ISP to ISP, in Level 3’s experience they frequently equal or even exceed the price that Level 3 charges its customers for transit to those ISPs’ networks (and the rest of the Internet as a whole). Said another way, some ISPs want to charge an access fee for access to their little corner of the Internet (i.e. their customers) that frequently equals or exceeds the fees Level 3 charges its transit customers to reach every destination on the Internet.”

Simply put, Level3, who has historically charged customers based on product costs have now met up with Internet Service Providers who want to charge based on the product’s value.  This brief does not adequately summarize the full extent of the compexities involved in engineering IP traffic (given Netflix and other services’ growth), but there is a very good summary here (from Ars Technica) as well as from Level3 and Cogent.  Both are worth reading.

Interestingly, from the Ars Technica article, it appears that AT&T and Netflix have not come to terms (see Jim Cicconi’s response to Netflix CEO Reed Hasting’s article here).  This is intriguing as AT&T Mobility would stand to gain hundreds of millions of additional revenue dollars per year from increased revenues if the interconnection speed were increased (!).


In a sad reminder of the generational technology gap that exists throughout the world, we have the recent shutdown of Twitter in Turkey.  On Thursday, Turkish Prime Minister Recep Tayyip Erdoğan indicated that he would “Wipe Out Twitter” and summarily ordered Turkish ISPs to block access to the website.

Twitter responded with the following post instructing Turkish followers to tweet using SMS:

twitter picture 1

This problem appeared to be solved (500,000 tweets were sent out using the workaround in the 10 hours following the initial ban, with the hashtag #twitterisblockedinTurkey carrying the #1 ranking for much of Friday) until the Turkish government shut down access to this service and the entire Google Domain Name Service (DNS) website.

According to Statista, Turkey has the fourth largest number of Twitter accounts (12 million for the entire country with 7 million in Istanbul alone, according to Twitturk).  Tweeting is the primary means of communication for many millennials.

TURKEY-POLITICS-CORRUPTION-INTERNET-TWITTERIf that weren’t enough, Google faces a complete shutdown of YouTube in Turkey as a result of their failure to remove videos purporting to provide definitive evidence of the Prime Minister instructing his son to hide large sums of cash.  On that day, three former ministers’ sons homes were raided.  The YouTube video that has produced the strongest reaction from Erdogan is here. Erdogan has vehemently denied that the phone conversation ever occurred.  His office issued the following comments on Saturday according to this Reuters article:

“Twitter has been used as a means to carry out systematic character assassinations by circulating illegally acquired recordings, fake and fabricated records of wiretapping…It is difficult to comprehend Twitter’s indifference and its biased and prejudiced stance. We believe that this attitude is damaging to the brand image of the company in question and creates an unfair and inaccurate impression of our country.”

All of the activity is happening a week before national parlimentary elections.  More developments and full background can be found in the CNET article here, Ars Technica’s article here and yesterday’s New York Times article here.  It’s hard to imagine this type of treatment in a country who strives for democracy.  It took a nuclear option, but Turkey managed to silence social media.

Next week, we’ll provide a wireless preview of the first quarter, as well as the HTC announcement on Tuesday of their newest smartphone.  Until then, if you have friends who would like to be added to The Sunday Brief, please have them drop a quick note to sundaybrief@gmail.com and we’ll subscribe them as soon as we can (and they can go to www.mysundaybrief.com for the full archive).  Have a terrific week!

ICANN Freedom

brookside st patricks day parade 2014An early St. Patrick’s Day greeting to you from Austin, Kansas City (Brookside St. Patrick’s Day Parade pictured), and Dallas.  Tonight, several hundred Sunday Brief regular readers will be joining me at the Spring COMPTEL convention in Las Vegas (hope to see you there).  As we look for signs to help us better understand quarterly performance (next Sunday will begin the first quarter preview), there were several events this week that are worth mentioning and discussing. 



ICANN Freedom

icannlogoOn Friday evening, the National Telecommunications and Information Administration (under the Department of Commerce) announced that they would discontinue their role as the overseer of domain name functions for the .com and .org domains.

For those of you who are not familiar, ICANN controls the translation of domain names (www.mysundaybrief.com) to Internet addresses (10.10.xx.34.45).  Assignment and control of .com and .org domains was critical in the early days of the Internet (imagine if there were two underlying Internet addresses for www.aol.com – where would the earliest users of the Internet have been routed?).

The NTIA has long had a relationship with ICANN (Internet Corporation of Assigned Names and Numbers) to handle the administration of domains, and also contracted with Verisign to “perform root zone management functions.”  The contract with ICANN (and presumably Verisign) to perform these functions expires September 30, 2015.

In their announcement outlining the change, the NTIA specifically stated that they would not accept any proposal that did not have broad community support and that did not fulfill four principles:

  • Support and enhance the multistakeholder model;
  • Maintain the security, stability, and resiliency of the Internet DNS;
  • Meet the needs and expectation of the global customers and partners of the IANA services; and,
  • Maintain the openness of the Internet.

According to responses from several of you, ICANN’s reputation for independence had been unfairly tarnished by the Snowden scandal.  Brazil even threatened to create a competing domain to serve as the “anti-com.”

With any change of this magnitude, transition is critical.  It is just as important to have an Internet that functions across the globe as it is to have one that is independently governed.  Turning over the transition plan to ICANN (as opposed to dreaming one up at NTIA) is smart, provided that the current administration does not meddle.  Having the NTIA establish principles above is good; having NTIA employees editing transition documents to fulfill a particular agenda is not.

While this decision will inevitably be politicized and demonized, the increasing possibility of a bifurcated Internet (administered by the fastest growing populations of the world) drove the administration to begin the transition now.   It’s highly likely that ICANN will be able govern and steward the Internet far better in an untethered state.

Disney and DISH Connect Over the Top

Dish-and-Disney-logos__140221182509On March 3, The Walt Disney Company and Dish Networks announced a multi-year, wide ranging agreement that allows Dish to form an Internet-based over-the-top (OTT) supplement to traditional multi-channel programming.  Their full announcement is here.

While many focused on the fact that Dish was disabling AutoHop functionality for some shows for the first three days after they originally air, the real storyline was that Dish secured ESPN, ESPN2, WatchESPN, ESPN Classic, ESPN Deportes, and anything else you want to put over ESPN for their IP-based offerings.

With a well-designed channel guide, filtered for “shows you watch the most,” a Dish offering would be extremely compelling to current cable subscribers who have cable because of [insert network here].  For many 18-34 year old males, that blank is filled in by ESPN.  This is not the case for families, but for a very important minority, devotion to a handful of channels is driving advanced subscription package purchases.  When you combine live sports and family content, a Dish offering looks very compelling, especially at a $20-30 targeted price point (see Bloomberg article here which describes the price point).

The Bloomberg article also describes Dish’s next stop – NBC Universal, which is owned by Comcast. According to Bloomberg, NBCU “has to offer Internet rights to anyone who has already secured such a deal with another major programmer. The requirement was part of the consent decree for Comcast’s purchase of NBCUniversal.”  It also describes the fact that Sony had already signed an agreement with Viacom to offer streaming services through their PS4 video gaming system.

Can Dish amass enough content from NBCU, Disney/ ESPN, and Viacom to enable a viable offering?  Assuming this arrangement would also be offered by content providers to Comcast, Time Warner Cable and others, could the Dish offering be muted by the fact that the cable companies own the underlying cable plant (and High Speed Internet has margin room)?  Can individual subscriptions (one of the elements of the Disney arrangement) replace household pricing schemes?  Can wireless spectrum (including the H-Block auction that Dish recently won for $1.564 billion) save the day?

All of these developments seem to set up a relationship between Dish and either Sprint or T-Mobile (maybe both).  Given Sprint’s 2.5 GHz spectrum holdings (which have the best economic returns in dense metro areas), the opportunity to monetize Dish’s negotiating skills lies with Sprint.  Both companies have been silent on their south Texas trials, but if those are successful, expect deeper discussions and perhaps a wide-ranging deal.

masa son speechMr. Son Goes to Washington

Speaking of Sprint, Masayoshi Son, the Chairman of Sprint, delivered a compelling speech to the Chamber of Commerce in Washington, D.C. last Tuesday.  The full video replay of his message is here.

A couple of Sunday Brief readers went to the speech, and had similar takeaways:  global and charismatic.  “Son elevated the conversation” with his arguments that America’s standing in the world was at risk without a competitive broadband economy.  Another one commented that his personal story (coming to America at the age of 16 after the death of his father) made his arguments more compelling.  His promise of a price war, which Son made on Charlie Rose the night before the Chamber speech (interview excerpts here), appeals to consumer groups who are longing for the “WalMart of telecom.”

Son missed the mark on his speech, however, by failing to answer two questions:

  1. What scale is necessary in a particular metropolitan area to wage a price war?  He talks about a three way battle, but does not define the minimum weight necessary to compete in this class.  What if T-Mobile + Sprint is not big enough to compete in Atlanta or Charlotte?  There is a gap in the argument between “scale is needed to compete against the two largest carriers” and “therefore you should allow more business combinations.”  This is before you get to the argument about scale needs and the viability of effective competition in suburban and rural areas.
  2. How is it that T-Mobile is likely to gain customers more customers in 2014 yet they have less scale than Sprint?  Why should Sprint lead the consolidation parade?  The question that kept coming back in the speech is “But isn’t T-Mobile USA, a German-backed telecommunications giant, already doing that?”  Sprint led with unlimited pricing plans, but that was in 2008.  Sprint paired these unlimited pricing plans with the iPhone in 2011.  However, since last March, T-Mobile has been making the headlines, detaching phone subsidies from service revenues, changing international roaming rates, attaching small amounts of data with tablet purchases so consumers can “taste test” T-Mobile’s network, and launching an ETF buyout that is likely to result in more than one million postpaid net additions in the first quarter.  Son missed the opportunity to make the compelling case for Sprint’s leadership of the consolidation effort.

As T-Mobile and Sprint’s prepaid customer bases get closer in size, and as the gap shrinks between their retail postpaid bases, many in the telecommunications community are asking “Did Softbank place their chips on the wrong color (yellow, as opposed to magenta)?”  The answer is clearly no.  Sprint (and Clearwire) had to be acquired first.  Spectrum matters a lot, and, as we see from Dish’s ambitions, the need for spectrum in densely populated areas is going to grow (also a lot).  Masa clearly bought spectrum, and he is going to be able to deliver a superfast network in many metropolitan areas by the end of the year.

t-mobile mapOne Sprint/ T-Mobile use case that can be clearly shown is increased or coordinated joint construction – the “other 50 million” that Verizon and AT&T cover but T-Mobile and Sprint do not.  Start in the North Central states (where populations are growing, economies are booming, and capital outlays are relatively lower), and work your way South.  Find innovative ways to jointly solve in-building coverage issues.  Co-innovate on new applications and services.  There are a lot of proof points that both T-Mobile and Sprint can do this year before scaling the merger approval wall.

The US likes the “rule of three.”  Bruce Henderson coined the phrase in 1976 in a famous Boston Consulting Group article called “The Rule of Three and Four.”  Any combination to get to three will not cut it, however.  Proving the “three versus four” hypothesis through limited but relevant activities will speed the approval process.

Next week, it’s the first quarter earnings preview edition.  Until then, if you have friends who would like to be added to The Sunday Brief, please have them drop a quick note to sundaybrief@gmail.com and we’ll subscribe them as soon as we can (and they can go to www.mysundaybrief.com for the full archive).  Have a terrific week!

Wireless Pricing Battles Heat Up (and other Events of the Week)

twc store pic“Laissez les bons temps rouler” greetings from New York City, Austin, Atlanta, and Dallas (the picture is of the newly renovated Time Warner Cable store on 23rd street in New York).  It has been an eventful week in the telecom industry with each change supplementing three broad themes developed in previous Sunday Briefs:  a) the critical nature of data value to each wireless segment; b) the inertia pullling over-the-top content into the home through High Speed Internet connections; c) the role of scale (alone) in determining broadband and wireless winners and losers. 

AT&T Responds With Another Pricing Change.  So Does T-Mobile. 

AT&T chartWhile you were resetting your clocks, AT&T was resetting their low-end pricing plans for smartphone users.  This change at the low end follows AT&T’s very successful introduction of $160 family plan bundles (unlimited voice/text, and 10 Gigabytes to share across four lines).  AT&T’s new plans incorporate unlimited voice/ text and 2 Gigabytes of data to share for $65 dollars for one line and $90 for two.  Both plans require the customer to cover the cost of the device, either through a one-time payment or participation in AT&T’s “pay by the month” programs.

While $65/ month for 2 shared GB seems like a mediocre deal ($90 for two lines is much more attractive), T-Mobile took no chances and responded this weekend and rolled out “double data” packages for their low-end Simple Choice plan effective March 23.  For $50, T-Mobile users will now receive 1GB of LTE data before speeds are throttled, up from 500MB in the original plan.  For $60, current T-Mobile users will now receive 3GB of LTE data before data throttling begins.

That was the pricing activity that occurred this weekend.  On Friday, T-Mobile took an unusual step of raising prices on their unlimited data plan from $70 to $80 per month (this is still a very good bargain for heavy data users as it includes 2.5GB of HotSpot as modem usage).  Combined with the changes above, T-Mobile now has $50 (1GB), $60 (3GB), and $80 (unlimited with 2.5GB HotSpot usage) price points for the first line.  AT&T has $45 (300MB shared), $65 (2GB shared), and $95 (4GB shared) price points.

Pricing changes are occurring quickly as we exit the quarter, especially between T-Mobile and AT&T.  The ultimate effect of these plans on Sprint and Verizon is not clear.  What is certain is that consumers expect rate plan prices to fall, and are willing to trade off smartphone subsidization for lower data rates.

But What About Network Quality?  RootMetrics Data Declares A Network Winner. 

Rootmetrics study resultsAfter the dust has settled on pricing plan changes, consumers will increasingly ask “What about data speed consistency?”  On Thursday, the RootMetrics team released a thorough review consisting of “4.6 million test samples, 6300 indoor locations tested, and 218,000 miles driven.”  These reviews were all performed in the second half of 2013 (networks are a lot different in January than they were last July).

The winner(s) are Verizon Wireless and AT&T, as the included chart shows.  AT&T won Texas, Colorado, and North Carolina and managed to battle Verizon to a tie in most of the Southeast.  AT&T also won several cities within states where Verizon Wireless was declared the winner (see Georgia, where AT&T won Atlanta but did not win any other city in the state).

Sprint and T-Mobile, who were in the process of completing their LTE networks when the tests were being taken, did not fare as well, particularly in buildings.  This is why there is a lot of activity across the board to improve consistency between indoor and outdoor experiences.

While the results of the second half 2013 testing showed two tiers of networks (Verizon and AT&T scoring in the mid to upper-80s on a scale of 0-100; Sprint and T-Mobile in the mid-60s), recent results have shown a tightening of scores.  Here are the results from Minneapolis, released last November:

Rootmetrics minneapolis results

This three-way race was also repeated in the New York City test, where five points separate the top three finishers.  Smaller metropolitan areas such as Allentown (PA) and Syracuse (NY) remain bifurcated.

The question becomes “How much more money are consumers willing to pay for faster speeds, consistent throughput, and broader coverage?”  AT&T is betting the answer is $10-15/ month per subscriber, with Verizon’s figure nearly double that.  The answer to this question determines the future of the wireless industry.

The DOJ Appoints Hesse to Investigate the Comcast/ Time Warner Cable Merger

While the wireless carriers are engaged in a pricing battle, the folks at Comcast and Time Warner Cable were notified that Reneta B. Hesse (and not Bill Baer, the current head of the DOJ’s anti-trust division) will lead the investigation.  According to this New York Times article, Ms. Hesse “guided the FCC’s investigation of AT&T’s proposed takeover of T-Mobile.”

To the extent that having someone who can delineate the differences between large mergers is important (the AT&T/ T-Mobile merger would have created concentrations of subscribers and spectrum in many metropolitan areas), Ms. Hesse’s leadership will play a critical role.  However, the team investigating the proposed merger usually begins with a theme (or bias).  It’s hard to see this administration beginning with a “bigger is better” bias.  As many of us have discussed, it’s going to be a lengthy investigation and likely one where new precedents are created (as opposed to the enforcement of current anti-trust laws).

Coincidentally, David Cohen of Comcast continued his vigorous defense of the merger this week with a wide-ranging interview with Fortune magazine.  As he correctly pointed out (and as we described in a previous Sunday Brief), many in the industry have confused the private network arrangement with a substantial consumer of low-latency bandwidth with the core net neutrality concept of open access.

The approval process of the Comcast/ Time Warner Cable merger is likely the most-watched regulatory event of 2014 (and likely 2015).  David Cohen is a master strategist who guided Comcast through the NBC Universal investigations (a vertical merger).  Despite the rhetoric, there’s an argument that NBC Universal was a tougher case to defend than the horizontal merger being proposed.  Absent the creation of new anti-trust precedents (which is always a possibility), expectations of thrilling drama are likely to go unmet.

Speaking of Drama, What’s Going on at Sprint? 

This week also resulted in the announcement of the departure of two key executives at Sprint:  Bob Azzi (Chief Network Officer) and Steve Elfman (President of Products and Services).  This comes on the heels of the departure of Fared Adib (former SVP of Product) and the expected retirement of Bill Malloy (Chief Marketing Officer).  This comes on the December departure of Sprint’s Chief Sales Officers (Paget Alves) and Senior Vice President of Business Sales (John Dupree).  This comes on the heels of a small, VP and director-focused reduction in force (RIF) that has been going on since the beginning of the year.

Two articles help to shed some light on what’s behind the changes.  The first appeared several weeks ago in The Kansas City Star, the newspaper of record for Sprint’s hometown.  In this article, Masayoshi Son describes the situation:

“Sprint has gotten used to being a loser. It is perpetually stuck in third or fourth place in the U.S. telecommunications market. Some say the poor quality of its networks explains its position. This kind of excuse keeps Sprint from breaking the vicious cycle in which it is caught.”
“Without the correct leadership, even a company with capable managers and hard-working personnel will not be able to reach the top tier,” Son said. “This is why I sometimes yell at Sprint executives.”

While there is truth to Mr. Son’s comments (When I was an executive at Sprint, the Wholesale Groups’s rallying cry was to “beat our competitors every hour of every day, and beat the budget.” This mantra was not endorsed by many of my peers.), it’s disconcerting to see Son’s publicly demotivating approach, especially for someone who has a long-term view of the industry.

Sprint has been shackled since the Nextel merger.  The $25 billion investment by Softbank was a godsend to the company.  However, asking the recently recovered patient to win the next sprint courts an irresponsible risk.  As this article from The Wall Street Journal describes, this new approach has changed the way employees prepare for meetings:

Defenders of Mr. Son say he congratulates as often as he criticizes, occasionally hugging employees. Outbursts are normal, and the continuing turnaround effort at Sprint is a joint effort with input from Sprint and SoftBank, say people at both companies. One sign of progress: Managers now prepare for every meeting as if Mr. Son is going to ask the question they are most afraid of, according to people at Sprint and SoftBank.

The question Sprint is most afraid of is simple:  “Now that we have the capital, can we beat AT&T and Verizon?”  This will involve a mix of local network knowledge and accountability (combined with a complete end-to-end view of performance data), increased customer focus (including broad partnerships to meet wired and wireless needs for business customers), and a culture change focused on daily (or hourly) success.

Winning is possible, but the shot clock is running out and T-Mobile is on a three-point streak.  Play selection is critical.   Find a way to motivate, and victory is yours.  Focus on criticizing previous decisions, and the team falls apart.

Next week, we’ll talk more about events shaping our industry including the recently announced agreement between Disney and Dish Networks.  Until then, if you have friends who would like to be added to The Sunday Brief, please have them drop a quick note to sundaybrief@gmail.com and we’ll subscribe them as soon as we can (and they can go to www.mysundaybrief.com for the full archive).  Have a terrific week!

Did Samsung Take Over the Mobile World Congress?

sxsw-logo-2011-e1331152356668“In like a lion” March greetings from Dallas and Austin, TX.  Starting this week, Austin changes from small and hip start-up and live music town to the largest festival site of the spring with the onset of South By Southwest, a multi-week celebration of film, music, comedy, innovation, and pretty much everything else.  One of the start-ups I am working with is launching this week at SXSW and I’ll be there for the fun.  Hope to see you there if you are attending. 

Did Samsung Take Over the Mobile World Congress? 

Many of you who were at the Mobile World Congress sent emails describing your experience at this year’s MWC.  This Barcelona-based global telecom conference has been a mainstay of the industry, but has always struggled to find headlines due to the spring Cellular Telecommunications Industry Association (CTIA) show, which usually happened in March.  Splitting headlines with a competing show made both events weaker.

Samsung Galaxy S5 Smartphone and Gear 2 Neo SmartwatchFortunately, last year the CTIA decided to consolidate into one fall show.  This firmly positioned MWC as the “spring event” for mobile.  As a result, MWC was not only better attended (up 18% from last year), but, as many of you indicated, customer meetings were meaningful.  The network effect of having 4,500 CxOs from over 10,000 companies, as well as having keynote speakers like Mark Zuckerberg and Virginia Rometty, made the 2014 show a winner.  It’s (thankfully) not CES, but rather a global glimpse into the entire mobile telecommunications ecosystem.

With such a focused venue, it’s not a surprise that Samsung used the event to launch several new products last week.  As last week’s Sunday Brief was going to press, Samsung released details on the successor to the current smartwatch (the new watches are simply called the Gear 2 and the Gear 2 Neo – see pictures nearby sent in by a Sunday Brief reader).  There are many great write-ups on these watches, including here from The Verge.

The most interesting thing about the watch is not the hardware features, but rather the Tizen operating system.  It’s far too complex to write about Tizen and its heritage in this column, but a good summary can be found here.  Slowly but surely, Samsung is wedging its way onto the operating system stage.

At worst, Tizen becomes the leading platform for small devices that connect to smartphones – an operating system that is properly sized for connecting devices.  More likely, however, the Tizen platform becomes the first widely adopted non-US operating system.  Crediting Edward Snowden with the rise of Tizen is a real stretch, I know, but the presence of a non-US based alternative is enticing to an increasingly leery global smartphone community.  More details on Tizen’s presence at the MWC can be found here.

Samsung’s launch of the Android-based Galaxy S5 dominated Monday’s headlines.  Watching the event live-streamed through YouTube, it had all of the Samsung trappings of a global launch.  Several of you who were there thought it was a vast improvement from the over-dramatized launch of the Galaxy S4.  Rather than repeat other analyses, I’ll defer to the deep dives on the Samsung Galaxy S5 from Ars Technica and CNET.

Of interest to telecom operators is the Galaxy S5’s ability to use Wi-Fi and LTE at the same time to download information (heretofore, the data transmission was a mutually exclusive choice).  While the underlying capability (merging access from two data sources into one) has been around for years, featuring it on smartphones on a global scale is very new (and complex).  Samsung calls the feature “Download Booster.”  How they will feature this capability in a commercial will be very interesting (not wanting to offend LTE or Wi-Fi advocates).

xl_Samsung-Gear-Fit-2But the Galaxy S5 was not the only device introduced at the event.  The Galaxy Gear Fit was also unveiled on Monday and may have stolen stole the limelight from the S5.  Rather than releasing a smartphone with a curved AMOLED screen (a la the LG Flex), Samsung chose to use their developments in curved screens to focus on producing a fitness-oriented, phone-less device.  It kind of makes my Fit Bit Flex look like an HTC Mogul.   There are tons of reviews on the Gear Fit on the Internet.  My favorite is this one from Phandroid, not because of the depth of the analysis, but about midway through the review, he realizes that he might have set off the alarm.  Watching reviews like this is what makes writing the Sunday Brief enjoyable.

To answer the question, Samsung made headlines but did not steal the MWC show.  Mark Zuckerberg’s and Ginni Rommety’s keynotes were exceptional, and Ford unveiled the new 2015 Ford Focus at the show (as opposed to the Geneva Auto Show next week).  There was a lot of discussion about smartphone security, including the launch of the Blackphone (more on this in a future Sunday Brief).  And Fujitsu’s Smart Glove prototype provided a peek at how specialty devices can improve craftsmanship and quality.  I only wish I had been there to witness these launches personally.

T-Mobile’s Earnings Call:  Train Keeps Rollin’

On Tuesday last week, T-Mobile provided more details on their terrific fourth quarter and full year 2013 results.  As we have documented, T-Mobile grew 2 million branded postpaid customers last year while Sprint was losing a similar amount (excluding Clearwire and US Cellular acquisitions).  Despite 2013’s change, there’s still a very big spread between T-Mobile and Sprint for postpaid customers (7.3 million more for Sprint).  Their prepaid bases, however, are very similar (16.2 million for Sprint and 15.1 million for T-Mobile).  And, as we have mentioned several times over the past year, in 2013, T-Mobile on a pro forma basis was more profitable than Sprint prior to adjustments (and within 2% after adjustments).

The most important schedule for T-Mobile is their pro forma statement.  This gets rid of a lot of year-over-year noise (the Metro PCS acquisition closed in 2Q 2013).  Here’s a view of service revenues for the past eight quarters on a pro forma view:

T-Mobile pro forma schedule

It’s the “total revenues” line that draws the most interest, specifically the difference between this figure and “service revenues.”  This figure grew from $966 million in the fourth quarter of 2012 to $1.658 billion in the same period in 2013.  For those of you who are not following the accounting treatment of the conversion to Simple Choice plans (from traditional 2-yr post-paid plans), here’s a brief statement from T-Mobile’s 3Q 10-Q that will help explain:

Customers on our Simple Choice or similar plans benefit from reduced monthly service charges and can choose whether to use their own compatible handset on our network or purchase a handset from us or one of our dealers. Depending on their credit profile, qualifying customers who purchase their handset from us have the option of financing a portion of the purchase price at the point-of-sale over an installment period. Our Value and Simple Choice plans result in increased equipment revenue for each handset sold compared to traditional bundled price plans that typically offer a handset discount but involve higher monthly service charges. Our Value and Simple Choice plans also result in increased net income during the period of sale while monthly service revenues are lower over the service period.

This transition explains why T-Mobile’s revenues grow, but service revenues (on a pro forma basis) are actually shrinking.  Removing the up-front subsidy helps near-term profitability, but reduces ARPU.

In addition to the revenue pressure from plan changeover (which T-Mobile CFO Braxton Carter indicated would largely be completed by the end of 2014), T-Mobile indicated there would be cash flow pressure from the Carrier 4.0 (ETF buyout) initiative in the first quarter.  The ETF buyout will be applied to approximately 20-25% of T-Mobile’s gross additions with an approximate $200/ line buyout price tag.

However, as Braxton Carter put it “the huge skewing and the increase of Prime customers being attracted to the value proposition is also translating into higher ARPUs for those customers that are coming in.” So more Carrier 4.0 = higher ARPUs.

The effects of Carrier 4.0 should lead to a slower rate of decline for branded postpaid ARPU in Q1 and also lower churn for these customers throughout 2014 (assuming service levels meet customer value expectations).  On the conference call, T-Mobile set expectations of 2 to 3 million branded postpaid net additions for 2014, and something tells me a large portion of this will be seen in the Q1 figure.

Those in the industry who see T-Mobile as a “one trick pony” trading off handset subsidies for lower ARPUs should reevaluate their theses.  Provided that T-Mobile’s (data) network can keep up (and there’s no churn indication yet that it has missed customer expectations), the structural separation of Simple Choice plans, combined with aggressive marketing to switch carriers, may lead to a very different long-term industry model.

Next week, we’ll talk more about events shaping our industry.  Until then, if you have friends who would like to be added to The Sunday Brief, please have them drop a quick note to sundaybrief@gmail.com and we’ll subscribe them as soon as we can (and they can go to www.mysundaybrief.com for the full archive).  Have a terrific week!