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Ten Events that Shaped the Third Quarter (Part 2)

santa barbara sunsetGreetings from Santa Barbara (marina pictured), San Jose and Dallas.  This week, we continue our look at events that shaped the quarter and will likely shape performance throughout the rest of 2014.  The first five events from last week were:

 

July 15:                 T-Mobile embarks on significant small business channel partner expansion. 

July 25–31:          Verizon announces network management plans for LTE customers on unlimited plans. 

July:                       The LG3 and the Amazon Fire Phone launch in stores.  One is a surprising success. 

July 29:                 Windstream announces decision to spin off their network assets into a REIT.

August 5,6:         Sprint abandons plans to merge with T-Mobile.  Marcelo Claure named CEO at Sprint.

 

This week, we continue that list with the following events:

 

August 13:  Cisco announces 6,000 layoffs (8% of workforce).

In what has become an annual tradition (four years of annual layoffs and counting), Cisco announced that they will take a $700 million restructuring charge to lay off 6,000 employees.  Senior management was vague as to which units would be targeted, but the Service Provider (selling to telcos) and Government sectors are likely to see disproportionate cuts.  Based on comments after the announcement (see Business Insider article here that discusses internal conference call comments by COO Gary Moore), the Commercial Services unit (software, cloud, security, Internet of Things) should be the beneficiary of additional hiring.

 

The equipment industry is under a tremendous amount of pressure across the globe, and Cisco’s abilities to integrate acquisitions and to maintain their leadership in IP routing is critical to maintaining their industry ranking.  The expansion areas that they are trying to fill, however, are also in demand at companies such as Facebook, Google, Apple, and many others.  Can Cisco effectively compete for talent, and will companies look to them (as opposed to IBM, Verizon, Equinix or Amazon) for security or other cloud solutions?  One of the biggest questions in the post-Chambers Cisco (he will likely retire in 2015) will be “Can Cisco focus?”  The answer determines the future of one of the greatest companies in the Internet Era.

 

August 18, 21 and Sept 11:  Sprint announces new pricing plans.

Last week and in several Sunday Briefs, we have discussed Sprint’s new strategy to simplify their business and own the “value leader” title in wireless.  Sprint embarked on a three-pronged approach in August to address the Framily mess:

 

sprint rate chartAugust 18:  Sprint announces 20 GB of data + unlimited voice/text + an extra 2GB of data for $100 for every family account that comes to Sprint from another carrier.  The full rate card (which at first appears to be an eye chart but, as we discussed in a previous Sunday Brief, actualy simplifies Sprint’s current rate structure) is shown at right and also can be found here.  Sprint’s “We want you back” message could not have been clearer.   (Note:  while the waived voice/text is only a promotion, Sprint tucked an extension into their Samsung Galaxy Note 4 announcement earlier this week).

August 21:  Sprint announces single-line plan unlimited data pricing for $60/ month.  This covers the other end of the market which traditionally had been a strong base for Sprint (both postpaid and prepaid).  Interestingly, they did not include hotspot usage in their $60 price point (T-Mobile includes 5 GB of usage in their $80 comparable plan).  However, it does include some data prioritization as we noted in last week’s discussion of Verizon’s unlimited LTE plan throttling.

 

T-Mobile responded to Sprint with the following headline “T-Mobile Urges Its Customers to Rescue Beleaguered Sprint Customers.”  Their “Refer a Friend” announcement offers existing customers an Unlimited data upgrade if they refer a friend to T-Mobile.  Given the paltry 1 GB standard data allotment for Simple Choice plans (2.5 GB is a promotional rate for 2015 only), this was likely an necessary marketing (and PR) move.

 

September 11:  Sprint announces their “iPhone For Life” plans.  Of the three, this plan likely had the greatest single impact of the first quarter.  $70 gets you a new iPhone 6 and unlimited everything ($75 for the same plan and the iPhone 6 Plus).  To replace the Framily hamster, Sprint went for screaming women and breaking glass in their iPhone for Life commercials – is this an indication of their newfound target audience?

 

Have Sprint’s pricing plan changes had any effect on others in the quarter?  Just yesterday, one of the Sunday Brief faithful sent me a link to an Engadget article showing AT&T is now offering double data through the end of October (30 GB for $130 is not 20 GB for $100 but will be viewed as a plus for families who are tripping the $100/ 10 GB level).  Looks like data can be used as a weapon by all sides.

 

August 26:  AT&T announces reorganization; Ralph de la Vega and Glenn Lurie promoted.

delavega lurie pictureIt’s rare that we have two substantial changes in one quarter, but just after the Sprint announcement of Marcelo Claure as CEO, AT&T announced that Ralph de la Vega and Glenn Lurie would be promoted.  Ralph will lead the combined Business and Mobility units, and Glenn will report to Ralph as CEO of AT&T Mobility.  Andy Geisse announced his retirement from AT&T after 35 years with the company.  (Picture is from Mary Chan’s appearance on connected cars wth de la Vega and Lurie at this year’s CTIA show).

 

It’s important to note that AT&T has already been working on integrating its network and operations functions.  The changes described above impact AT&T’s sales (including retail stores) and marketing efforts.  Four principles were cemented with this announcement:

  1. Emerging devices are no longer emerging and will be more highly integrated into the AT&T marketing message than they are today;
  2. AT&T’s has not given up on enterprise as a channel. They will likely double down on their systems integrator relationships to increase the value of their security and cloud product lines, and will continue to aggressively use their enterprise presence to promote special plans for employees;
  3. AT&T’s relationships with Amazon and Apple are going to get stronger, not weaker (see AT&T U-Verse announcement which combines Amazon Prime with U-Verse here);
  4. U-Verse still requires separate, focused attention. Growth is good, but profits are likely going to lag expectations.  Giga is going to help with the high end, but the mainstream U-Verse product is still in critical condition.

 

More to come on this restructuring (I have not heard anything about restructuring charges or even a moderate layoff, but if they were to come, we would see them in with third quarter earnings).

 

Sept 9:  iPhone 6, iPhone 6+ and Apple Watch announced.

Without a doubt, the largest event of the quarter and one of the biggest of 2014.  While there were a number of leaks, the hype around both the announcement day and the first sales day were practially unchanged from the iPhone 4 and iPhone 5 announcements.  10 million iPhone 6 and iPhone 6 Plus devices later, the waitlists are still long and customer reviews (except for BendGate – see Consumer Reports review here) are extremely positive.

 

What did Apple do to the iPhone 6 that made this such a strong performer?  For a full and thorough review of the device, this article from Ars Technica is a must read.  The bottom line is that Apple made the iPhone bigger.  This was what was missing from the iPhone 5 (which, as some of you have noted, is taller, but still “small hands friendly”).

 

The concept of bigger is nothing new (see the Samsung Galaxy Note advertisements for reinforcement). Size, however, triggers a rewrite of most apps in the iTunes store – that did not happen with the introduction of the iPhone 5.  See the Ars Technica article for more details, but reintroducing and upgrading hundreds of thousands of applications is a big deal.  The App Store is in need of a revamp, and this should start the process.

 

Looking ahead, Apple will have several improvement opportunities for the successor to the iPhone 6, but size will not be one of them.  Overall, the biggest changes were in iOS 8, and for the iPhone faithful who did not purchase an iPhone 6 Plus, that’s where the impact will be felt.  More on this as we scrutinize Tim Cook’s earnings conference call comments.

 

Sept 18:  Verizon announces another XLTE milestone.

verizon-4g-coverage-100268429-largeOn the heels of AT&T’s announcement that their LTE network had hit 300 million POPs in coverage, Verizon announced a significant number of new markets on its AWS spectrum (branded Verizon Wireless XLTE).  This announcement caught minimal mention in the trade media, but it’s important to see it in several lights.

 

First, Verizon has largely completed its initial AWS build.  Everything from now on is an augment (faster deployment, lower incremental costs).  This will allow it to better value the AWS-3 spectrum that is scheduled to be auctioned in August.  It is expected that Verizon and T-Mobile will be the big spectrum winners for these bands.

 

Second, it allows Verizon to enjoy a competitive advantage in secondary markets where competition is diminished.  Covering 400+ communities with 700 MHz LTE + 1700/2100 MHx AWS frequencies sets them apart as a bandwidth leader.  Verizon is also going out of their way to make it easy to buy up to an XLTE device.

 

Finally, it gives Verizon a lot of capacity for fourth quarter promotions.  This wouldn’t be the first time Verizon offered a double data offer.  Any sort of counter-offer to AT&T’s double data would have a meaningful impact to Sprint’s turnaround.  While Verizon is extremely sensitive to network overloads, they might have to counter any double data initiative to stay competitive in the fourth quarter.

 

While on the topic, I should mention another Verizon event that bears at least a Sunday Brief Top 10  Honorable Mention.  In late July, Verizon FiOS announced that they were making all of their speed bands symmetric (including the popular and heavily promoted 50 Mbps band), and that they were raising the speeds of their entry level broadband from 15 Mbps down/ 2 Mbps up to 25 Mbps symmetric (available for $64.99/ month as a standalone service).  The symmetric angle caught a lot of the cable industry off guard and may have moved the needle higher for FiOS in selected markets.  I don’t think it makes as much difference as the Verizon XLTE announcement (network speeds, reach, and quality are the pillars of Verizon’s value proposition), but it could have a small impact against TWC, Cablevision, and Comcast in the Northeast.

 

That’s it for the Sunday Brief Top Ten events for 3Q 2014.  Comments and suggested modifications welcome.  Next week, we’ll focus on the future of the wireline industry in advance of the COMPTEL conference (October 5-7 here in Dallas).  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).

 

Thanks again for your readership, and have a terrific week!

Ten Events that Shaped the Third Quarter (Part 1)

20140919_101303-1Greetings from Kansas City, Denver, Austin, and Dallas (yes, it’s been a travel week).  While helping StepOne with their office move (more on StepOne here), I came across one of those low-tech innovations created by local brewery Austin Beer Works:  the 99-beer case.  (Why do I have a feeling that this will become a common sight around university campuses in the greater Austin area).  Just goes to show that innovation need not be confined to hardware and software.

 

I received several comments on last week’s brief indicating that I was being biased towards the “edge providers” meaning AT&T, Verizon and Comcast.  Having been in the middle of interconnection and peering negotiations and discussions for the better part of the last decade (these were Tier 1 backbone vs. Tier 2 IP peering negotiations), I appreciate the frustration that all sides of this debate feel, especially as new technologies like 4K place even greater strain on the system.

 

I absolutely love the impassioned dialogue and perspectives that many Sunday Brief readers bring to the table.  Understanding multiple perspectives is what increases our total knowledge.  Chairman Wheeler’s comments implied that greater wireless regulations were coming as result of actions such as those described below (see July 25-31 Top Ten item).  I am just not certain that the FCC can fix cell site congestion issues in West Des Moines or Manhattan better than Sprint or T-Mobile.

 

One idea that was raised is increased reporting disclosure for both wireline and wireless providers.  Before signing up for AT&T U-Verse, it would be useful to know in my neighborhood how many new connections AT&T made, what the average attained speeds have been for the past six months to a year, and how many customers left within 90 (or 120) days of activating service.  This information could be easily made available and disclosed in conjunction with any advertisements through a hyperlink.

 

No doubt that there will be anamolies, but, like airlines who have to report lost luggage and average flight delays, we’ll see who is delivering on their promises and who is falling short.  And while some companies may be afraid of how this information will be used, I think it might actually lower operating costs in those neighborhoods with old plant and long loop lengths.  Using aggregated information that would allow consumers to evaluate price/ performance tradeoffs before they purchase broadband services would be a home run for the Commission and the industry.

 

On wireless, this will be a bit trickier, but perhaps the FCC could sponspr a report by cell site showing average throughput, how often the site reaches its maximum, and other information for each carrier (this information is used to manage the network today).  Citywide data is largely available today through RootMetrics who tests many cities every six months (I am a frequent reader – here’s their latest report on Salt Lake City). This would allow customers to acurately gauge their expected troubles with their service prior to purchasing a wireless product or service.

 

There is a meaningful role for the Commission as wireless and wireline broadband continue to grow rapidly, but it centers on customer needs and measuring carrier performance, not operating IP interconnection points.  More to come in October as the FCC announces their action plan.

 

Ten Events That Shaped the Quarter

For the next two weeks, we will explore the top 10 events (in chronological order) for the third quarter.  If you would like to see the first and second quarter write-ups, they are here and here.  These events promise to shape the futures of many communication service providers over the next 6-12 months.

 

July 15:  T-Mobile embarks on significant small business channel partner expansion. 

Having made significant product and pricing changes that we outlined in our review of key events of the second quarter, T-Mobile turned their attention in July to increasing their small business distribution.  After considerable testing and refinement, T-Mobile announced their Channel Partner Program in July, starting with six master agents:  Planet One, Innovative Communication Services, Cellular Optimization, Advocate Networks, TBI & Nexlink.  It is likely that these partners were able to have a moderate impact on T-Mobile’s overall additions in August and September, and will become an even more important part as T-Mobile rolls out Wi-Fi calling for business customers.

 

July 25–31:  Verizon announces network management plans for LTE customers on unlimited plans. 

Things really began to heat up at the end of July when Verizon announced their plans to disproportionately limit LTE speeds for Unlimited plan subscribers.  Their announcement (see here), drew immediate criticism from FCC Chairman Wheeler.  From his letter to Dan Mead, President and CEO of Verizon Wireless:

 

“Reasonable network management” concerns the technical management of your network; it is not

a loophole designed to enhance your revenue streams. It is disturbing to me that Verizon Wireless would base its “network management” on distinctions among its customers’ data plans, rather than on network architecture or technology.

 

dan mead verizonVerizon responded through comments from Mead in which he said “our network practices have been midunderstood by the Chairman” as well as through a letter from Kathleen Grillo, Verizon’s SVP of government affairs, which outlined the specific terms where optimization would take place.  While her “everyone is doing it” response drew particular ire from the media, Sprint snuck into the fine print of their new 20GB for $100 data plan (which will be covered next week) that “Other plans may receive prioritized bandwidth availability. To improve data experience for the majority of users, throughput may be limited, varied or reduced on the network.”  I guess if you can’t beat ‘em, join ‘em.

 

The final chapter has not been written on this saga.  Look for increased rhetoric (and more) in the fourth quarter.  If bit prioritization has to occur (and it does at certain urban cell sites during certain times of the day), Verizon’s approach appears to be sound and fair to all users.

 

July:  The LG3 and the Amazon Fire Phone launch in stores.  One is a surprising success. 

There were several memorable devices for the third quarter (and we will cover the iPhone announcement and launch next week).  One surprise was the LG G3, which was called by Engadget “the company’s best phone yet.”  By the end of August, many were speculating that worldwide LG G3 sales has topped 10 million, which would make it the best selling device in their history.  While LG’s quality has always been above par, current reviews have been very strong, and this explains why there are many stories showing it’s challenging Samsung Galaxy S5 sales outside of the US.

 

LG G3Contrast this with the Amazon Fire Phone.  We have written on this in several previous articles, and will discuss in greater detail next week when we talk about Amazon’s revamped Kindle lineup.  As Engadget summarized in their review, “Amazon’s debut phone isn’t bad, per se, but there’s little incentive for anyone to switch carriers or platforms to buy it. Its unique features don’t provide enough utility, and come at the expense of both battery life and performance.”

 

What made the LG G3 so successful was also what doomed the Fire Phone from the start – distribution.  Amazon should have called the Nokia folks who tried unsuccessfully to re-launch their company in the US with the Lumia 1020 in 2013 (see article here).  Fortunately, Amazon has made some terrific decisions on new versions of the Kindle which more than make up for Version 1 of the Fire Phone.

 

July 29:  Windstream announces decision to spin off their network assets into a REIT.

This announcement gave traditional wireline telephone providers some late July media exposure.  Windstream faced the opportunity to reclassify their local network assets (which they will continue to manage), and, in the process, achieve more favorable tax treatment on the associated dividends.  The company pledged to spend the foregone taxes on driving up penetration of 10 Mbps and 24 Mbps speeds throughout their footprint.  See their announcement here for more information.

winstream stock price chartAs the stock price chart shows, Windstream was already on an earnings roll prior to the announcement.  Their disciplined decision structure and management expertise has helped them recover from significant market share losses to the cable industry.

 

Interestingly, no one has followed Windstream’s announcement – yet.  Anything that complicates potential future consolidation (perceived or real) might not be attractive to Cincinnati Bell, TDS, or Frontier.  Windstream will always have the distinction of being first – they will likely not be the last.

 

August 5,6:  Sprint abandons plans to merge with T-Mobile.  Marcelo Claure named CEO at Sprint.

The changes at Sprint (covered today) and the associated disruptive pricing changes (to be covered next week) may be the biggest event of the third quarter, and likely one of the top five for the year.  As has been discussed in numerous retrospectives, Sprint’s ability to receive regulatory approval for their proposed merger with T-Mobile faced headwinds from the start.

 

Hesse’s exit was as quick as the changes that Claure has and will implement.  In the past several months, Dan Hesse (CEO), Steve Elfman (Network and Wholesale), Bob Azzi (network), Paget Alves (sales and retail), John Dupree (enterprise sales), and many other senior executives have been shown the door.  According to this Kansas City Star article, Sprint has already reduced their work force by 3,000 or 8% since March, and that further changes in the network and IT organizations are largely a reflection of decentralization and Vision wind-down activities (both pre-date Claure’s CEO tenure).

 

Cutting jobs outside of network and IT would likely mean changes to Sprint’s distribution strategy.  Sprint still has approximately 1200 company-owned stores which employ approximately 20,000 employees.  One of Dan Hesse’s first acts to stem the bleeding in 2008 was to close 140 stores and eliminate 4,000 other third-party retail relationships (see Q1 2008 earnings release here).  His successor will likely follow suit and prune the store network outside of Sprint’s Spark markets.

 

As I indicated in my Bloomberg interview (see here), Marcelo is an entrepreneur.  He learned about the telecom industry from a procurement and logistics perspective.  Judging from his first six weeks in the new role, this background should serve him well, but needs to be supplemented with a keen and precise understanding of where sustainable competitive advantage can be demonstrated.  The answer to that question may take longer than six weeks to answer.

 

Next week, we’ll cover the remaining five events and talk about their implications to the all important fourth quarter.  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).

 

Thanks again for your support, and have a terrific week!

Chairman Wheeler Disappoints

SMW_C2014_SliderGreetings from Las Vegas and Dallas.  Having spent three days at the Cellular Telecommunications Industry Association (CTIA) event, which was briefly shadowed by Apple’s iPhone 6 and Watch announcement, I am pleased to report that the wireless industry is alive and kicking (and, in the case of T-Mobile’s recent announcement that they had a blockbuster August with 2.75 million gross and 760,000 branded retail net adds, I think we could say they are high-kicking).

 

There were many newsworthy items outside of the Apple announcement this week – we’ll look at three, starting with FCC Chairman Tom Wheeler’s keynote speech.

 

Chairman Wheeler Disappoints

Tuesday morning, Chairman Tom Wheeler had a short but sharply worded speech for the CTIA attendees.  First, on competition, Wheeler stated “We will continue to be skeptical of efforts to achieve scale through the consolidation of major players.” While this statement appeared to be directed to further efforts to merge wireless companies, one can only wonder what implications this will have for the AT&T/ DirecTV merger prospects.

 

tom wheelerIn his comments preceding his thoughts on the Open Internet, Wheeler recounts “I remember when this industry was united around the walled garden where the only apps that reached the consumer were those which the carrier approved, usually in return for a payment.”  I believe he is referring to a pre-iOS/ Android world where smartphones were not mainstream and the most popular app was Blackberry email (and average smartphone consumption was less than 50 Megabytes per month).

 

Wheeler appears to blame the wireless industry’s walled garden practices for stifling innovation stating “it is instructive that the walled garden existed despite multi-carrier competition.”  This seems to imply that protective policies of AT&T, Verizon and Sprint were holding back smartphone development, which is revisionist history at its finest.

 

As one who participated in the conversations, carriers were looking to grow data ARPU starting with the launch of 3G (HSPA, EVDO-Rev A networks) as early as 2005.  The applications business model was driven by four operating layer support systems – Palm, Microsoft Windows, Blackberry, and Binary Runtime Equivalent for Wireless (BREW, developed by Qualcomm).  It’s important to note that all of these companies tried to make money through software development kit sales (a common practice), not through hardware or through increased advertising.  The carriers, in turn, wanted to convert application fees into either ARPU-accretive monthly fees (think AT&T Navigation app) or through one-time application sales (think SCRABBLE game app).

 

The rest of the story is well known.  Apple entered the market with higher wall (iOS, which had no compatibility with any other operating systems) to support further equipment sales, and Google quickly followed with a compatible model to support increased search.  Apple refused to allow certain Google apps from accessing the app store, and to this day refuses to allow applications to access incoming caller ID information.  Google developed a handful of proprietary apps (search, maps, etc.) that are mandatory on every Adroid phone.  To this day, an Apple user cannot freely move purchased or free apps or content from iOS to any other application.  Using early pay walls from carriers as an example of uncompetitive practices in the shadow of those created by Google and Apple is disingenuous and nonsensical.  The wall is now between the consumer and their smartphone operating system provider, not their carrier.

 

Wheeler then goes on to raise concerns about wireless carriers’ marketing practices:

 

We are very concerned about the possibility that some customers are being singled out for disparate treatment even though they have paid for the capacity that is being throttled.  And we are equally concerned that customers may have been led to purchase devices relying on the promise of unlimited usage only to discover, after the device purchase, that they are subject to throttling.  I am hard pressed to understand how either practice, much less the two together, could be a reasonable way to manage a network.

 

The problem with this statement is that this “bait and switch” practice, if it exists, is extremely rare in a world where network upgrades are the norm.  Excessive use clauses found in fine print throughout end user agreements clearly state that excessive usage could result in throttling or even suspension of service.  Managing the 1% who use more than 30GB per month is good for the overall monetiztion of the network because it allows the 99% who are sharing that network more equal access to the Internet.  An alternative exists for those with excessive usage – it’s called a metered plan.  Wireless carriers should honor their commitments under unlimited plans, which include those to the 99% that do not routinely incur extremely high usage.

 

The FCC Chairman’s message was the biggest disappointment of the show.  His populist intents will drive metered plans at a faster pace for those who can least afford them, and will create a two-tiered access network structure (3G vs. LTE) for the carriers.  The full text of Wheeler’s comments can be found here.

 

T-Mobile’s Wi-Fi Calling:  Back to the Future

t-mobile personal cellspotOne of the interesting developments at CTIA occurred when T-Mobile announced their in home Wi-Fi initiative (see news announcement here).  For those of you who have followed the wireless industry for the past decade, T-Mobile’s announcement is no surprise.  They have been innovating with Wi-Fi voice since the Blackberry/ Cablevision trials in 2007 (see T-Mobile’s 2007 Voice over Wi-Fi press release here).  In addition, T-Mobile introduced the Personal CellSpot (pictured) which delivers superior voice quality within the home (it does so by prioritizing Voice over Wi-Fi traffic over Netflix/ Hulu/ HBO to Go and other users, something sure to agitate Internet neutrality advocates).

 

Unlike the days of 2007, when a small fraction of the T-Mobile base had unlimited calling/ texting plans, it’s impossible to buy a Simple Choice Plan without unlimited minutes.  With no incentive to drive adoption, will customers go through the process of enabling Wi-Fi calling?  Will all calls made without an installed Personal CellSpot default to using the Wi-Fi feature, or will the service be toggled through the Settings menu (as is the case with Sprint’s current Wi-Fi calling)?  If a Personal CellSpot is not purchased, will call quality be as good/ strong (this depends on the quality of the router, but with 20 current and hundreds of previous versions of popular routers, troubleshooting will be a nightmare).

 

Wi-Fi calling is a convenience for the voice centric callers who have unlimited plans.  But it does lead to a important question – Is the next value disruption going to come from the reintroduction of voice “bucket plans” – at least as an option for low minute family plan lines?  I could definitely see the “lines 4 and 5 are subject to 100 minutes of on-network minutes per month” footnote in a future family plan.  For those of us with teenagers, overage risk is minimal.  And with the iOS messaging changes announced in last week’s Sunday Brief, the only time most teens will be using minutes is when their parents are calling them!

 

Bottom line:  T-Mobile’s Wi-Fi calling is great, and, given their pioneering status, should work very well.  But it will not prove to be as valuable as other Uncarrier moves (international roaming, Jump!, and the like), and it’s definitely not as attractive as Verizon’s “free iPhone 6 with trade-in” announcement.

 

Kindle Fire Phone – Too Little, Too Late? 

The day before before Apple’s iPhone 6 announcement, I received a notification that the Kindle Fire Phone was going on-sale for $0.99 with a two-year contract from AT&T (this is attractive to some of Amazon’s most loyal customers because each Kindle Fire Phone purchase includes a full year of Amazon’s Prime service). Free phone is a far cry from the promises that surrounded July’s announcement.

 

fire phone freeThere are a lot of things that Amazon has done well, but the Fire Phone will go down as a failure because of their flawed approach (see this Sunday Brief for our original take on the device).  Amazon believed that they could be successful by out-innovating and out-marketing Apple, Google, Samsung, LG, Blackberry, Nokia and dozens of other equipment suppliers.  On top of this, they believed that exclusivity to the AT&T brand would help, not hurt, sales. Customers responded with at best a collective yawn (or, at worst, see here for the study that suggests that that intent to purchase an Amazon phone ranks behind Windows – yikes!).

 

More device innovation is not Amazon’s solution.  To drive the Kindle franchise, Amazon should reach back to one of their past successes – sponsored data.  WhisperNet (originally from Sprint, now provided by AT&T) guaranteed book delivery in a minute for no extra charge.  The “no extra charges” guarantee for nearly instant book delivery drove adoption.  Why not do this with the full Amazon Prime suite, including Free Time and Amazon Instant Video?

 

Amazon can and should lead the industry on sponsored data.  It would be a body blow to Netflix (especially with Amazon’s robust server infrastructure), and allow AT&T (first) and the entire wireless industry to accelerate growth.  Kindle Fire sales, now with x GB of pre-loaded data, would explode (even at price points that are $50-99 higher than today).  Amazon Prime membership would triple, and Amazon’s advertising presence would quadruple.

 

Bottom line:  Amazon should drop the Kindle Fire Phone, and aggressively include data with future Kindle Fire and Amazon apps for all Amazon Prime customers.  Start with AT&T, but quickly expand to T-Mobile, Verizon and Sprint.

 

Next week, we’ll preview third quarter earnings based on CTIA and recent investor conference commentary.  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).

 

Thanks again for your support, and have a terrific week!

 

Apple’s Second Big 2014 Announcement

 

opening pictureSeptember greetings from Louisville, Kansas City, Austin, Atlanta and Dallas.  Hoping each of you had a terrific Labor Day holiday.  Several hundred of you will be joining me for the (now) annual Cellular Telephone Industry Association (CTIA) gathering in Las Vegas.  Based on the keynote and panel agenda, there should be plenty of headlines from the show.

 

Apple’s latest products announcement occurs just  as CTIA kicks off.  The timing couldn’t be better.  Samsung reminded the world at their new product announcement that larger screens are yesterday’s news. As they introduced the new Galaxy Note 4 and Note 4 Edge, I couldn’t help but think about where this is headed.  We have reached a practical limit on screen size (5.7 inches) and associated processing capability (2.7 GHz quad core processor).  New devices can easily handle a larger-sized Android operating system release from Google (KitKat upgrade file sizes range from 477-877 MB).  Battery life continues to be an issue but it’s a lot easier to manage than previously.  Any delays in phone responsiveness are most likely driven by connectivity issues, not processing.  To see how hard it is getting to distinguish one Note from another, have look at the spec sheet comparison between the Note 3 and Note 4 here.  The variances are too small to drive annual upgrade cycles (and products such as T-Mobile’s Jump!).

 

Simply put, Apple will now enter the large screen arena with the LG G3 and the Samsung Galaxy Note.  The cost of the iPhone 6 will be a few hundred dollars more than their smaller counterpart.  It will run the same operating system and support the same iOS applications as the 5c and 5s.  The portion of Apple’s devoted fan base that likes to own the latest device will go and purchase one.  And, while there will be some display improvements, the iPhone 6 will not be declared a “must have upgrade.”  Why?

 

Tuesday’s Announcement:  Not as Impactful as WWDC

The reason for this is because Tuesday brings Apple’s second big announcement.   The first came on June 2 when Apple announced iOS 8.  Unlike the substantial changes that came with iOS 7 (which focused on tile appearance and applications organization), iOS 8 is geared to application performance.

 

For example, notification response is changing.  If you receive a calendar request, the notification will allow you to respond within the message (as opposed to taking you to the calendar app).  There is also a limited ability to respond using Apple’s iMessage app.

 

seamless interconnectivityApple also introduced Handoff, which allows users of multiple Apple products (e.g., Macbook Air and an iPhone 5s) to create content seamlessly between devices.  Handoff was immediately opened to all third party developers when it was announced in June.  This will take Evernote and other third-party notetaking applications to a new level.

 

Seamless inter-connectivity between devices does not stop at emails and documents.  Apple has extended it to messages (no surprise) and phone calls (which raised the “How’d they do that?” eyebrow at June’s  WWDC).  As it has been explained in many publications (see here for the Ars Technica article), Apple uses a Wi-Fi connection from the laptop or tablet to the iPhone.  The iPhone becomes the control point through the Wi-Fi router.  If no Wi-Fi is available, Apple has added easier connectivity for hotspot connectivity (look for wireless companies to highlight this as they try to increase hotspot adoption).  Without an iPad or Mac connection to the iPhone, the inter-connectivity feature will not work.

 

Messaging Improvements:  Hear the Teens Cheer!

One of the more important changes in iOS 8 is in the messaging feature.  My 16 year-old son, who is an iPhone 5s and a school-issued iPad user, cheered Apple’s improvements to rename threads, add or delete a user in a thread, and to set up a Do Not Disturb mode for individual threads.  Of all of the iOS 8 improvements, expect that these messaging changes will be adopted quickly.   (It’s so good, it causes you to ask “Why doesn’t this exist for all messaging applications?”).

 

messaging voice overIn addition to editing threads, adding pictures and voice-overs has also improved dramatically.  Recent pictures are stored in a scroll that users can drag and drop into a message.  Also, all of the photos/ videos posted in a particular thread can be more easily accessed (helpful with long threads that teens are known for creating).  Listening to a voice-over is also made easier through a “Raise to Hear” function (although this will have less value when posting videos).

 

I think you see where the first two trends are heading (seamless inter-connectivity and messaging):  Apple is making communication easier by improving their own applications.  This is going to increase the time spent communicating (vs. assembling multimedia communications or just calling).  While that’s great for Apple, what are they doing for the tens of thousands of developers?

 

Extensions:  Apple’s Biggest Move of the Year

While many will ogle over what promises to be a beautiful iPhone 6, the real treat for developers was the introduction of extensions.  Simply put, extensions allow third-party apps to pass information to each other in a secure manner (which, unsurprisingly, is through Apple).  A detailed and well-written view of extensions is shown in this Ars Technica article.

 

The greatest manifestation of extensions can be seen in the availability of third-party keyboards and the ability to save documents to non-iCloud services (DropBox and others cheering now).  Apple’s admission that other keyboard providers can do an equal or better job is just plain smart (and will be important  to woo Android users).  The concept of “extensibility” is very important to the development of cloud-focused applications, and this is by no means the extensibility end point.

 

According to the Ars Technica article, there are six primary extensions being introsuced in iOS8:

  • Today extensions, also called widgets, are used to deliver glanceable information in the Today view in the Notification Center. Think of them as an answer to Windows Phone’s Live Tiles or Android’s home screen widgets.
  • Share extensionsallow for the posting of photos, links, or other files from one app to an online service. This will enable things like posting pictures to Pinterest or uploading files from an app into Dropbox or OneDrive. Older versions of iOS support posting to Facebook and Twitter, and Share extensions open up the doors to others.
  • Action extensions“manipulate or view content within the context of another app.” In English, that means editing a photo embedded in a text document or, as Apple showed onstage in the WWDC keynote, using something like Bing Translate to translate the text in a Safari window.
  • Photo Editing extensionscan be used to take a picture you’re viewing in Photos and call upon features from another app to edit it (Apple showed off a VSCO Cam extension in the keynote). Photos keeps both the edited image and the unedited original, though this isn’t true for video files.
  • Storage Provider extensionswill let productivity apps open documents from a variety of cloud services. One could, for example, use Dropbox to store documents that you can then open and edit in Office for iPad or Pages.
  • Custom keyboard extensionsreplace the default Apple software keyboard with a new third-party one.

As shown in the picture, an easy application of the Today extension would be adding a scroll from ESPN SportsCenter of my favorite teams (sorely needed for hopeful Kansas City Royals fans).  It will also be useful for DropBox or Nest notifications.  It will be especially interesting to see how Google interacts with the Today extension (“time to leave for  _________” messages that Google Now users have been seeing for some time).

 

Apple extensions pictureFor security reasons, Apple has been cautious in opening up extensions in the past.  Technically, as the diagram shows, the communication between applications is actually brokered through the app extension, not the actual containing app.  Having this extra layer (which can easily turn into layers) is important as it maintains the underlying data integrity between the requesting and providing applications.

 

This is not the last time we will tak about extensions in this column, but Apple’s methodical approach opens up a new wave of development opportunities while preserving security.  Because it results in better applications for all Apple users, the changes announced at WWDC in June represent a far greater announcement than what we will hear on Tuesday.

 

Wireless Carrier Implications

While Apple announcements are fun and exciting, will either the June or the September announcements significanlty alter data usage?  For Sprint, the answer is yes as each iPhone 6 will be Sprint Spark capable.  This is very significant for the company’s future, and once Spark is rolled out more broadly (100 million POPs is the end of year target; no 2015 plans have been announced), will be a differentiator for the company.

 

For Verizon and AT&T, they have a unique ability to showcase the continuity function described above as well as drive hotspot usage (whether they will use this to highlight their in-building competitive advantage remains to be seen).  Messaging improvements (ease of video additions and voice-overs) will drive (moderate) incremental data usage.  And more DropBox and third-party cloud traffic will be welcomed.

 

Hardware announcements drive store traffic.  Sprint will use this spike to drive new plans and talk about Sprint Spark.  T-Mobile will undoubtedly talk about tablet pricing.  And AT&T and Verizon will talk abut the strength of their LTE networks, especially within buildings.  Minimal brand message changes, and more data consumption.  Let the good times roll.

 

Next week, we’ll recap CTIA and talk about other third quarter earnings drivers.  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).

 

Thanks again for your support, and have a terrific week!