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Top 10 Events of the First Quarter- Part 1

portfolio.logos_.inauthEnd of quarter greetings from Austin and Dallas, Texas.  These next two weeks, we’ll recap the quarter with a quick spin through ten events that will influence telecom earnings calls throughout the year.  Thanks to several of you who sent in your own nominations.

 

Prior to digging into the list, a very brief shout out to Los Angeles-based InAuth, one of the leading mobile counter-fraud detection and predictive activity engines for the financial services industry.  They announced a $20 million raise from Bain Capital Ventures this week.  InAuth’s CEO, Mike Patterson (no relation), is the former founder of Smobile Systems which was acquired by Juniper in 2010.  While they are not a client, their former CFO, Paul Garrett, is a friend and fellow reader of this column.

 

Top 10 Events of the First Quarter – Part 1 (in no particular order)

The first quarter of 2014 was one where there were 20-25 events competing for a top spot. While there have been many noteworthy events this quarter, it’s remarkably quieter than last year (we welcome your thoughts on why).  Here’s our take on the most impactful events in no particular order:

 

  1. Sling TV announced at Consumer Electronics Show – 4 Jan 2015; launched 9 Feb 2015.

 

sling TV current offering$20 for ESPN, CNN, A&E, AMC, HGTV, TNT, TBS, History Channel, Travel Channel, Cartoon Network and more.  Low-priced add-ons to customize your TV experience (including $5 for SEC Channel, ESPN News, ESPN U, Univision Deportes, beIN networks, and more).  100,000 signups, according to Re/Code.  Full compatibility with Amazon Fire TV, Roku, and Microsoft XBox One platforms (Google Nexus Player coming soon; no Sony PS3/ PS4 platforms due to their competing Playstation Vue product launched on March 18).  Decent reviews (read this one from TechHive) indicate Sling still has a ways to go on user interface but that everyone in the tech media community is rooting for them.  A late quarter addition of AMC and A&E may have impacted initial sales.  The $20 price point is very attractive as it’s close to the price of leasing an additional set top box for another room in your house.  Bottom line:  Big idea, decent implementation, amazing use of the existing Hopper and Sling infrastructure.  Sony and Apple have real competition.

 

  1. (and 3) The FCC AWS Auction 97 ends, and Verizon sells off more of its local properties (29 January and 5 February). $44.9 billion is a lot to pay for spectrum, especially when most pundits were predicting that winning bids would only fetch $20 billion.  AT&T bid extremely aggressively (to the tune of $18.2 billion), and Dish Networks (independent of 3rd parties) also was a surprise winner in many metropolitan locations with $10 billion in wins including 15 MHz of unpaired spectrum (although not without some criticism of their partnering strategy.  See more in this Wall Street Journal article).  This prompted aggressive courting from T-Mobile ($1.8 billion in wins) who suggested at Deutsche Telekom’s Investor Day the “Dish and we [T-Mobile] makes some sense… from the standpoint of integrating that spectrum and capability and deploying it at our network.”   From the attached map (courtesy of Wiley Rain), the most coveted 10 MHz J Block of spectrum was divided pretty evenly between AT&T (blue in map) and Verizon (red). However, Dish and T-Mobile won larger portions of the country in the G, H, and I spectrum blocks, and Dish won the A1 and B1 unpaired spectrum blocks across most of the country.

auction 97 results - J blockThe larger than expected price tag led Verizon to more aggressively jettison their local exchange presence in California, Florida, and Texas for $10.54 billion (see Frontier’s announcement here).  This represents approximately 3.7x 2014 estimated EBITDA and 1.8x 2014 actual revenues.  Most importantly, these markets contain 1.2 million FiOS video subscribers, or about 21% of the total FiOS video franchise (54% of the assets they acquired were FiOS enabled).

 

This left many (including me) scratching our heads.  How will Verizon increase the profitability of the Verizon video franchise if it continues to descale the business (programming costs are highly dependent on viewership)?  Will this have a negative effect on Verizon’s ability to compete in the enterprise space in these markets (Tampa, Dallas/ Ft Worth, and Los Angeles)?

 

 

  1. The Apple Watch launch date and features disclosed (9 Mar 2015; launching 22 April 2015).

 

apple watchAs many of you reminded me this week, the Apple Watch was technically introduced in their September 9 announcement.  But few saw a $10,000 watch coming (and sharing the stage with a $350 brand).  Can Apple quickly gain share in all parts of the wearables spectrum?  How will wireless carriers (no separate radio means no gross add) and Best Buy distribute this product (which will undoubtedly sit side by side with Samsung and other models)?  How will applications be redefined as a result of Apple’s bold push into tiny screens?  Bottom line:  Extremely effective advertising (if you have been watching college basketball, you have seen the ad), and heavy developer support mean that Apple’s launch will be a screaming success (especially at the highest end which will undoubtedly sell out).  The Apple Watch’s magnetic charging mechanism is also a lot better than alternatives.  The watch needs to have staying power, and that only comes with a lower price.  It will be very interesting to see how Cupertino solves that equation.

 

  1. Samsung Galaxy Note 6/ 6 Edge introduction (1 Mar 2015 unbox event; pre-orders 27 Mar; first phone shipped in early April). It’s amazing what an aluminum alloy body will do for first impressions of a Samsung Galaxy phone.  “Samsung, reborn” are the first words from the CNET review.  “Welcome back, Samsung” from Mashable as they proclaim the Galaxy S6 the Android “Phone of the Year.”  A non-replaceable battery and no micro-SD card capabilities have many crying foul, until they see the super-fast charging capabilities (10 minutes of charging time for 2 hours of video playback) and 32GB baseline capability (for the same price as Apple’s iPhone 6).  There’s no waterproofing, but then again, there’s no annoying charging cover to close (and eventually rip off) as the Galaxy S5 has.  Super changes to phone capabilities including improved optical image stabilization and f-stop.  T-Mobile took Galaxy S6 promotion to a new level with 12-months of free Netflix for all pre-orders, and Sprint is discounting the phone charges to free with the purchase of an $80 unlimited plan.  Bottom line:  Good reviews influence early adoption, and the wireless carriers appear to be solidly behind promotion.  This is going to be a very good selling phone for Samsung (and Google Chromecast).  Next up:  a better tablet.

 

The remaining Top 10 will be published on Good Friday in order to allow for a break for the Easter holiday (and to not jinx the opportunity for someone to make headlines over the next week) .  You can get some idea of where we are headed later this week by reading here, here, here, and here.  And yes, we will likely cover some element of the Open Order later on this week.  On April 12, we will resume our normal Sunday Brief schedule with our first quarter preview issue.  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!


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