End of year greetings from Fraser, CO and Lake Norman, NC. This has been a week of reflection, not only on the year but also on the decade that was. Taking some time to contemplate the changes that have occurred over the past ten years is instructive and helpful. Scheduled broadcasts (except for live sports?) died over the last decade – the term “binge” was most likely preceded by “spending” in 2010, as opposed to referring to online watching today. Our digital “wait time” expectations shortened (try to pull up a full version of any content-rich website in a poor coverage area). The quality of our smartphone (video) cameras improved and became the “lead” or replacement for our social media posts. And many of us now answer messages and calls that appear on our wrist from Bluetooth earbuds using speech recognition.
Against this technological whirlwind we evaluate the breakup of AT&T in this week’s TSB, an event that started on November 20, 1974, and culminated on January 1, 1984. Many books have been written on the topic in addition to Steve Coll’s “The Deal of the Century: The Breakup of AT&T” (including “The Fall of the Bell System” by Peter Temin and Louis Galambos and “Network Nation: Inventing American Telecommunications” by Richard John), and when applicable we will draw on them in this review. Our focus, however, will be on Coll’s chronicle. As we mentioned in Tim Wu’s The Master Switch (see TSB here), the study of history helps us understand the influences and beliefs that shaped business decisions, many of which parallel those seen in today’s world.
Understanding AT&T’s World in the Early 1970s
Against post-WWII prosperity, America came of age in the 1960s, with baby “boomers” going to work, battling communism in Vietnam, or pursuing university degrees. Science and technology were national interests, and, as a result, subject to increased federal (and sometimes state) attention. The Cold War embers were still hot, although the fiery and dramatic rhetoric of Kennedy and Johnson had evolved by the end of the 1960s – détente was in, shoe-banging was out.
For the two decades following the end of WWII, “systems development” was popular – components working in concert to achieve a particular national or social objective. In the case of telephony, the system consisted of
- terminating equipment
- local networks
- switching (which was often assisted by personnel called operators)
- long-distance networks
- interconnection facilities (to complete calls to independent phone companies)
- operations support: customer service, billing/ collection, research & development, product management
To AT&T executives, the quality of the network was directly correlated to system control. This was not necessarily, as some back-casting historians presume, a vestige of power-hungry monopolists eager to satisfy increasingly demanding shareholders. No doubt that there were some malevolent managers at Ma Bell (as discussed below), but there is a fundamental difference between a stalwart belief in operational efficiency (providing telephone service to everyone at affordable rates) and overt anti-competitive monopolism. Keeping the system together created consistent stability in an increasingly less stable world.
Equally as important, the system control depended on a delicate mix of businesses and consumers. Too many consumers, particularly in high-cost rural locations, and profitability would be compromised. Too many businesses, and capital and service costs would skyrocket. Customer mix was a Jenga puzzle, and MCI’s focus on enterprise voice and private line services threatened its balance.
MCI and AT&T’s Initial Interconnection Discussions
Despite AT&T’s arguments to the contrary, the Federal Communications Commission (FCC) and the capital markets were very interested in MCI’s plans to disintermediate the Bell system. Coll ends Chapter 1 summarizing MCI’s $100 million equity raise in June 1972 (and follow-on $72 million line of credit later that year) and begins the following chapter with a recap of the roundtable discussion that ensued at MCI. Rather than a complete overbuild, MCI would negotiate connections to AT&T’s switches in St. Louis and Chicago (it’s hard to imagine the first interconnection negotiation given their commonplace nature today), and AT&T had complete leverage.
In March 1973, Jack McGowan, MCI’s Chairman, met with AT&T Chairman John deButts and George Cook, an AT&T attorney, at AT&T’s headquarters in New York City (195 Broadway). McGowan dictated a memo after the meeting, saying:
“On the one hand, they piously state a willingness to be fair and are willing to believe it themselves while at the same time they interpret their mandate to compete hard by actions which they know will result in a denial of their position on fairness… It would be incorrect to be encouraged by the potential impact of antitrust action, although it might receive a very favorable reaction at 195 Broadway simply by having them spend more time being advised by counsel. ”
For the next nine years, dozens of attorneys would be employed by each side engulfed in the largest antitrust lawsuit to date. The system was breaking, and MCI cracked open AT&T at its most vulnerable point – interconnection.
The AT&T Chairman Speaks
Competition intensified over the summer of 1973, and AT&T Chairman John deButts used the fall meeting of the National Association of Regulatory Commissioners to respond. Coll spends an entire chapter describing deButts’ speech, which culminates with the following recommendation:
“The time has come for a thinking-through of the future of telecommunications in this country, a thinking-through sufficiently objective as to at least admit the possibility that there may be sectors of our economy – and telecommunications [is] one of them – where the nation is better served by modes of cooperation than by modes of competition, by working together rather than by working at odds.
“The time has come, then, for a moratorium on further experiments in economics, a moratorium sufficient to permit a systematic evaluation not merely of whether competition might be feasible in this or that sector of telecommunications but of the more basic question of the long-term impact on the public.” 
The crowd of regulators stomped and cheered. Bernie Strassburg, the head of the FCC Common Carrier Bureau for the past decade and a 21-year staff lawyer at the Commission prior to that, was in the audience and, according to Coll, took deButts’ comments to mean that AT&T was above the law.
Meanwhile, MCI continued to test the regulatory waters, expanding service from private lines (voice calls between two regional offices) to something called Foreign Exchange or FX, which can best be described as a precursor to toll-free 800 service (Coll offers the example of an airline customer calling a local New York City phone number and being serviced by a customer service representative in Chicago). The challenger had moved from connecting two company locations to connecting customers to company locations. Both private line and FX were highly profitable services.
AT&T took the case to court, and, after losing the first ruling, won on appeal. Coll describes their activities after that decision:
“As soon as the appeals court decision was handed down, it was ordered that all of MCI’s FX lines be disconnected immediately. AT&T engineers worked an entire weekend unplugging the circuits, inconveniencing MCI’s customers and infuriating McGowan. John deButts would later say that the decision to disconnect MCI’s customers was one of the few he ever regretted. The FCC ruled that MCI was, in fact, entitled to sell FX lines, and AT&T was forced to reconnect all of MCI’s customers. The damage, however, was already done. ”
It is tempting to draw some analogies of “above the law” behavior seen today by trillion-dollar market cap companies, but the behavior described above would be akin to Apple removing Google Maps, Netflix or Spotify from the iTunes store. As we have described in very early TSB editions, there’s always been a delicate balance (Apple’s relationship with Google Maps in 2012-2013, for example) initially, but today’s systems, thanks to the role of applications, has been much more friendly than the early days of telecommunications competition.
Attorney General William Saxbe: “I Intend to Bring an Action.”
Thanks to the administrative turmoil created by Watergate (Nixon resigned in August, 1974), most of the attorneys in the Justice Department thought that the AT&T case would be placed on hold. Nixon had appointed William Saxbe, an elder senator from Ohio who enjoyed the golf links much more than the office, as Attorney General earlier in 1974.
The recommendation to file an antitrust suit against AT&T made its way to General Saxbe’s desk in November, 1974. After being briefed by two senior DOJ lawyers working on the case, it was AT&T’s turn to make their case. Coll describes this situation as follows:
“John Wood, a Washington lawyer retained by AT&T, stood up to begin AT&T’s presentation. Mark Garlinghouse, the company’s general counsel, was seated beside him.
“Mr. Saxbe,” Wood began, puffing on a pipe, “before we start our presentation, I’d like to know exactly what your state of mind is on this case. It might help me shape my arguments to you.”
Saxbe paused, spit [tobacco juice], looked at Wood, and said, “I intend to bring an action against you.”
Within an hour of this statement, the SEC stopped trading in AT&T’s stock. John deButts, who happened to be the chairman of the United States Savings Bond campaign in 1974, called Treasury Secretary William Simon to let him know the news. Even President Ford, who was in Japan while all of these actions unfolded, was caught unawares. According to Coll, “Simon then tried to call Saxbe, but the attorney general had left the office for the day. He had gone pheasant hunting.”
Enter George Saunders
Of all of the characters in the AT&T drama, few rise to the importance of George Saunders, a partner at Chicago-based Sidley & Austin who would devote eight years of his life to defending AT&T from the attacks of MCI and the Justice Department. Coll describes Saunders as follows:
“Saunders was an unabashed fat cat, a smooth, luxuriant attorney who wore expensive suits, drank martinis like they were water, and smoked more than a dozen cigars a day. He had been born and raised in Birmingham, Alabama, the son of a house painter, and the first member of his family to ever attend college. He went because even at age fifteen… his extraordinary intellectual gifts were obvious – his mind was like some strange machine. He had nearly total recall of the most complex and obscure facts, and he could effortlessly organize knowledge in sophisticated, well-developed models. The lawyers who worked with him later tried to describe this capacity to others by saying that it was like Saunders had a giant flip-chart in his head that he could summon up instantaneously, search for the information he needed, and then flip forward to make his next point without ever skipping a beat.”
Saunders scored his first victory after a hearing before Judge Joseph Waddy in February, 1975, when he requested, purely as a tactic, that the federal government be required to preserve every document in its possession that might be relevant in the AT&T case (in the pre-email/ server environment, this is a bold request to say the least. Saunders backed off the request from all federal agencies to a mere 44).
After some vigorous conversation (described by Coll in vivid language), Saunders convinced Judge Waddy that AT&T’s fate should be a decision of the FCC and not the courts. He convinced Judge Waddy to postpone any discovery until the jurisdictional case was settled. A mere three months after filing, the case against AT&T was dead and, due to Judge Waddy’s terminal illness, jurisdiction would not be decided for three years.
Enter Ken Anderson
One of my favorite characters in Coll’s book is Ken Anderson, chief of the Special Regulated Entities section of the Department of Justice and the owner of the AT&T case when it resumed in late 1977. Coll describes Anderson as follows:
“Anderson’s approach to life and to the practice of law was somewhat unorthodox. Though he worked in the heart of the city, he lived on a farm in rural Virginia, and on summer weekends he liked to ride around on his big tractor under the hot sun, and then pull off his shirt and bale some hay…. He was a health food enthusiast, and when he rode into Washington on the train he often carried a large paper sack full of raw vegetables. He kept the sack on a shelf in his Justice department office, and during important meetings he would wander over, pull out a carrot stick or a piece of cauliflower, and take a large, loud bite.”
With the previous DOJ attorney (Phil Verveer) off of the case, AT&T saw an opportunity to test the settlement waters as they sized up Anderson. Hal Levy, an AT&T staff lawyer who was working side-by-side with George Saunders, proposed that the parties discuss injunctive relief with AT&T self-sourcing less equipment, and the government agreeing to keep AT&T intact. After hearing Levy out, Anderson replies:
“I’ll tell you one thing. This case is going to be a severed limbs case. We’re going to have severed limbs, AT&T limbs, on the table dripping blood. That’s the way this case is going to be settled. We’re not going to settle this thing with injunctive relief.”
AT&T was also preparing for a transition as John deButts was preparing for his planned retirement (announced in late 1978). George Saunders’ boss, Howard Trienens, left his position as the managing partner of Sidley & Austin to become VP and General Counsel of AT&T under new Chairman Charles Brown in early 1979.
Enter Judge Greene
Of the characters in this multi-act drama, none is as important as Judge Harold H. Greene, who was assigned the case in August, 1978. Coll describes the influence of politics on Greene in the following manner:
“A Jew, Greene was raised in Germany during the 1920s and 1930s. His father owned a jewelry store, and in 1939, as the terror of Hitler’s Reich reached fever pitch, his family fled to Belgium, where it had relatives. Greene was just sixteen years old. When the Germans invaded Belgium, the Greenes fled again, this time to Vichy France. From there, they made their way to Spain, and later Portugal, before emigrating to the United States in 1943. Young Harold Greene was immediately drafted into the U.S. Army and sent back to Europe with a military intelligence unit to work against the Nazis. He saw combat action in his former homeland, but he escaped injury.”
Greene grew up in the youthfulness of Attorney General Robert Kennedy and, according to Coll, wrote the Civil Rights Act of 1964 and the Voting Rights Act of 1965. After leaving the Justice Department in 1967, Greene served as chief judge of the District of Columbia’s Court of General Sessions (municipal court for the District). He would remain there until Jimmy Carter was elected to the presidency, when he was appointed a federal judge. In his new role, he inherited the caseload of the late Joseph Waddy, and was thrown into the middle of a nearly four-year dispute.
Judge Greene was a strong believer in due process and the strict preservation of constitutional rights. He also supported a strong judiciary to check the executive and legislative branches (a hot topic on the heels of Watergate). Unsurprisingly (given his German descent), he was also focused on continuous improvement and courtroom efficiency. Greene was very different from both Saunders and Anderson – his goal was to run his courtroom like clockwork.
1981 marked the beginning of the fourth presidency to span the AT&T antitrust trial. Conventional wisdom indicated that AT&T would finally be vindicated. That was the case until President Ronald Reagan nominated Bill Baxter to lead the antitrust division of the Justice department. While a conservative, Baxter strongly supported the Justice department lawsuit because he strongly believed that regulated local telephone divisions were subsidizing their unregulated counterparts.
This was not the position of other members of Reagan’s incoming cabinet. Secretary of Commerce Malcom Baldridge, Secretary of Defense Casper Weinberger, and counselor Ed Meese all had publicly stated their preference to dismiss the lawsuit. But Attorney General William French Smith was forced to recuse himself form the case due to his previous affiliations with Pacific Telephone. And James Baker, who managed now Vice President George H.W. Bush’s 1980 campaign, was Reagan’s Chief of Staff. Assisting Baxter was Jonathan Rose, an assistant attorney general for the DOJ Office of Legal Policy under Nixon.
Rose ultimately proved an effective partner to Baxter, carefully running point for Justice within the White House. Over the July 4th weekend in 1981, after great deliberation, Baker decided to wait to dismiss the case.
Meanwhile, in Judge Greene’s courtroom, the prosecution had finished calling their witnesses and AT&T made a bold move to dismiss the case. Judge Greene’s response denying the dismissal was succinct:
“Whatever the substantive merits of the motions and the case generally turn out to be, I don’t believe the government’s evidence justifies such cavalier treatment. The government has presented a respectable case that the defendants have violated the antitrust laws, … Defenses have been raised, but I certainly could not say that these defenses are self-evident and will prevail…
I don’t propose to act on the basis of press reports or someone’s concerns unrelated to this lawsuit. The court has an obligation to deal with this lawsuit under existing antitrust laws, and it will do so irrespective of speculation outside the judicial arena.”
The judge would later deny a proposal to continue the case until Congress could pass comprehensive telecommunications legislation (known as bill S. 898). The defense continued to call witnesses throughout the fall of 1981, and, by a 90-4 vote, the Senate passed comprehensive telecommunications legislation to the House, led by Tim Wirth. With a new report on competition released in November, it appeared to AT&T Chairman Brown that pursuing a solution other than complete divestiture was going to be difficult if not impossible.
On January 8, 1982, AT&T and the Justice department signed a consent decree that separated the local phone companies into independent operating units. The concept of intra-LATA vs. inter-LATA access was established, and AT&T retained control of its equipment unit (Western Electric). Over the next two years, AT&T would structurally separate and become independent companies on January 1, 1984.
While Coll’s book ends in 1988, we have the benefit of seeing the full effects of the breakup of AT&T: The rise of multiple fiber-based networks, rapidly decreasing costs to call between states and globally, the rise of wireless spectrum and the rise of the Internet. Had AT&T controlled the network, it’s unlikely a subsequent Telecommunications Act would have been enacted in 1996, the development of the enhanced services provider would never have occurred, and companies such as AOL would have raised capital to quickly establish early Internet infrastructure. While it’s difficult to hang too many events on the AT&T tree, it’s important to understand and evaluate the fundamental changes the consent decree and Modified Final Judgement enabled.
That’s it for this week. Next week, we’ll preview the 2020 Consumer Electronics Show. Until then, if you have friends who would like to be on the email distribution, please have them send an email to email@example.com and we will include them on the list.
Also, I’ll be at CES this year on the 7th and 8th. We have set up a special Sunday Brief table at Gordon Ramsay’s Pub & Grill at 7:30 p.m. on Wednesday January 8 – only three additional slots available, but please reply to firstname.lastname@example.org if you are interested in attending.
Have a great week… and GO CHIEFS!
 IBM, and to a lesser extent, Apple, shared this belief in systems efficiency.
 Coll, p. 26
 Coll, p. 43
 Coll, p. 52
 Coll, p. 68
 Coll, p. 71
 Coll, pp. 75-76
 Coll, p. 115
 Coll, p. 120
 Coll, p. 125
 Coll, p. 234
Greetings from Fraser, CO, where near zero temperatures are the norm in December. We hope each of you have a very restful and happy Holiday season. 2020 promises to be an eventful year and we will be here to follow every inch of it.
Due to popular demand from our September column titled “Three Up and Comers” which highlighted three companies who had demonstrated enough progress to warrant significant investments (updates on each below), we are ending the year highlighting three additional companies who are impacting the telecom landscape. Next week, we will have a book review of Steve Coll’s landmark work “The Deal of the Century: The Breakup of AT&T.”
The AGs v. T-Mobile/Sprint Trial Has Ended – What Happens Next?
Here’s a brief summary of what happened over the last two weeks in the T-Mobile trial:
- The judge, Victor Marrero, started the trial by cancelling opening statements. This is not surprising (since it’s not a jury trial), but seemed to set an accelerated tone nonetheless
- Academics argued over whether the merger would lead to cost decreases
- Sprint executives painted a bleak picture of Sprint’s future if the merger is not completed, with both Chairman Marcelo Claure and CEO Michel Combes echoing previous comments that Sprint would serve fewer markets and likely raise prices (these have been covered in several TSB).
- T-Mobile executives extoled the future competitor to AT&T and Verizon if the merger is completed. T-Mobile CEO John Legere predicted that Sprint would be “sold for parts” if the merger was not completed.
- Dish CEO Charlie Ergen, to the AGs surprise, delivered three $10 billion high confidence (funding) letters from JP Morgan, Deutsche Bank, and Morgan Stanley during his testimony (and a $1 billion loan from Softbank for general purposes if the merger closes)
- The FCC and DOJ filed briefs in support of the merger as the trial closed
- Both sides have the ability to provide Statements of Fact by January 8 with closing arguments by January 15.
As other analysts have noted, the odds of approval were boosted by Ergen’s and Legere’s testimonies (and hurt by Claure, Combes, and other Sprint executives). From reading various accounts of the trial Twitter feeds and transcripts, it’s apparent that Judge Marrero is fully cognizant that if he rules with the state AGs, he’ll be ruling against Assistant Attorney General Makan Delrahim and FCC Chairman Ajit Pai. That may be the deciding factor – Judge Marrero will clearly need to explain why the DOJ settlement is too risky and anticompetitive (and not create a firm basis for appeal).
A lot of things can change between now and January 15. The states had a weak series of arguments going into the trial, and they did not materially advance their position. However, there’s more than a slight political tinge here — foreign to previous telecommunications mergers (including T-Mobile/ MetroPCS and AT&T/ Cricket Wireless in the Obama administration, and Sprint/ Nextel, Sprint/ Clearwire, and Verizon/ Alltel Wireless mergers in the George W. Bush administration).
Bernie is Out of the Slammer
In case you missed the news, convicted felon and former CEO of Worldcom, Bernie Ebbers, is scheduled to be compassionately released this week according to news reports (New York Times and Wall Street Journal articles are linked). Ebbers, now 78, is suffering from dementia. While we have significant issues with the way he led Worldcom (TSB that examined the fraud a decade later is here), we wish the best for him and his family as he is treated. It’s a good reminder of how much our industry has evolved over the past two decades.
Update to the Previous “Up and Comers” Class (Starry Wireless, Cologix, and Helium)
Before discussing the new trio of new companies to watch, it’s worth updating the status of the three we covered back in October:
- Starry Wireless continues to be focused on improving their footprint in their core markets (Los Angeles, Boston, Washington DC, Denver, and New York City). A recent article in Light Reading highlighted that the company did not achieve their market expansion goal of 22 markets but did disclose that they are well on their way to fourteen (five above plus nine that are in “active build” status). The company is in full marketing mode, having recently launched a website (betterbroadbandnow.com) targeted at municipalities considering the impacts of broadband competition. Since Starry just completed a fundraise, it’s not likely we’ll get a lot of public information on their progress until their next batch of markets launches.
- Cologix has not made a lot of headlines since their $500 million growth capital announcement a few months ago. In our article, we cautioned the company to be prudent in their investments, and they appear to have followed that course. In fact their most recent infrastructure activity has been focused on expanding their current markets (more power in Montreal, a third data center in Dallas, etc.).
- Helium, in contrast, has been on a tear in the past two months, deploying over 2,027 hotspots in the first quarter of launch (see Twitter announcement here) and garnering awards from Time Magazine as a 2019 Special Mention Award and prominently placed in the 2019 IoT For All Holiday Gift Guide. Brad Feld, a well-known entrepreneur, announced through his blog that he was ordering 50 to cover his hometown, Boulder (CO). They still have some work to do with IoT providers but are likely a few announcements away from hitting the tipping point with OEMs (they appear to be well on their way to hitting critical mass on the user-provisioned network).
As we noted in a subsequent TSB, we should have had CBRS pioneer Federated Wireless on the original list, and there are plenty of updates where we have highlighted their progress.
New additions to the “Up and Comers” Class
To be considered an “Up and Comer” a company must have had a funding round in excess of $30 million in the calendar year that they are selected and have an influential or disruptor status in their area of expertise. Here are three companies that we think are excellent additions to the four above:
Netly Fiber (latest Funding round of $40 million led by Uniquity Partners closed December 10). We have discussed fiber a lot in the last several months, starting with the TSB “Fiber Always Wins (Until it Doesn’t)”. Netly’s corporate description is as follows:
“We provide the layer 1 digital infrastructure that Service Providers need to innovate and build the ultimate internet experience for their end users. We deliver dedicated, unsplit fiber strands to every location in a city, and our tenants provide the end-to-end electronics to light the fiber. We offer long-term wholesale contracts to world class service providers so they can deliver 21st century solutions.”
The most interesting aspect of this description is “every location in a city.” This is a critical driver for Internet Service Providers such as Ting Internet, who announced that they would be lighting up Solana Beach, California after Netly completes their deployment in 2020. It will be very important for wireless service providers like Verizon Wireless and T-Mobile/Sprint (assuming they are merged), who will be able to immediately access critical fiber strands at reasonable prices. (Interestingly, Solana Beach is served by AT&T, yet a search of both zip codes on Broadbandnow.com reveals that only DSL-based Internet services are available. Perhaps AT&T will come calling!).
Netly is run by two former Nextel executives (Jack Demers and Jim Hanley) and advised by former Sprint Nextel Chairman Tim Donahue and former Nextel Chairman and telecom pioneer Morgan O’Brien. $40 million is a drop in the bucket for fiber construction, but, if they show that they can make the plan work (I think they will receive significant demand), the model for municipally-controlled, independently managed networks for second and third-tier markets might be feasible (we are skeptical as to its national ubiquity, but they have a host of strong partners behind them).
Onecom (latest funding of 100 million pounds (~$130 million) closed in late July 2019 and was led by private equity buyout specialist LDC). While traditional telecommunication firms struggle to survive (see the Windstream bankruptcy emergence delay announcement last week and the plight of Fusion Connect), UK-based Onecom is growing rapidly serving business customers and recently inked a 600 million pound deal with Vodafone (details here).
Managing the conversion from wireline to wireless (led by 5G and NB-IoT) is quickly becoming the firm’s specialty. Onecom has also successfully completed four acquisitions over the past six years. We will focus on their secret sauce in an upcoming TSB (hint: it’s about smart employees who are focused on technology transition and business productivity), but thought that the investment above, combined with an additional credit line of 30 million pounds from HSBC, warrants “Up and Comer” status.
Augury (2019 funding of $33 million includes $8 million Qualcomm Ventures investment which closed on December 12; total funding of $59 million since inception. Largest investor is Insight Ventures). The word augury is defined as “a sign of what might happen in the future” in the Cambridge English Dictionary. We have been following this company since the summer, and the Qualcomm Ventures investment a few weeks ago rekindled our interest.
Augury describes their business purpose as follows: “We combine artificial intelligence and the Internet of Things to make machines more reliable, reduce their environmental impact, and enhance human productivity.” Simply put, the company listens (via installed sensors) to machines, establishes a baseline of the soundwaves, temperature, and magnetic field data that’s produced, and then uses artificial intelligence to detect abnormalities.
The New York-based company has established relationships with 40 of the Fortune 500, which is amazing considering they have been in business for eight years. Saar Yoskovitz, Augury’s COO, has a background in speech recognition, which uses the same soundwave patterning (to convert into a search string) that would be used in an industrial machinery application.
What makes Augury unique is their integration into business operations software which extends the utility of their products beyond predictive failure to total business productivity. This allows managers to focus on improving overall asset utilization and improving defect rates. That’s different from the performance of their predecessors.
How broadly Augury can extend their product line is anyone’s guess, and that’s likely what has attracted large telecom investors such as Qualcomm. As sensor capabilities continue to advance (another future TSB topic), and as their baseline analytics continue to improve, Augury’s value will grow.
That’s it for this week. Next week, we’ll close the year with another book review (Steve Coll’s “The Deal of the Century: The Breakup of AT&T”). Until then, if you have friends who would like to be on the email distribution, please have them send an email to email@example.com and we will include them on the list.
Also, I’ll be at CES this year on the 7th and 8th. We have set up a special Sunday Brief table at Gordon Ramsay’s Pub & Grill at 7:30 p.m. on Wednesday January 8 – only five slots available, but please reply to firstname.lastname@example.org if you are interested in attending.
Have a great week… and GO CHIEFS!
Greetings from Charlotte, where the Holiday spirit is in full swing (picture courtesy of Alex Gerrard, a Davidson friend). We are focusing this week’s TSB on three foundational trends: a) Increased home broadband competition, b) Increased “channelization” of content thanks to Verizon and AT&T launchpads, and c) Increased commercial-focused connectivity. Between these trends wind the threads of increased fiber deployments, decreasing overall capital expenditures, and industry consolidation (assuming T-Mobile wins the current case pending with the attorneys general). There are many ways for each telecommunications provider to increase its value in 2020, with the greatest opportunities awaiting Verizon and AT&T.
Because of the depth of this week’s TSB, we will not have a TSB Follow-ups section. This will resume on the 22nd when we will reveal three additional “Up and Comers” in 2020 (you can read about the previous three – Starry, Cologix, and Helium – here).
Trend #1: Increased Home Broadband Competition
The telecommunications landscape is about to be jolted, and this will start in 2020. Driven by the deployment of significant amounts of fiber by both AT&T and Verizon (perhaps CenturyLink or Zayo will aid the new T-Mobile in their efforts), connectivity options will be opening for the carriers. This will drive two new models in 2020:
a. An entry-level model consisting of at least 300 Mbps per home (perhaps with a 1 Terabyte monthly cap) for $50 per month. No contracts, and, if Verizon’s Chicago rollout is duplicated, customers will receive a Wi-Fi access point equipped with the latest version (802.11ax, aka Wi-Fi 6). See nearby coverage map (or link here) for an idea of their development progress.
b. Full fiber capabilities consisting of 1 Gbps or more. These services tend to cost ~$70-80/ month and may require a 1-2 year contract. Frequently, additional charges are assessed for broadband modems (AT&T charges $10/ mo.). Many times, full fiber offerings include content or security software in their product offerings (see AT&T offering here and Comcast’s Xfinity Flex offering here. Verizon also is offering a free year of Disney+ to all 5G Home subscribers).
These offerings serve two different family segments: Internet connected (1-2 residents, some streaming to 1-2 TVs, no home office), and Internet needy (3-5 residents, significant streaming to 3-6 devices including 4K TVs, at least one teleworker). Within these segments, there are unique needs (teens, international content, etc.), but the key product drivers are the capabilities of the TVs and computers connected to the home broadband service. Budget is the most important driver, but right behind it is service quality (and uptime), as well as the installation experience and any contract terms (including early termination fees).
What’s most intriguing about the Verizon offer is that it can be tested side-by-side with existing cable services (the only change is in the Wi-Fi SSID or which Ethernet cable is connected to the back of the TV). Also, the 5G Home offering does not require broadband customers to own a 5G-capable device. For example, the latest iPhone 11 (specs here) offers 802.11ax (Wi-Fi 6) but is not equipped with 5G (note: the resolution displayed on most iPhone screens does not require more than a 15 Mbps constant stream per device. TVs are a different story). Given the fact that Verizon is offering three months of free service, side-by-side could be a relatively pain-free experience.
By the end of the year, there will likely be four separate and distinct offers in Chicagoland for home broadband from established telecommunications providers:
- Comcast Xfinity – the broadband market share leader and wireless services challenger
- AT&T Fiber (where available) – the non-wireless challenger
- Verizon 5G Home (wireless only – as a 5G offering, speeds expected to be ~ 350 Mbps). Bundling opportunities with YouTube TV and 12 months of Disney+ included
- T-Home Internet (wireless only – as an LTE-based offering, speeds are expected to be ~ 50 Mbps)
As T-Mobile did with smartphone and low-end family plans, they will likely target smaller, less Internet needy households until they have an offering that can be built incorporating Sprint’s 2.5 GHz (Clearwire) network as well as 5G standalone network equipment. That lower-cost offer will be available no sooner than the end of 2020. Until then, expect Verizon to get very targeted even as AT&T continues to ramp off their fiber marketing efforts.
The expectations game could not be higher for AT&T. At an investor conference this week, Jeff McElfresh, the new CEO of AT&T Communications unit stated:
“In the fiber business and the fiber product line, where we have fiber, we win, and we win handedly. As you mentioned, we’ve guided to driving penetration of our 14.5 million households to our fiber network to a 50% mark over the 3-year period. And we have proof of how we do this historically. As you look at the fiber that we built out in the ground in 2016, at the 3-year mark, we roughly approach about a 50% share gain in that territory. And so, for 2020, with the bulk of our investments behind us in this fiber plan, our tactics are to drive penetration with the fiber that we’ve built.
One would expect Verizon and T-Mobile to have a slightly different take on AT&T’s market share goals (AT&T does not seem to think that 5G wireless will be a threat to fiber-based systems, presumably at any price). As we documented in the November 3rd TSB here, AT&T will need to acquire an additional 5.0-5.5 million residential home broadband customers to hit a 50% milestone.
Where this leaves Comcast’s broadband net additions growth is unknown. More competition reduces the chances of a blowout quarter (and also the likelihood that Comcast will automatically gain share at the expense of legacy Digital Subscriber Line technology in non-fibered areas), but, they will be the first carrier customers return to if something goes wrong with a challenger. Out prediction is that Comcast’s growth could be dented by as much as 50% (from 300K net additions per quarter to as low as 150K) but it’s unlikely that the 26 million residential subscriber base will be materially impacted in 2020 or 2021 unless AT&T begins to aggressively market their service with contract buyouts (which rarely result in long-term market share gains).
Bottom line: Watch the home broadband space carefully, especially in the second half of 2020 (starting with “movers”).
Trend #2: Increased “Channelization” of Content Thanks to Verizon and AT&T Launchpads
One of the great debates through the AT&T/ Elliott Memo crisis was whether AT&T should be a content provider and an infrastructure provider. AT&T clearly believes that it’s best economic return occurs when they do both – the worst case, they argue, is that owned Time Warner content is used as a “bargaining chip” in larger programming negotiations.
Verizon is following a markedly different “best of breed” strategy and, from Hans Vestberg’s comments at the UBS conference this week, the Disney+ launch has exceeded their already high expectations. In short, mobile data usage is exploding thanks to Disney+, and that means that the half of Verizon customers who are not already on Unlimited plans have a reason to upgrade to higher ARPUs. At the margin, Disney+ also attracts new families who are carrier indifferent. Now that Verizon has a winner with Disney+ (which, as we shall see in January, will have had a big impact on the Verizon brand and churn), the question becomes “What’s Verizon’s follow-up offer as HBO Max gets ready to launch?”
Unlike the Apple Music promotion at the end of 2018/ beginning of 2019 (Apple Music was launched in 2015), Disney+ is days/weeks old. Verizon’s brand is heavily tied to Disney+ (a good thing for Verizon), and, to a lesser extent, the Hulu/Disney+/ESPN+ larger bundle. Verizon’s home broadband service is promoting a competitive product to Hulu Live (YouTube TV), albeit a free month compared to a free year of Disney+. With 35.4 million retail postpaid accounts (and 115 million retail postpaid subscribers), Verizon has become tomorrow’s broadcaster – a content kingmaker.
This time, the content structure is a bit different. Unlike Verizon’s failed content creation service Go90 (how quickly we forget), Disney+ current content is less episodic/ more long-form – good for the multi-hour car trips/plane rides and not as good for in-town pick-up/drop-off. Long-form content is not as conducive to ad placement as episodic content, which likely means less monetization opportunities until Disney+ revamps it’s lineup. Long-form content also needs a larger buffer (Disney+ allows subscribers to download entire movies over Wi-Fi) – Verizon will be an enthusiastic supporter.
Assuming launch momentum continues throughout 2019 (there’s little reason to think that customers would disconnect a “free for the year” service), how do Verizon and Disney use 5G network deployments to counter next May’s HBO Max launch? How can recently viewed content be personalized? What digital merchandising can Verizon enable through future promotions? Can long-form content products be extended into live sports?
There’s a new Disney channel that will be consuming hours of time this Holiday season (the fact that Disney+ is Google’s most searched term for 2019 is a very good indicator of what’s to come – see nearby chart) at the expense of traditional broadcast viewing. Well-organized content bookshelves are slowly replacing Electronic Programming Guides (EPGs). Content snacking has been replaced with entire all-you-can-eat banquets.
Each of these trends are good for AT&T – if they can execute a late spring/ early summer launch (a less attractive period than the Holidays). If Verizon and AT&T become the new launch pads for channels, where does that leave traditional cable providers and broadcasters? We have had many predictions of broadcasting’s demise – is it different this time?
There’s a lot to track here, but for those 5G naysayers who bemoan the lack of use cases, look no further than the creative genius of Disney and HBO. I’m sure they have a few ideas. Bottom line: Verizon and, to a lesser extent, AT&T have found a way to help digital content launch new products. Disney+ is the best co-branding association in telecom since the Apple iPhone and AT&T. Verizon needs to extend this association into increased 5G adoption.
Trend #3: Increased Commercial-Focused Connectivity
In an interview at the Wells Fargo conference we referenced in last week’s TSB, Adam Koeppe touched on the overall fiber deployment strategy (also known as the One Fiber initiative):
“When we pursue our fiber build on a market-by-market basis, we’re looking for the sweet spot of a really strong case that allows us to leverage our owners’ economics. And what I mean by that is when we look at the 4G and 5G node expectations that we have for the coming years, we can very carefully calculate what it would cost to spend money with a third party, if you will, in a market to launch 5G or increase the 4G density. We then look at the cost to build in that market. And it’s a fairly simple case to say, listen, it’s much more cost-effective for us to build our own fiber in this market because not only can we serve our own needs on the wireless network, we can then open up incremental use cases. So, whether it’s small, medium business, enterprise, wholesale opportunities that comes from having the owner’s economics of our fiber deployment. So that’s the key determining factor, basically, in how we look at each market where we’re building fiber.
If one pairs the likely deployment of fiber for 5G with commercial real estate locations, there’s a high correlation between “near-net” fiber and key tenant locations. This is what Adam is referring to as an “incremental use case.” Let’s look at a market example (5G deployment in downtown/ Centennial Park areas of Atlanta with the large red area to the left being the Georgia Dome):
Here’s what that same area looks like with Google Earth:
An educated guess is that the red lines in the Verizon map above pass near (but not necessarily in) 150 commercial office buildings of various sizes and shapes likely totaling 40 million square feet or more (270,000 square feet per building or about 13-14 stories on average with a large variance). Assuming 200 square feet per worker per building (a generous assumption), that equates to ~ 200,000 smartphones in this radius alone (game day figures would be higher). The in-building wireless coverage improvement opportunities from this deployment alone are significant – and this is just the beginning.
However, it’s also safe to assume that Verizon’s out of region play with the lower half of the Fortune 1000 could use improvement. They have been hindered by their inability to create differentiated product bundles, as well as the continued high cost of connecting to customer sites. In an era where Wi-Fi delivers 5-8 Mbps on a good day, could Verizon (with CBRS deployed) deliver 40 Mbps, and have full integration with mobility (see last week’s article)? The answer is undoubtedly yes, and, in a capital environment in search of incremental use cases, the risk appetite is higher. Add in the Amazon AWS edge deployment announced earlier this month, and one can see the pieces of a low-latency secure cloud coming into place in 2020 and 2021.
Verizon is relatively weaker in the enterprise segment as organizations get smaller and farther away from their Northeastern home field. One of the great opportunities facing Big Red is maximizing the incremental opportunity with commercial customers. Integrated voice solutions is an easy first choice (see last week’s TSB), but there are many others.
Bottom line: 5G deployments require more in-city fiber, and that presents a terrific opportunity for Verizon Business. A clear channel strategy needs to be developed that fuses in-building and mobile solutions. CBRS can play a role, and, to the extent it does, Verizon can minimize spectrum interference. If Verizon can walk the incremental talk here, they will quickly turn their network organization into a profit center and create a competitive differentiator, especially against T-Mobile.
That’s it for this week. We will be publishing a short presentation incorporating these and other ideas prior to CES (January 6) for distribution to your teams. Next week, we’ll capitalize on our previous “Up and Comers” column (with an initial take on the AG/ T-Mobile trial outcome) and will close the year with another book review (Steve Coll’s Deal of the Century: The Breakup of AT&T). Until then, if you have friends who would like to be on the email distribution, please have them send an email to email@example.com and we will include them on the list.
Have a great week… and GO CHIEFS!
Holiday greetings from sunny and mild Lake Norman, North Carolina (sunrise shown – unaltered photo). There are a lot of follow-ups to cover, and, if reports are true, there may even be a settlement between the Attorneys General and T-Mobile/ Deutsche Telekom/ Sprint/ Softbank prior to their trial start on Monday (hope springs eternal).
Many thanks for the multitudinous comments on last week’s Thanksgiving book review article. We are not turning into the New York Times Book Review (won’t even try) but there’s a lot to discover and learn from the activities of our predecessors. We will have a similar article on Steven Coll’s 1986 classic outlining the events that lead up to the breakup of AT&T on December 29. Preceding that, we will have a “Three Companies to Watch” special TSB on December 22.
A final thanks for the many referrals that we have had over the past month – over 250 new readers have been added. If you know someone who could benefit from this column, have them send a request to firstname.lastname@example.org and we will get them on the list. We are also in the process of revamping the website (end of January) and promise more things in 2020 (including a merchandise fundraiser for the Davidson College Jay Hurt Hub for Entrepreneurship and Innovation).
This week, we will lead with a discussion of a deep topic – rethinking the wireless (and wireline) network operating system. As mentioned earlier, we have several TSB Follow-Ups.
Programming Tomorrow’s Network
Within wireless communications networks, there are multiple pieces of hardware, each running its own operating software. Each needs to operate to a given specification (usually a 3GPP or LTE Release standard), and there are likely additional requirements placed on the suppliers by the local operators.
This model worked reasonably well when voice and text (using the SS7 TCAP standard) constituted the majority of activity. However, the interest in pushing applications (e.g., WhatsApp owned by Facebook) deeper into the network has created a gap between legacy product development and entrepreneurs. On top of this, there is a need to cost-effectively provide access to less developed areas. On top of this, data growth continues to drive up costs, which create pressures on carriers (and, as a result their suppliers) to deliver a better experience and greater profitability.
This has forced two things to occur:
- Greater network sharing (predominately radios and transport) between network operators. CBRS is the beginning of this trend in the USA (see TSB on CBRS here); and
- Separation of hardware (e.g., a shared radio) and operating software (which may be custom to the operator).
Doing all of this in a secure environment is a challenge. Developing new operating systems amidst a global shortage of software development talent (and recognition of venture capital and other investors that this can be a value-producing endeavor) is an additional challenge. Integrating any operating system changes into the stream of concurrent innovations (e.g., 5G Standalone equipment development, increased mobile edge computing deployments, etc.) requires coordination. Creating competitive advantage in addition to achieving cost reduction targets adds to the heap. It’s like replacing Windows yet expecting no change in how current and future versions of Excel and PowerPoint will work.
We outlined the AT&T efforts in this space in a previous TSB (link is here) but think there’s a few “no brainer” areas where application developers and carriers should come together to improve experience.
- Voice calling. This experience is essentially the same across carriers:
- There is a non-real time contact list that is invoked through a clumsy, 1990’s dialer scheme (see nearby picture);
- There is no voicemail ubiquity within the carrier community (there is at the app layer, however, for WhatsApp, Google Voice, and others);
- To the best of my understanding, there’s no way of automatically integrating stored voicemails into CRMs such as Salesforce;
- There is no reminder or follow up function on voicemails (think how Gmail does this with emails);
- There are inconsistent methods of identifying spam calling (and any other incoming call for that matter);
- There’s no way of knowing any details or status about the party I am calling (such as whether they are on the phone or whether they have made a call in the past five/ten/fifty minutes or even the last day – think the notification scheme for apps such as Skype, etc.);
- For incoming calls, there’s minimal context and no ability to instantly locate/trace the incoming caller (mobile edge computing could fix this pronto and you could see that the call showing 704/Charlotte area code is really originating from Omaha);
- There’s no ability to interrupt a current call (e.g., spouse calling), a call feature common in contact centers (whisper tone);
- There’s no common messaging portal incorporating LinkedIn, Facebook, carrier, WhatsApp and other sources;
- Integration between conferencing services such as Zoom or Skype and the mobile device have not materially changed in 20 years. Still a phone number plus an access code and an announced name.
Is it any wonder that Google Voice, Facebook, and WhatsApp are succeeding and that carrier voicemail solutions are flat to declining? Customers are communicating more than ever, but they are just not into that 1990’s dialer.
To change voice, the interaction between a customer’s contact list (directory), the universal contact list (macro directory), storage (voicemail), availability (presence/ proximity) and the network needs to change. This can all be done faster within the network and is a prime example of how operating systems can and should be rewritten.
Voice application (the dialer provider) should be a choice. It should be portable and interoperable. It should be driven by a microphone and intelligence, not by typed search strings into contact list applications. And the private directory should have live updates (if allowed by the directory listing). The integration of applications functionality deeper into the network can do this, and advancements will occur a lot faster than we see today from the carriers.
- Predictive Analytics (and Customer Care). One of the eye-opening experiences I had with my Flash Wireless experience concerned troubleshooting device issues (Flash had a heavy Bring Your Own Device base). As an MVNO, we tried when possible to go the extra mile if the issue was device-related as opposed to a network issue. We formed a checklist which could easily be databased in today’s environment. Some of the important topics included:
- IoS or Android version
- Recent activity (e.g., voice over Wi-Fi connectivity issue vs the network, messaging activity, new apps downloaded, Wi-Fi vs network data access, location)
- Port-in provider (experience expectations)
- Phone age (and purchase source if it came from one from a known vendor)
- Customer lifecycle age (pre-first bill; first 90 days; over 180 days; etc.)
The number of possible iterations quickly grew, especially since we were in a 3-carrier MVNO environment (location in section b. above really mattered for some of our network providers).
A system that continually interacts with the network could do a better job of measuring data and device quality. If a customer had a service need, problem identification could be instant and highly accurate. Success would not be determined by the smartest care expert, but by the network (and the collective experience of all previous users who had ever used the network in that location at that specific day/time). The cost of caring for older devices could be calculated with high confidence.
To make predictive analytics work, measurement software needs to be pushed further into the network core. Economics aside, if the problem can be remedied by a carrier sharing partner, that can be done instantly through the operating software (not through a SIM setting). Anomalies can be detected for individual users and alerts can be delivered. If the problem was with the provisioning process, for example, the device could be re-provisioned right away (in a nearby store or over the air) or overnight.
The network can be the service expert if issues can be detected quickly. With the consolidation of device models (e.g., more iPhone 8, X, XR, XS, and 11 models in service than ever before), there’s plenty of correlations to be determined (e.g., Sprint iPhone XR users living in Somerset, Kentucky that have activated service in the last 90 days). The result of greater analytical capabilities built into the core could result in dramatically lower cost for customer care.
These are two of probably ten or more use cases that demonstrate the value of rewriting equipment operating systems. This will be an evolution, but not one that is done simply to lower costs – there are many product and customer experience benefits that could create competitive advantage.
Qualcomm Snapdragon 865 Chipset specifics revealed. Increasingly, what’s contained in Qualcomm’s chipsets finds its way into the subsequent generations of smartphones. If that is true, we should expect to see more camera focus (new chipset accommodates up to 200 MP cameras), 5G networks (full support), and faster displays (supporting up to 144 Hz). It was also interesting to learn that the Snapdragon 855 would also support Dual SIM/ Dual Standby (more details on that finding from this XDA Developers report here). As we discussed in last week’s TSB, the Apple XR/XS/ XS Max was the first lineup to support Dual SIM/ Dual Standby – Android development efforts in this area have been slower to emerge. The Qualcomm 855 should be the turning point and we should see the capability available on new devices in 2020. According to the XDA Developers article referenced above, they worked with Gemalto to enable eSIM support within the Qualcomm Secure Processing Unit.
One additional note about the Snapdragon 865 is its support for the Android 11 IdentityCredential API. This would allow, among other things, the ability to store your driver’s license in Android and it would be accepted as a proper form of identification. The complete video of Day 2 which has the details on the 865 are here – the discussion of Dual SIM/ Dual Standby starts at minute 31. The Snapdragon 865 spec sheet is also available here.
DOJ Calls Out Carriers on Remote SIM Provisioning (RSP) Collusion
The day before Thanksgiving, the New York Times ran an article describing the settlement between the Justice Department, the GSMA (standards body) and some US wireless carriers (presumably including AT&T and Verizon) over possible collusion surrounding the development of eSIM device locking.
The Times article is sparse on details – Assistant Attorney General Delrahim’s letter (here), however is not. Here’s what was found concerning the current RSP process (actual findings – emphasis added):
First, RSPv2 requires consumer-users to express affirmatively their intent to switch profiles each time the eSIM toggles between profiles or networks, thereby preventing the eSIM from automatically switching (or optimizing) between profiles. Dynamic or automatic switching is a potential competitive threat because it could lead to a service where a device efficiently selects, on behalf of the user, which profile to use in any given situation. For example, the eSIM could switch services if it detects stronger network coverage or a lower cost network, providing consumers with better or less expensive service. The prohibition on automatic switching would tend to prevent at least one existing operator from offering a new innovative service using an eSIM. That is, in order to offer the new service, the operator would have to convince smartphone manufacturers to forego complying with the RSP Specification.
Second, RSPv2 prevents an eSIM from actively using profiles from multiple carriers simultaneously. Multiple active profiles is a potential competitive threat because it would allow a user to divide usage across operators. For instance, the user could actively maintain two profiles on one device if he or she wanted to receive work-related phone calls to one profile and personal phone calls to another profile, all while carrying only one phone. The user could also actively operate profiles optimized for different coverage areas or for international travel. Although there appear to be technical challenges to allowing multiple active profiles at present, the single active profile requirement in RSPv2 serves as a roadblock to additional disruptive innovation that could solve these technical challenges.
The DOJ’s issue was not only with these two outcomes (which are unmistakably anti-competitive), but with the entire approval process used by the GSMA. Everyone agreed to comply with new process, and, with the advent of the new Qualcomm 865 chipset described above, it’s likely that switching between networks will be placed as a consumer choice with the opportunity to mute future notifications (similar to the roaming notifications process followed for over two decades) and also to allow multiple networks to be accessed simultaneously (making data network selection easier for cable MVNOs and others while potentially keeping voice on the MNO network).
Adam Koeppe Takes the Stage in Vegas (While His Boss is on a Separate Stage in Vegas)
Given space constraints in this week’s TSB, I am going to keep this excerpt short (perhaps we will cover in another TSB this month), but, if you want to know what Verizon is doing with respect to network deployment, listen to his Well Fargo talk with Jennifer Fritzsche here or read the transcript here. Adam covers the AWS 5G Edge announcement, fiber deployment strategy, CBRS (and Enterprise LTE solutions pairing CBRS and millimeter wave spectrum bands), Broadband to the home and relationship to cable MVNO, and a few other topics. Less spin is good for Verizon, and Adam is a “balls and strikes” interview.
What Markets Will See the Greatest Improvement to Sprint/ Boost if New T-Mobile Actually Occurs?
We had been thinking about this topic for a while, and accessed publicly available RootMetrics data (2H 2019 measures only to be most current in our assessment) to see where the current gap between T-Mobile and Sprint exists.
To no one’s surprise, Sprint tends to solely occupy fourth place in nearly each of the 125 markets that RootMetrics measures every six months. How would that performance improve once that Sprint/Boost customer (current device) could access the T-Mobile network?
To determine the greatest impact, we looked at the difference between Sprint and T-Mobile’s Overall Score (perhaps in a future TSB we will dive into the components). As of Wednesday, RootMetrics had published the results of 96 out of 125 markets (77%). The results break down as follows (100 pt scale):
Overall Score Difference Number of Markets Percentage of Total
Less than 3.0 points 19 20%
3.1 – 5.0 points 13 13%
5.1 – 10.0 points 48 50%
More than 10.0 points 16 17%
While there may be debate about the impact to customers for the first two levels (device age could play a significant role in a market where both T-Mobile and Sprint are relatively strong), there’s little debate when there’s a spread in excess of 10 points and the market is not one of the previously announced 5G markets. Here’s a sampling of where Sprint has fallen behind:
- Oklahoma. Below are the most recent charts for Tulsa and Oklahoma City. ‘Nuf said.
- Florida. These are legacy MetroPCS markets for T-Mobile and have very dense coverage. Miami, which was once a priority market for Sprint (non-executive Chairman Marcelo Claure has close ties to the area), has fallen off considerably and is no longer a competitive market for Sprint. Other markets with more than a 10 point spread to T-Mobile include Port St. Lucie (12.2) and Sarasota (11.1). Orlando, Kissimmee, Tampa, and Jacksonville have a 5.1 – 10.0 spread. The other markets are waiting to report.
The remaining markets are both big and small metro areas:
- Atlanta (fast growing area, large market, 5G market)
- Baton Rouge, LA (been a weak network for Sprint for many years)
- Charlotte, NC (fast growing area and second home to most of the financial services industry)
- Denton, TX (North Dallas suburbs)
- Kansas City, MO (very odd as it’s Sprint’s current HQ and a 5G market)
- Louisville, KY
- Memphis, TN
- Nashville, TN (fast growing area)
- San Antonio, TX (Sprint PCS dominated this market because of its design; large market)
- Wichita, KS
Interestingly, no Northeast, Northwest, Southwest or California markets with large gaps. We will update this list in January once RootMetrics has completed their 2H 2019 metro studies.
That’s it for this week. Next week we will begin our discussion of 2020 trends unless events dictate otherwise. Until then, if you have friends who would like to be on the email distribution, please have them send an email to email@example.com and we will include them on the list.
Have a great week… and GO CHIEFS!
Happy Thanksgiving from Lake Norman, North Carolina, where I finally got the turkey to look normal after grilling (thanks to YouTube videos). Hope your Thanksgiving was filled with good food, fellowship, and safe travels.
This week’s Brief is a review and summary of one of the many books I have been reading (thanks to your suggestions) on the history of technology – Tim Wu’s The Master Switch: The Rise and Fall of Information Empires. It was written in 2010 and, in paper edition, is a 376-page chronicle of that Wu calls “The Cycle.” The book can be purchased for less than $3 used on Alibris (shipping extra) and is definitely a must read for anyone who wants an historical perspective on technology in the 20th century.
This week’s TSB draws not only from the book but from two lectures Tim Wu gave around the time of the publication. The first is to the Stanford Center on Internet in Society in May 2011 and the second to the Berkman Klein Center for Internet & Society at Harvard University in January 2011.
Before going into the details of the book, here’s a brief biography of the author, provided by Wikipedia.
“Wu was born in Washington, D.C. and grew up in Basel, Switzerland, and Toronto, Ontario, Canada. His father, Alan Ming-ta Wu, was from Taiwan and his mother, Gillian Wu, is British-Canadian. They both studied as immunologists at the University of Toronto. Wu and his younger brother were sent to alternative schools that emphasized creativity, where he befriended Cory Doctorow. Wu’s father died in 1980 and his mother bought him and his brother an Apple II computer using some of the insurance money, starting Wu’s fascination with computers.
“Wu attended McGill University, where he initially studied biochemistry, later switching his major to biophysics. He graduated from McGill with a Bachelor of Science degree in 1995 and received his J.D. degree from Harvard Law School in 1998. At Harvard, he studied under copyright scholar Lawrence Lessig.
“Wu worked with the U.S. Department of Justice, Office of Legal Counsel, after graduating from law school, and before starting a clerkship with Richard Posner on the Seventh Circuit Court of Appeals in 1998-1999. He also clerked for Stephen Breyer, U.S. Supreme Court in 1999-2000. Following his clerkships, Wu moved to the San Francisco Bay Area, worked at Riverstone Networks, Inc. (2000–02) and then entered academia at the University of Virginia School of Law.
“Wu was Associate Professor of Law at the University of Virginia from 2002 to 2004, Visiting Professor at Columbia Law School in 2004, Visiting Professor at Chicago Law School and at Stanford Law School, both in 2005. In 2006, he became a full professor at Columbia Law School and started Project Posner, a free database of all of Richard Posner’s legal opinions. Wu called Posner “probably America’s greatest living jurist. ”
Professor Wu is a research scholar; this is clearly evident in his work. His greatest claim to fame is the popularization of the term “net neutrality” in a 2003 paper entitled Network Neutrality, Broadband Discrimination that he wrote while at the University of Virginia.
The Master Switch won critical acclaim in 2010 by a wide variety of publications, including Fortune, Publishers Weekly, and The New Yorker magazine.
At the heart of The Master Switch is what Wu Refers to as “The Cycle” (below passage is from the Introduction):
“Every few decades, a new communications technology appears, bright with promise and possibility. It inspires a generation to dream of a better society, new forms of expression, alternative types of journalism. Yet each new technology eventually reveals its flaws, kinks, and limitations. For consumers, the technical novelty can wear thin, giving way to various kinds of dissatisfaction with the quality of content (which may tend toward the chaotic and the vulgar) and the reliability or security of service. From industry’s perspective, the invention may inspire other dissatisfactions: a threat to the revenues of existing information channels that the new technology makes less essential, if not obsolete; a difficulty commoditizing (i.e., making a salable product out of) the technology’s potential; or too much variation in standards or protocols of use to allow one to market a high quality product that will answer the consumers’ dissatisfactions.
“When these problems reach a critical mass, and a lost potential for substantial gain is evident, the market’s invisible hand waves in some great mogul like [AT&T Chairman Theodore] Vail or band of them who promise a more orderly and efficient regime for the betterment of all users. Usually enlisting the federal government, this kind of mogul is special, for he defines a new type of industry, integrated and centralized. Delivering a better or more secure product, the mogul heralds a golden age in the life of the new technology. At its heart lies some perfected engine for providing a steady return on capital. In exchange for making the trains run on time (to hazard an extreme comparison), he gains a certain measure of control over the medium’s potential for enabling individual expression and technical innovation—control such as the inventors never dreamed of, and necessary to perpetuate itself, as well as the attendant profits of centralization. This, too, is the Cycle. ”
Openness and experimentation lead to consolidation and control, eventually morphing into a natural, competitive, or government-dictated monopoly. Wu goes on to posit that the growth of the Internet (re: published in 2010) is subject to the same Cycle which he sees as “in consolidation” even prior to events such as AT&T + Time Warner (content), Time Warner Cable + Charter + Brighthouse, and T-Mobile + Sprint.
The Relationship of “The Cycle” to the Book’s Organization
The Master Switch is divided into five parts:
- Part 1 focuses on the founders that create and discover the new industry
- Part 2 details attempts of established communications companies (many times in conjunction with the FCC and FTC) to thwart value-adding feature functionality (Wu calls these “sustaining innovations”)
- Part 3 addresses government-aided attempts to create competition within industries
- Part 4 discusses how some companies and industries were able to reinvent themselves after being impacted by the changes wrought in Part 3
- Part 5 poses the question “Can the Internet buck the Cycle?” and discusses options to prevent excessive consolidation of content creation, communications infrastructure, and distribution.
The Kronos effect, defined by Wu as “the efforts undertaken by a dominant company to consume its potential successors in their infancy” plays an important role in technology development. Western Union was insatiable in its desire to destroy the upstart Bell network, although, as Wu describes in the book, was decidedly shortsighted when they rejected Bell’s offer to sell them the main telephone patent for $100,000. The American film industry is quickly co-opted by phonograph companies, and the 1930s produce Kronos twins NBC and CBS which dominate the early days of television.
The most telling example of the Kronos effect, however, occurs in 1934 within AT&T. Wu describes the following situation:
“In early 1934, Clarence Hickman, a Bell Labs engineer, had a secret machine, about six feet tall, standing in his office. It was a device without equal in the world, decades ahead of its time. If you called and there was no answer on the phone line to which Hickman’s invention was connected, the machine would beep and a recording device would come on allowing the caller to leave a message.
“The genius at the heart of Hickman’s secret proto–answering machine was not so much the concept—perceptive of social change as that was—but rather the technical principle that made it work and that would, eventually, transform the world: magnetic recording tape. Recall that before magnetic storage there was no way to store sound other than by pressing a record or making a piano roll.
“The new technology would not only usher in audiocassettes and videotapes, but when used with the silicon chip, make computer storage a reality. Indeed, from the 1980s onward, firms from Microsoft to Google, and by implication the whole world, would become utterly dependent on magnetic storage, otherwise known as the hard drive.”
Why did Bell Labs (and AT&T management) reject the idea of the answering machine and the underlying invention of magnetic tape? Wu continues:
“…In Bell’s imagination, the very knowledge that it was possible to record a conversation would “greatly restrict the use of the telephone,” with catastrophic consequences for its business. Businessmen, for instance, the theory supposed, might fear the potential use of a recorded conversation to undo a written contract. Tape recorders would also inhibit discussing obscene or ethically dubious matters. In sum, the very possibility of magnetic recording, it was feared, would “change the whole nature of telephone conversations” and “render the telephone much less satisfactory and useful in the vast majority of cases in which it is employed.”
And so it was that AT&T stifled not only the development of magnetic tape, but also the development of an answering machine until the early 1980s. While this not the only example of poor technology evaluation, it’s the best one depicting the secondary impact on highly disruptive component development. The era of computing might have been different had this 1934 innovation been pursued.
AT&T Reacts to External Efforts to Improve the Telephone (a.k.a, the Hush-A-Phone Controversy)
Professor Wu spends the majority of one chapter on the Hush-A-Phone, an invention by Henry Tuttle designed to increase the privacy of the telephone by placing an additional attachment between the receiver and the subscriber’s mouth (a good picture of the Hush-A-Phone in use is nearby).
After the Hush-A-Phone’s early release (and 125,000 units sold), AT&T technicians began to warn customers that their continued use of the attachment violated their tariff and could ultimately result in service disconnection. The scary truth is that their warnings were based in fact – the law at the time stated that “No equipment, apparatus, circuit or device not furnished by the telephone company shall be attached to or connected with the facilities furnished by the telephone company, whether physically, by induction, or otherwise.”
Mr. Tuttle moved to reverse that rule in 1948, and, for two weeks in early 1950, both sides presented their arguments (Wu outlines them brilliantly in Chapter 7). For no apparent reason, however, the FCC declined to rule on the hearing until 1955 – the above law held for that entire period.
On top of this, the FCC ruled against Tuttle, forcing him to launch an appeal which he would ultimately win. Appeals Court Judge Brazelton would rule that the subscriber has the “right reasonably to use his telephone in ways which are privately beneficial without being publicly detrimental.”
Tuttle dies a penniless man, having spent most of his fortune fighting his larger opponent. Even after winning the appeals court victory, Tuttle could not mount a significant challenge to AT&T’s increasing product innovations.
Ten Years Later, What Does The Master Switch Mean Today?
Professor Wu concludes the book (remember – published in 2010) with a proposed separations policy. He defines separations as “an effort to prevent any single element of society from gaining dominance over the whole, and by such dominance becoming tyrannical.”
Specifically, he outlines separation of a) developers of information (content creators) from b) the network infrastructure over which it travels (service providers) and c) those who control the tools or venues of access (equipment providers, venues such as movie theaters, search engines, etc.). The Separations Principle has an additional necessity: that the government also keep its distance and not intervene in the market to favor any technology, network monopoly, or integration of the major functions of an information industry.
As we discussed in last week’s TSB, the convergence of content and networks (especially wireless) has become more important in the ten years since Wu’s Master Switch. AT&T has publicly staked its company’s fate on it and continues to evolve toward single services which deliver company-owned content to the customer with minimal packet loss and low latency (presumably to the detriment of non-HBO content during times of congestion). AT&T and Comcast firmly reject Wu’s Separations Principle, with the former becoming more vocal about their desire to favor created content as part of products and services.
But AT&T is not the only company with separations frustration. When Google changed its search results related to travel in the second and third quarters of this year (a convergence of a. and c. above), many online travel merchants felt the impact. Mark Okerstrom, Expedia’s CEO, described the impact as “incremental weakness in SEO volumes and a related shift to high-cost marketing channels.” This sent Expedia’s stock price tumbling more than 30% (see nearby chart – the Google “squeeze” cost Expedia shareholders ~$6 billion – more in this article).
While Wu’s Separations Principle is a viable recommendation, it’s no longer practical given the events of the past decade. The market is left to decide whether a Google-Verizon partnership (which incorporates content such as YouTube TV, YouTube, as well as search) is better for markets than an “all in one” solution from AT&T. Watching content disappear from Netflix may not hurt as much as many predict, and a portal will emerge.
The Master Switch provides a terrific historical perspective on the evolution of broadcasting, communication, motion picture, and technology industries. Definitely worth reading, and hopefully a revised edition is forthcoming.
That’s it for this week. Next week, unless events dictate otherwise, we will be looking at the role of increased carrier RAN software control and development. Until then, if you have friends who would like to be on the email distribution, please have them send an email to firstname.lastname@example.org and we will include them on the list.
Lastly, if you want to see two terrific interviews from November (Bill Gates at the New York Times DealBook conference, and John Malone CNBC interview with David Faber), check out last week’s mid-week post here.
Have a great week… and GO CHIEFS!