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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!
Greetings from Charlotte, North Carolina (Uptown signpost pictured). We will attempt to answer the question “Do the state Attorneys General have a case?” by summarizing and analyzing their case (find a copy of the complaint here – see point 7).
Following the ebullience of DOJ approval and a very strong earnings report from T-Mobile, investors digested Verizon’s (generally strong for wireless, and weak relative to AT&T for wireline) and Sprint’s (generally weak, Free Cash Flow negative) earnings. We will weave some recent earnings results into this week’s TSB, but, if you want all the details and analysis, look to the Deeper post we will have on the website related to “State Attorneys General Make Their Case”
Let’s dig into the basics of the case by understanding the plaintiffs, the nature of the complaint, and possible remedies/ compromises.
Who is Suing?
For those of you who are not following recent events closely, fourteen states and the District of Columbia are filing suit to permanently block the merger of T-Mobile and Sprint. Those states are as follows:
There is a very good balance of incumbent telcos represented by the suing states and DC. In fact, outside of Texas (let no one forget it’s the HQ of AT&T), there’s really no representation of the former Bell South or Southwestern Bell territories. It is interesting that 11 out of the 15 states or territories have a population density that is higher than the national average (the promise of rural buildout is less attractive in these areas than in Kansas, Nebraska, Wyoming, Oklahoma or the Dakotas). And there are some notable dense areas that are missing: New Jersey, Rhode Island, Delaware and Florida all have high population densities but have not joined the group. Florida and New Jersey split cable coverage between Comcast and Spectrum.
While the plaintiffs in the lawsuit make an argument that competition will raise prices and reduce choices for lower-income Americans, it’s interesting to note that 11 out of the 15 states have high median household income (with 7 of the top 10 household income states represented). In fact, 12 out of the lowest 13 per household income states are not party to the complaint.
The head-scratcher on this list is Colorado, home to Dish (admittedly not as much in the picture when the lawsuit was filed in mid-June) and a relatively less dense area. But it also happens to be home to a significant and growing base of Comcast, Spectrum, and CableLabs employees and is one of the fastest growing states in the country. And, as the nearby chart shows, Colorado has a Democrat Attorney General (profile here).
What isn’t a surprise is that 11 out of 15 states have a strong Comcast presence. Admittedly, Comcast is pretty much everywhere (see map from Broadband Now here), and Illinois
(Comcast is primary provider to Chicago), Washington (Seattle, Tacoma), Georgia (Atlanta), Florida (Miami) and Pennsylvania (Comcast’s home state as well as provider in Philadelphia and Pittsburgh) are not currently represented in the legal action. But if we see others join the lawsuit next week, don’t be surprised if they are one of the five mentioned above (Washington would be a particular blow to T-Mobile whose HQ are in Bellevue).
Bottom line: There are 26 states with a Democrat Attorney General, and half of them have joined together to block the T-Mobile/ Sprint merger. The one Republican state that recently joined the lawsuit happens to be home to T-Mobile’s former proposed merger partner and current competitor, AT&T. While there is no clear pattern beyond political affiliation, it is interesting to note that Comcast/ Xfinity Mobile has a major presence in many of the suing states.
What’s Their Case?
The case is best summed up in the last section (104) of the complaint: “Unless enjoined, the Merger likely will have the following effects in retail mobile wireless telecommunications services across the nation, among others:
- “Actual and potential competition between Sprint and T-Mobile will be eliminated;
- “Competition in retail mobile wireless telecommunications will be lessened substantially;
- “Prices for retail mobile wireless telecommunications services are likely to be higher than they otherwise would be;
- “The quality and quantity of mobile wireless telecommunications services are likely to be less than they otherwise would; and
- “Innovation will likely be reduced.”
Simply put, the telecom marketplace is better off with the current four-company structure, warts and all, then it would be with a three-company structure and Dish as a new entrant (with Sprint’s 800 MHz spectrum). The complaint contends that prices would rise 17-20% as the new T-Mobile would exercise their dominant position in major metropolitan areas such as New York and Los Angeles to keep prices (particularly prepaid) high. It also contends that fewer MVNOs would emerge and current MVNOs like Tracfone/ Straight Talk (20 million total customers) would struggle because neither the new T-Mobile nor Dish would make 4G or 5G capacity available at attractive prices. Finally, they contend that the consequences for the new T-Mobile failing to fulfill their deployment promises to the FCC are too weak.
While the actual market shares are redacted in the complaint, the Herfindahl Index information and the disclosure that the new T-Mobile would have more than 50% market share in the New York and Los Angeles CMAs (see sections 48 and 49 in the complaint) is astounding (full map of the FCC CMAs and RSAs here). CMA 1 and 2 are not small geographic areas, and, as we discussed last week, Dish owns some additional 600 MHz spectrum covering CMA 1. The greater question is “If true, what have AT&T and Verizon been doing in these markets for the last seven years? Have they been retreating to the Connecticut and New Jersey suburbs (as Long Island is covered by CMA 1)?” The disclosure is damning to Verizon and AT&T as it represents their two largest facilities-based (incumbent telco) footprints.
As for the argument that low-income subscribers would be disproportionately impacted, let’s have a look at the map of “mobile phone shops” in Paterson, NJ (I had the opportunity to tour every one of these and a few more as a part of my MVNO education in 2017). As you can see from the nearby picture, there are 17 stores within a 12 square block radius selling every major carrier. There’s a Boost City and two Boost Mobile stores. There’s a Total Wireless (Tracfone MVNO served exclusively by Verizon) and AT&T, Verizon FiOS, T-Mobile and Sprint retail stores in the mall at the bottom of the picture. There are traditional bodega-style shops selling H2O (AT&T MVNO), Ready Mobile (Tracfone MVNO served by T-Mobile), Ultra Mobile (T-Mobile MVNO) and several other brands.
Competition would suffer if T-Mobile eliminated their MVNO business entirely, but there’s absolutely no indication that they would ever throw Tracfone to the curb (their recent earnings call language backs it up). But if they did, AT&T (Cricket) and Verizon (Total Wireless, Xfinity Mobile, Spectrum Mobile) would gladly take their customers.
If space permitted, there’s an argument to be made that if Apple’s new credit card is successful (see latest Bloomberg article here), the concept of device financing through a traditional carrier will be a thing of the past in several years and we will be ordering iPhones with Mint Mobile-like online plans. Traditional carrier stores will go the way of bank branches (minus the need for an ATM).
Bottom line: The case sounds strong, but there’s plenty of contrary evidence indicating that the new T-Mobile would not behave like AT&T and Verizon just because it is bigger. The Herfindahl Index results highlight the metro retreat of the larger established brands more than the growing domination of their smaller rivals.
Let’s Make a Deal!
If a settlement can be achieved, it could include the following:
- Additional wireless subscriber divestitures in high-concentration markets to Dish. That’s a “sleeves off the vest” give on the part of new T-Mobile if they believe that they can win those customers back (T-Mobile’s postpaid monthly phone churn was extremely low this quarter at 0.78%). It may be easier to divest existing Sprint subscribers.
- Force a better MVNO deal for Dish (which would likely delay their construction of a replacement network).
- Mandate “cost plus” roaming rates T-Mobile offers to other carriers who wish to use the new T-Mobile network in rural areas (another “sleeves off the vest” argument which would improve scale for T-Mobile).
- Accelerate the Dish network deployment timeline (which would need to happen separately as Dish is not a party to the state Attorney’s General complaint) with additional penalties for non-compliance.
- Providing Dish (or near-Dish) terms to any new or existing MVNO that wishes to use the new T-Mobile network for the next 7 years (including the ability for any MVNO to exercise core control as outlined in the complaint). This would increase T-Mobile’s overall scale but not improve Dish’s overall competitiveness.
- Significantly higher penalties should T-Mobile not comply with the FCC conditions.
- Additional commitments (including cash payments) to the states. These might include requiring all new devices sold by new T-Mobile to be compatible with all other carriers, establishing a neutral-party run device compatibility database that would allow current and prospective customers to determine whether their current device could deliver a better network experience, and tools to make it easier to bring all text messages and voicemails to carriers should the customer leave the new T-Mobile.
Rather than focusing on the higher market share that the new T-Mobile will have (which has changed dramatically since 2012), the Attorneys General should focus on how to provide incentives to Verizon and AT&T to reestablish their presence in urban areas.
Bottom line: There’s a deal to be made. Rather than run the court through 5G cost models and timelines, the new T-Mobile executives and state officials should create a framework which will result in greater citywide competition and hasten the deployment of tomorrow’s network.
Next week’s issue will summarize 2Q earnings and look at Verizon’s new unlimited pricing plans. If you would like a copy of either the Top 10 Trends or the IoT Basic presentation discussed in last week’s TSB, please let us know at the email below and we’ll get you a copy.
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 will include them on the list.
Have a terrific week!
** Editor’s Note: This was originally sent to SB readers on June 22, 2014 **
June greetings from Dallas, where, as the picture shows, we are enjoying needed rain. Thanks for the many comments on last week’s column. Many of you shared your experiences with Google Fiber (those of you who have it in Kansas City don’t appear to be going back to cable or U-Verse in the near future), while others accused me of oversimpifying in-building wireless efforts (admittedly, I did leave the concept of obtaining Building Authorization Agreements out of the Brief. They are hard to get and involve specialized real estate/ legal expertise). Thanks for your readership, and please keep the comments coming!
Over the past two weeks, we have written about major changes in the telecom industry, including:
- The half trillion dollar value and multi-hundred billion dollar capital shift from network to software providers
- The threat of Google as a new entrant to the residential and small business markets
- Fundamental architecture changes that will take place as content is pushed to the edge
- In-building data capacity needs will accelerate fibered metro building deployments (which drove Level3 to offer to buy tw telecom this week for 12.5x EBITDA).
The last three points are “take it to the bank” certainties that will impact some parts of the telecommunications industry more than others. Amid the hype, remember this: If one carrier can deliver consistent experiences while outside, en route, near building, and in-building, all of the other carriers will need to follow suit. The top three carriers (Verizon, AT&T, and Sprint) are driven to do this because most of their current data pricing plans are capped. Not only is third-party Wi-Fi offloading viewed as inferior and inconsistent when compared to the increasing affordability of in-building small cell solutions, in-building Wi-Fi now has become a revenue threat to the carriers.
There are many drivers of change in the wireless industry, but four deserve special mention:
- The ripples of T-Mobile’s Uncarrier strategy are beginning to be seen throughout the industry. First, it was the introduction of Equipment Installment Plans (EIP), and the separation it has driven between equipment sale and service revenue quality. As AT&T, Verizon, and Sprint transition their bases from traditional subsidy (which, at the end of the two-year term and beyond, can have attractive economics) to EIP models, the pressure on service revenues (particularly data ARPA/ ARPU growth) becomes greater. As we covered in Sunday Brief Q1 earnings reviews, the transition of T-Mobile’s base will be nearly complete by the end of 2014.
The most important thing to remember with these shifts, however, is the increased flexibility it provides the incumbent providers’ base of customers. Under the traditional $325-350 subsidy model termination penalty scheme, the perception among the base was that they were “locked” until the end of the two years. None of the new plans carry two-year contract terms, and, as Sprint and T-Mobile have shown, they are willing to pay multi-hundred dollar termination fees to drive up gross additions . A more unstable base should have AT&T and Verizon on edge.
To add fuel to the fire, T-Mobile will launch a new program to the AT&T/ Verizon base this week. For a $700 hold on your credit
card, T-Mobile will send you a new iPhone 5s for a free one week test drive (I have confirmed with T-Mobile that the one week starts upon iPhone receipt – something to consider when you sign up). This is not a plan that is aimed at the traditional T-Mobile base, but one that gets current (Sprint/AT&T/Verizon) iPhone 5s users into a T-Mobile store to have a conversation. (If the customer is a current iPhone 4s user, they will receive a double benefit due to the 64bit processing and LTE capabilities inherent in the 5s – a very clever move on the part of T-Mobile).
Will this plan have the same effect as equalizing the cost of an Android Wi-Fi only tablet? Likely not. But it could erase perceptions of poor network coverage for some. While many see this move as more “Carrier” than “Uncarrier”, I see this as Part 1 of a multi-part plan to reintroduce the T-Mobile network (voice, text, data) to millions of skeptical AT&T and Verizon customers (some of whom may have previously been T-Mobile customers). At worst, this program will provide real-time feedback on their network improvements and identify coverage gaps (and hopefully reiterate the need to begin a substantial in-building coverage initiative for T-Mobile hopefuls who are captive to multi-story living/ working environments). At best, it will propel 2-3 million gross additions through the end of 2014.
- The drive for spectrum outside of the FCC auction process will continue. There have been a lot of discussions this week about Verizon’s interest in Dish network spectrum (this article places a $17 billion value on the asset, and it’s very likely that Verizon’s interest is focused on Dish’s AWS-4 holdings as opposed to the 700MHz spectrum band), and also T-Mobile’s interest in acquiring additional 700 MHz A-Block (a.k.a., “low band”) spectrum from the likes of Paul Allen’s Vulcan Ventures (who holds the Seattle and Portland licenses) and spectrum management companies King Street LLC and Cavalier Wireless (the full list of original A-Block winners can be found here).
We have already seen AT&T actively pursuing spectrum purchases since 2012 in the 2.3 GHz/ WCS band (see here for their Sprint spectrum purchase that escaped most media headlines), and this week Sprint announced their first wave of rural partnerships which will leverage their Tri-Band capabilities.
With the frequency-sharing rules of the upcoming AWS-3 auction, and the “reserved/ unreserved” designation for the 600 MHz auction discussed in a previous Sunday Brief, is anyone surprised that unrestrained and adjacent spectrum would be interesting to larger carriers? Absolutely not. Announcements serve to entice more broadcasters to participate in the 600 MHz auction process, and hopefully keep additional regulations to a minimum.
Interestingly, if there are a wave of spectrum sale transactions prior to the end of the year, look for new categories of bidders (e.g., non-traditional wireless providers) to emerge for the licensed spectrum.
- Consolidation efforts will fail, not because of Sprint’s lackluster efforts, but because of T-Mobile’s unbelievable success. In second quarter earnings, we will see the full fruits of T-Mobile’s Early Termination Fee buyout initiative announced in January. Surprisingly to most (although not all), T-Mobile’s results will equally impact Sprint and AT&T (given the process ease of SIM-card swapping between AT&T and T-Mobile, this might be viewed as a slight victory for AT&T).
As we have shown in previous Sunday Briefs (see picture), the retail postpaid gap between T-Mobile and Sprint is shrinking (if one exists in retail prepaid after 2014 I’ll be very surprised). The eleven million subscriber gap at the beginning of 2013 could be as small as four million as we exit 2014. And, considering the composition of T-Mobile’s (smartphones) vs. Sprint’s (tablet) net additions, the revenue gap will be even smaller.
While there will be many traditional regulatory concerns (link to the Herfindahl index definition is here), the trends beg the question “Why should T-Mobile take on Sprint?” Does Sprint’s base of customers provide unique differentiation (and, given a large portion of the base is still on unlimited and unthrottled LTE data plans, can the value of the customer base increase)? Does Sprint’s base allow T-Mobile to build unique capabilities in the enterprise segment (which Sprint largely abandoned in 2013 to focus on small and medium customers)? Can Sprint out-innovate T-Mobile with a new management team (or, as one of you wrote recently, “Where is the Sprint problem – with the quality of the clay or with the potter?”).
Time is not on Sprint’s side: Service revenues are shrinking, management is leaving, and customers (particularly Corporate Liable enterprise customers) are questioning. No doubt, there is a value to scale, but T-Mobile is worth much more than $40/ share in a couple of years without Sprint. Could a cash infusion from Comcast/ Time Warner or a cable consortium be a viable alternative? Does T-Mobile even need cable as a strategic investor?
Consolidation makes good headlines, but every month that goes by without an announcement opens up better alternatives for T-Mobile than Sprint (and makes the “Why?” question more difficult to answer). Remember – at the beginning of 2006, Sprint Nextel, AT&T Wireless, and Verizon were basically the same size. One non-traditional strategic partner/ investor could reset the equation for T-Mobile and the industry.
4. The cable industry (as opposed to FiOS or U-Verse) will unveil Wi-Fi capabilities in 2015 that will be easier to use and intensify the battle for data in the home and office. The blind spot in wireless carrier strategic plans is cable. Their Wi-Fi efforts are very close to tackling the issue of in-home (and in-office) data usage. The rollout of an additional 100MHz of 5GHz Wi-Fi capacity will also fuel the bandwidth fire. More to come on this in a future Sunday Brief, but, given the arguments presented above and in previous analyses, cable would easily eliminate 10-20% of the data upside from the wireless carriers in 2015. (Editor’s note: for a view of the extra expansion from the cable industry’s point of view, check out this CableLabs blog post).
These are a few of the issues wireless service providers face, but they cover nearly every aspect of the business environment: non-traditional competitors presenting real substitutes, traditional competitors redefining the buying process, increases in supply, new regulations, and the increasing sophistication of smartphones and tablets are but a few of the dynamics that will be discussed around the strategic planning table. Who wins is anyone’s guess. But every carrier will attempt to move the needle.
In other important news this week, we do not have space to do a full analysis of the new Amazon smartphone (we will try to tackle the new Fire Phone in depth next week). In the meantime, check out two in-depth reviews here and here, and an excellent interview with Ian Freed from Amazon here.
Have a terrific week!