Home » Google

Category Archives: Google

President Obama and the Set Top Box

lead pic (16)Tax Day greetings from Washington DC (where I chaired a terrific discussion at INCOMPAS), Chicago, Charlotte, and Dallas.  Thanks to everyone who showed up at the panel and participated – all of the speakers on Monday were great, including Chairman Tom Wheeler (pictured).

 

This week, we continue to chronicle the developments of the Set Top Box saga as the Obama administration weighed in through the NTIA with comments.  We’ll also weigh in on the controversial “Ghettogate” ad.  First, however, we’ll look at a study of balance sheets across the telecom industry which was released last week by Craig Moffett.

 

Redefining Leverage Ratios

With continued densification (smaller cell sites in more places), spectrum acquisition, and competition, many investors turn to leverage ratios to benchmark long-term financial health and viability.  These ratios are not the first thing that companies highlight in their press releases, but many calculate and discuss their net debt to EBITDA metric.  Here’s that definition according to Investopedia:

 

The net debt to EBITDA ratio is a measurement of leverage, calculated as a company’s interest-bearing liabilities minus cash or cash equivalents, divided by its EBITDA. The net debt to EBITDA ratio is a debt ratio that shows how many years it would take for a company to pay back its debt if net debt and EBITDA are held constant. If a company has more cash than debt, the ratio can be negative.

 

Using that standard definition, communications company metrics would look like this:

leverage ratio beforeFrom a first glance, this looks as expected to most who follow the telecom industry.  Verizon and AT&T maintain low leverage ratios and as a result are afforded low interest rates.  Cablevision, Dish, Sprint, and Charter have historically been able to use high-yield debt markets to finance operations, spectrum purchases, stock buybacks, and other investments.  T-Mobile and Time Warner Cable lie somewhere in between.

 

Telecom is not a typical industry, however.  With Equipment Installment Plans (which entails moving away from subsidy and into subscriber-paid devices) and phone leasing proliferating, more “debt” is being created and sold to third parties at growing rates.  Operating leases create pressure on EBITDA but also frequently mean long and non-cancelable commitments for telecommunications carriers.  And pension obligations represent a promise to employees that rarely enters into leverage discussion dialogue.

revised ratiosMoffettNathanson’s adjusted leverage ratio schedule is shown to the right.  In this view, the relative health of each carrier is different than what was previously reported.  Verizon and AT&T look more like Cablevision and Charter thanks to large pension liabilities, even when the undiscounted size of the pension contribution tax credit is considered.  Comcast appears to be the healthiest of the industry with Time Warner a distant second.  Sprint’s revised ratio is a whopping 7.9x driven in large part by the reversing of the leasing construct.  While it should be emphasized that nothing is truly “real” in the accounting world, this analysis provides some insights into the high-yield market’s reluctance to lend the company money at reasonable rates.

 

Craig Moffett did a Bloomberg interview on the topic (see here) and his detailed analysis is only available to MoffettNathanson clients.  However, if you can get a copy of their work, it’s worth digesting and is on par with the seminal analysis on telecom affordability Craig did in his Bernstein days.

 

President Obama and the Set Top Box Kerfuffle

Since our article analyzing the Notice of Proposed Rulemaking was written (see here), there has been a lot of discussion across many constituencies as to who would benefit and suffer the most.  In the Sunday Brief devoted to the topic, we mentioned how this is pitting entrepreneurs against established programmers.  It’s also pitting Democrat Congresswoman Anna Eshoo (California), the ranking member of the House Energy and Commerce Subcommittee on Communications and Technology against Democrat Senator Bill Nelson (Florida), the ranking member of the Senate Commerce Committee.  Representative Eshoo is a supporter of the FCC’s initiative while Senator Nelson wants to study the implications of opening up the Set Top Box market in greater detail (Nelson is supported by the National Urban League, the National Action Network, and the Rainbow/ PUSH Coalition).

 

To make matters more complex for policymakers, President Obama decided to weigh in on Friday, devoting his weekly radio address to the set top box issue.  Here’s the situation assessment according to the White House (full blog address here):

 

… the set-top box is the mascot for a new initiative we’re launching today. That box is a stand-in for what happens when you don’t have the choice to go elsewhere—for all the parts of our economy where competition could do more.

 

Across our economy, too many consumers are dealing with inferior or overpriced products, too many workers aren’t getting the wage increases they deserve, too many entrepreneurs and small businesses are getting squeezed out unfairly by their bigger competitors, and overall we are not seeing the level of innovative growth we would like to see. And a big piece of why that happens is anti-competitive behavior—companies stacking the deck against their competitors and their workers. We’ve got to fix that, by doing everything we can to make sure that consumers, middle-class and working families, and entrepreneurs are getting a fair deal.

 

If that weren’t enough, the President’s National Telecommunications and Information Administration (NTIA) filed supportive comments with the FCC (read more about them here).  For those of you who are new to the process, the NTIA is managed under the Department of Commerce and the administrator of the Broadband Technology Opportunities Program (BTOP), one of the biggest boondoggles of the past decade (see New York Times article on BTOP titled “Waste is Seen in Program to Give Internet Access to Rural U.S.” here).

 

As we saw with the President’s actions on Net Neutrality (his YouTube message following the 2014 election is here), this administration is not afraid to use the power of the bully pulpit to influence the FCC.  Without rehashing the previous article, and to continue in the spirit of problem-solving, here’s a few questions I would suggest the FCC carefully consider:

 

  1. Will the ruling require Google to open up the Google TV Box? In other words, could the Xbox connect to a Google Fiber coax cable and allow customers to launch a Bing or Cortana query to pull up the latest in Google TV programming?  If not, why not? (Note:  while it is substantially less, Google TV charges a $5/ mo. lease for every TV after the first box).

 

  1. Will the new Electronic Programming Guide (EPG) providers be required to show consumers what information they are collecting on customers? How will consumers access this information as well as any other sources that are being used to drive channel selection.  For example, if I am shown the Kansas City Royals game as my first option and I have a Google EPG, will Google be required to show me that they recommended this because I have the MLB At Bat application on my Google Android phone?

 

  1. Can each customer of the new EPG service opt out of data collection? Will this selection process be easy for customers to access and install?  See the previous Sunday Brief here for more detail.

 

  1. With the replacement of a relatively simple, channel-driven search process (using up and down arrow keys on a specially designed remote control) with a more sophisticated algorithm-driven process as the likely decision, how can the Commission state that the process will not alter advertising rates (see Wired article here)? Won’t customers bid (and Google profit) from paying for higher page rankings on EPG search results?  If so, then what will prevent Black Entertainment Television (BET) from outbidding their apparent competition?  As Roza Mendoza, the Executive Director of the Hispanic Technology & Telecommunications Partnership stated in the aforementioned Wired article “They’re asking us to trust Google?  All of us know about their diversity record. The only people that are going to benefit from this are Silicon Valley companies.”

 

lease vs buy option from twc

Let’s keep the recommendation very simple:

  • Require all Multichannel Video Programming Distributors (MVPD) to provide the same set top box on-line and through distribution channels such as WalMart, just as they do with cable modems (see Time Warner Cable disclosure above).
  • Require all MVPDs publish a list of boxes that they support (according to the Tivo Bolt FAQ page, all of their devices are compatible with every major cable provider in the US as well as FiOS. Chairman Wheeler carefully omits Tivo’s competitive offer in this Washington Post interview when he says “Today there is no competition in set-top boxes, and therefore the incentive to innovate and come up with all kinds of new alternatives is somewhat limited”).
  • If the set-top box order is enacted, require opt-in consent and on-demand publication of how search results are being determined. Allow opt-out capabilities at any time and for any reason with no corresponding financial penalty (including termination penalties on the equipment).
  • If the set-top box order is enacted, allow cable companies five years to comply with the decision.

 

No one can defend the current state of the Electronic Programming Guide (with the exception of the Xfinity X1/X2 and the Tivo Bolt).  But to state that there is no set-top box competition when Tivo clearly positions itself as an alternative for digital cable providers is deceptive.  And to fail to acknowledge that Google will financially benefit from search result rankings, and that entrepreneurs will have to pay up to achieve a top page ranking, is equally deceptive.  The transition of value from cable companies to Google, Apple and Microsoft is apparent to anyone who digs deeper, and should receive the same bright spotlight that communications service providers have received throughout the entire Open Internet process.

 

Sprint’s Controversial (?) Ad

More than a few heads turned when Sprint released (and subsequently retracted) the following ad:

 

**

Lead statement:  Real questions.  Honest answers.  Actual Sprint, T-Mobile, Verizon and AT&T customers.  No actors.

 

Sprint CEO Marcelo Claure, talking to focus group but specifically addressing woman sitting to his right: “I’m going to tell you the carrier name, and I want you to basically tell me what comes to your mind.  T-Mobile.  When I say T-Mobile to you, just a couple of words.”

 

sprint ad pictureWoman sitting to Claure’s right: “Oh my God, the first word that came into my head was ghetto (laughter, Claure nods and smiles in approval).  That sounds like terrible.  Oh my God, I don’t know.  Like, I just felt like that there’s always like three carriers.  It’s AT&T, Sprint and Verizon.  And people who have T-Mobile, it’s like “Why do you have T-Mobile?” I don’t know.

 

Claure taps her shoulder in approval.   Sprint logo appears.  End of ad.

**

 

For those of you who are struggling with the definition of ghetto, here’s the version from dictionary.com:  a section of a city, especially a thickly populated slum area, inhabited predominantly by members of an ethnic or other minority group, often as a result of social or economic restrictions, pressures, or hardships.

legere twitter commentSprint had the sense to pull the ad, and Claure apologized, but his Twitter posts triggered intense reaction from many of Claure’s followers.  Interestingly, John Legere, T-Mobile’s CEO, declined to comment other than the exchange nearby.

 

This is probably an innocent mistake, a miss due to personnel changes occurring within Sprint’s marketing department.  Or perhaps Claure did not understand the racial undertones of the word ghetto.  Regardless, it provided some unneeded attention this week for the struggling carrier, and Sprint (and Boost) customers can rest assured that it will not occur again.

 

Thanks for your readership and continued support of this column.  Next week, we’ll dive into Verizon’s earnings as well as the Open Internet Order ruling if it is released.  Until then, please invite one of your colleagues to become a regular Sunday Brief reader by having them drop a quick note to sundaybrief@gmail.com.  We’ll subscribe them as soon as we can (and they can go to www.mysundaybrief.com for the full archive).  Thanks again for your readership, and Go Royals and Sporting KC!

 

Some Questions for Netflix (and the FCC)

opening pic (14)April greetings from Dallas, Charlotte, and Effingham, South Carolina (home of Margaret Holmes’ Peanut Patch Hot Boiled Peanuts – sign pictured).  The past two weeks have been busy; rather than diving too deep into one event, we’ll cover several important items instead.  But first, a quick roundup of the April Fools jokes from the telecom and Internet industries.

 

April Fool’s Day:  Some of These Ideas Are Good! 

We could do an entire article on the creativity of April Fools pranksters.  In the interest of discussing more substantive matters, however, we’ll limit ourselves to five that we thought were particularly innovative:

 

  1. samsung internet of trousersSamsung’s Internet of Trousers (IoT) features Wi-Fly (which sends you an alert that you need to XYZ), Get Up alert (which provides mild shocks to your posterior If you have not moved in three hours), and the ever popular Fridge Lock mode. More here.
  2. Google’s Parallel Universe (of Cats) Discovered. One of the best Nat and Lo episodes ever on the latest advances in String Theory.  Make sure you watch to the end.  More here.
  3. T-Mobile Binge on Up! Leave it the folks in Seattle to come up with a way to have a good April Fool’s joke and also poke fun at the competition.  I especially enjoyed the “Real Reality” mode.  Full video here.
  4. MarkForH&M. The all new clothing lineup designed by Facebook founder Mark Zuckerberg consists of seven identical grey t-shirts and one pair of jeans.  And many 20-something guys are saying “When can I get it?”
  5. Google’s “Send + Mic Drop” feature (see here). We need this back.    However, it’s understandable that a few unsuspecting folks might have inadvertently sent messages to potential employers or bosses without knowledge that “Mic Drop” meant “you cannot reply to this message.”  For those of you who did, chill out and make the most of it.

 

Honorable mentions:  Esurance Election Insurance, Lyft prank mode, Snoopavision, and Google Cardboard Plastic.

 

Some Questions for Netflix (and the FCC)

The Wall Street Journal reported last Thursday (not on April Fool’s Day) that Netflix has been throttling their video content to 600 Kbps when it is destined for AT&T and Verizon (and most other wireless carriers across the globe), but not when it is headed to Sprint or T-Mobile.

 

Netflix has been muted in their responses since the report has been issued, with only the Director of Corporate Communications commenting through a carefully scripted blog post that basically says “We’re working on it” (see here).

 

Here’re some questions that Netflix should answer:

  1. netflix logoHow did/ does this disclosure change current the customer service responses (FAQ, on-line help, one of two 800 numbers, etc.) to mobile connectivity issues (note: no changes to the FAQs have been made since the original disclosure)? Did customer service reps know that Netflix was throttling wireless traffic to some carriers and not others?
  2. How often were the plans to throttle AT&T and Verizon revisited? What criteria were used? For example, when Cricket was purchased by AT&T (which likely would have involved a change in Internet backbone providers), were all Cricket customers throttled as well? Or, when AT&T re-introduced unlimited wireless data plans for DirecTV customers, did Netflix contemplate removing (or actually remove) the speed caps?
  3. Will Netflix now begin to post a wireless bandwidth index? Can customers clearly see the speed options available to them on an un-throttled basis so they can make an intelligent choice?

 

Of biggest concern is the customer service aspect.  If Netflix service agents were not given the information or tools to accurately describe their wireless throttling policies, then there were likely thousands of calls per month made to AT&T and Verizon wireless agents trying to solve issues that originated with Netflix.  Verizon and AT&T could have had (and likely did have) network issues that prevented a good viewing experience, but Netflix made the troubleshooting issue more difficult by withholding their network practice.

 

On top of this, Verizon and AT&T missed out on the opportunity to upsell customers to higher data plans because of the Netflix practice.  The two largest wireless carriers received a double whammy:  higher customer service costs based on the assumption that the ISP must be at fault, and the missed opportunity to upsell customers to higher data plans faster because of the Netflix throttling policy.

 

Netflix is not the only one who is at fault here, however.  How the Open Internet Order was ultimately determined at the end of 2014/ beginning of 2015 should also be scrutinized.  The FCC faced a choice to increase their potential regulatory reach to edge providers such as Google, Netflix, Hulu, and Amazon Prime.  Here’re a few questions for each of the commissioners and Chairman Wheeler:

 

  1. When did the FCC engineers determine that Netflix was throttling wireless data (I’m willing to bet they were not surprised by the WSJ article)? When this data was received, what was done with it?  Who decided that this piece of information was not important or relevant?
  2. Did the FCC explicitly ask if Netflix had ever throttled data as a part of normal commercial operations? Did Netflix respond truthfully and completely?
  3. Has the FCC learned since this disclosure that other edge providers throttle data to selected wireless providers? Will the FCC require edge providers to publish their throttling policies and disclose them in their FAQs and advertising?

 

Given the unprecedented editorial influence over the final Open Internet Order draft that edge providers were rumored to have had, there should be a full reconciliation and publication of the “voted on” version and the final publication of the Order.  A simple redline could shed a lot of light on the process.

 

Bottom line:  Netflix has a lot of explaining to do.  The FCC also has a lot of explaining to do.  The foundational assumption that content streaming companies will be indiscriminate in their network streaming policies has been shattered by this disclosure.  Netflix should be held to a standard that is commensurate with a large and growing (~40% of US homes) market share.

 

AT&T is Becoming an Unlimited Company

“Bundle and Benefit.”  With these three words, AT&T has taken a page out of the cable playbook and used it against them.  It’s hard to believe, but there was a time when we paid for voice by the minute.  Voice customers had to know where the other person lived and whether that would result in additional charges.  Because of the uncertainty, customers held back, called at different times during the day, or made sure that they were “Friends” or “Family.”

 

Those were the early days of wireless voice, a similar model to what existed in the archane world of fixed/ landline service.  Longer distance calling meant higher charges, potential international settlements, and the like.

 

Cable’s Triple Play (and the introduction of unlimited wireless services from now forgotten MVNOs like Helio) made unlimited products an easy to understand and essential part of the telecom vocabulary.  Cable TV has always been unlimited (much to the chagrin of many parents).  High Speed Internet started as unlimited, although to a select few some caps may kick in for certain speeds.  When voice was introduced, it followed the unlimited pattern (and was priced at a slight premium to most fully featured local phone services).

 

att home internet pricingIt was the easiest sell on the planet:  Unlimited usage of home entertainment and communications essentials for $99 (then $89 and now in some promotions even $79).  Service was correspondingly easy – calls continued for standard network issues, but for the first year, the price remained constant.

 

AT&T watched what remained of the wireline voice market migrate to cable.  They also saw the unlimited message begin to penetrate the wireless carrier community as well (ironic as AT&T wireless pioneered single rate pricing a few years earlier).  Sprint began to offer truly unlimited wireless service for $99 (later $109) per line in 2008.  T-Mobile followed, as did other smaller providers.  All of this happened just as 3G networks were being replaced by 4G/ LTE speeds.  At this time, AT&T had the exclusive distribution rights to the bandwidth-intensive iPhone, so following their competition would have had significant network consequences.

 

AT&T ended unlimited data plans for wireless customers in June 2010.  This hiatus continued for over five years until the DirecTV merger was completed.  In January 2016, AT&T resumed offering unlimited LTE data (no throttling until 22GB per line threshold is reached) but there was a catch:  Customers needed to subscribe to DirecTV and AT&T Wireless.  The Double Play (Video + Wireless) was born.

 

The two-fer has enjoyed some success with over 2 million new or existing customers signing up for service.  Analysts predict that an additional 5-6 million will sign up for the service in 2016.  While this is a mere 10% of AT&T’s postpaid smartphone base, it’s not crazy to assume that 30-40% of the base could move to unlimited if the plan structure is right (this includes reasonable costs for DirecTV).  Four lines of unlimited wireless voice/ text/ data service for $180 is a very attractive rate.

 

This week, AT&T sweetened the pot even more as they announced new High Speed Internet pricing structures.  If a customer wants truly unlimited data, they will have to pay an additional $30 or have a qualifying DirecTV or U-Verse TV service (AT&T’s full announcement is here).  This means that a stand-alone customer in Dallas selecting 18 Mbps service (only) would pay $75 ($45 + $30 unlimited premium) per month for their service (Time Warner Cable charges $45 for 5x the speed with no caps).  That’s $30 more for 20% of the total throughput with Charter committing to keep the “no caps” policy provided that their merger with TWC and Bright House Networks is approved.

 

High Speed Internet pricing is not rocket science.  There are high gross margins and low product costs.  Also, AT&T is not remotely close to winning their share of decisions versus cable (AT&T lost 248K broadband customers in the past year – Comcast gained 1.4 million).  More AT&T penetration would have downstream effects on wireless network consumption as well (more Wi-Fi = less carrier spectrum radio capacity consumed and more Voice over Wi-Fi calling opportunities).

 

Bottom line:  AT&T got it right when they reintroduced unlimited wireless with DirecTV.  They started to get it right with unlimited U-Verse Internet with DirecTV (or U-Verse TV) but forgot to give consumers what they wanted most – more speed.  They need to introduce a free speed upgrades, and not the threat of capped surcharges, as a part of the bundle to compete against cable.

 

Thanks for your readership and continued support of this column.  You will not want to miss next week’s “First Quarter Earnings Watchlist” issue.  Until then, please invite one of your colleagues to become a regular Sunday Brief reader by having them drop a quick note to sundaybrief@gmail.com.  We’ll subscribe them as soon as we can (and they can go to www.mysundaybrief.com for the full archive).  Thanks again for your readership, and Go Royals!

The FCC’s Set Top Box Kerfuffle

opening pic (13)Greetings from Dallas.  That’s right – a week without travel-  a “Spring Break” of sorts from January and February’s crazy schedule.  Rather than talking with many of you from airports or the car, I called from balmy Texas.  I was also able to take in the Jesuit College Prep Rugby Showdown this weekend which is pictured (Jesuit in gold and blue; Memphis, TN, Christian Brothers High School in purple and gold).  My batteries are now recharged and I’m ready for a seven-city tour over the next two weeks.

 

This week, we’ll dive into the set-top box Notice of Proposed Rulemaking that’s underway and estimate the ramifications to the cable industry and over-the-top providers.  We’ll also begin to discuss a few events over the past month that are going to impact quarterly and annual earnings.

 

The FCC’s Set Top Box (STB) Kerfuffle

aol screenFresh off the one-year anniversary of enacting Net Neutrality rules, the FCC turned its attention to section 629 of the Telecom Act of 1996.  Yes, the STB has been clinging to the same rules and regulations that we had before Yahoo!, YouTube, Twitter, and the iPhone existed.  Innovation at that time was best captured by the America On-Line screen pictured nearby.

 

It’s hard to argue that the rules shouldn’t be refreshed, but what should they encompass?  The current NPRM objective (full link here) is as follows (editor’s note: MVPD stands for Multichannel Video Programming Distributor, a.k.a. a cable/ satellite/ fiber provider):

 

…Consumers should be able to have the choice of accessing programming through the MVPD-provided interface on a pay-TV set-top box or app, or through devices such as a tablet or smart TV using a competitive app or software. MVPDs and competitors should be able to differentiate themselves and compete based on the experience they offer users, including the quality of the user interface and additional features like suggested content, integration with home entertainment systems, caller ID and future innovations.

 

It’s important to realize the ramifications of the FCC’s decision.  First, the FCC is mandating change that has broad implications to several industries.  This should come as no surprise to anyone who has dealt with this FCC, which issues regulatory mandates to counteract the inability of the legislative branch to revise what’s now a 20-year-old-technology focused law.  The FCC would like to have a “[World Wide] Web” look and feel to the first screen, which incorporates as many options as possible (compare the AOL screen above to a search results screen from Netflix).  This could include “recently watched” or “Facebook friends recommend” or even “Sponsored programming” (let’s not forget that High Speed Internet caps are going to become more prevalent over the next decade).  A more sophisticated box could have biometric (fingerprint) detection which would personalize the Electronic Programming Guide (EPG) for each member of the family.  Choices would proliferate, and more opportunities leads to more competition, higher quality content, and a better customer experience.

 

This all sounds good, but is the problem one of content availability, or one of content organization?  Is the FCC trying to get rid of broadcast channels (and their scheduling/ organization model) through this process?  That would appear to be the likely outcome – an interesting “back door” regulation whereby the FCC alters the structure of set-top box provider, MVPD, and broadcasting industries with one rulemaking (for an excellent read on this ruling’s effect on minorities, see this LA Times article).

 

TiVo BoltSecond, the FCC is mandating change when voluntary options currently exist to solve the problem.  Before making this proposal, the FCC should have asked “Why has TiVo faltered (see stock price chart here)?” TiVo’s new TiVo Bolt (pictured) is beautiful and does everything the FCC wants it to do (see specs here).  But it costs $299 for the first year + $12.50/ month after the first year (this is in addition to cable package costs).  To TiVo’s credit, if the customer has multiple TVs, they could save money versus buying a Whole Home DVR system, but there’s still the high cash outlay.  While this is worth it to TiVo’s current base of 6.6 million users worldwide, is the extra cost worth it to 50, 60, or even 70 million homes?  Someone needs to ask the FCC why TiVo (a company started out of the 1996 Act) has faltered and how these new rules will change the equation.

 

Then there is the issue of existing equipment like Roku, an over-the-top streaming service providing nearly every streaming option possible (including access to TWC TV and Spectrum (Charter) TV).  Roku offers very affordable hardware (pricing here), and their relationship with both TWC and Charter is strong.  While Roku does not provide web content that could be delivered from a search (or Google Now recommendation), isn’t a Roku solution also solving most of the objectives laid out by the FCC (with over 10 million devices sold in the US)?

 

Finally, the FCC’s mandate will likely drive up prices for consumers who have the little interest in expanding their television horizons.  To use the original picture in this section as an example, the FCC thinks we are living under the same limitations as “America Online” provided to dial up users.  If we had a browser and the web connected to our televisions, things would be better.  To many viewers, the ability to watch college basketball in February/ March, opening day of the baseball season in April, the Masters in May, the Olympics over the summer, the opening of college and professional football in September, and the World Series in October is enough.  Those sports fans might watch college baseball, but they are not going to search for Episode 9 of “Curling Night in America.”

 

To be fair, there are many other user viewing segments that could be benefit from the FCC’s proposal.  Education channels could emerge that teach children other languages and incorporate those learnings into actual broadcasts (kind of an enhanced Khan Academy).  America’s cooking skills could improve through a mix of traditional broadcast media and web-based supplemental data.  And Amazon could launch a “channel” that would sit next to QVC and other shopping channels providing alternative (cheaper??) options to those they are viewing.

 

These options sound appealing, but will television viewers make the switch from their ESPN/ CBS/ NBC/ ABC/ Fox/ Fox News habits to this new mode?  If not, will the costs of the mandate exceed the benefits?  If my box has issues, who gets the call – Comcast, the EPG developer, Walmart/ BestBuy, or the hardware maker?  And, since the FCC chairman has promised that there will be no ad inserts or wrap-around advertising permitted by Google or others, how will the new entrants make money?

 

Bottom line:  The FCC’s proposal sounds good, and no one points to their set-top box  as the paragon of technological development (except for the latest version of Comcast’s Xfinity X1, or the TiVo, or perhaps the Roku).  But replacing today’s equipment and EPG with new models is going to cost customers more money than $8/ month unless the customer sacrifices its privacy (to improve Google’s profile).  The FCC should say to communications providers “Treat your set-top box the same way you treat your cable modems, and make each model available at mass retailers such as Amazon and Wal-Mart.”

 

However, if the FCC were to move forward with their current proposal, they should mandate that customers of these new devices are allowed to opt out of data collection at any time with no ramifications (including pricing), and to require the opt-out option to be clearly and uniquely presented each year thereafter.  This would remove the current perception that that the FCC is in Google’s back pocket.

 

Five You May Have Missed

  1. California’s Office of Ratepayer Advocates weighed in Friday against the Time Warner Cable + Charter + Bright House Networks merger. Their arguments against the merger largely mirror those of Dish Networks.  This will likely have a minimal effect on the PUC’s decision, but some of the conditions they are attaching up the ante considerably.  More in this Multichannel News article here.
  2. Wall Street research analyst Craig Moffett sent a note out Thursday detailing Google Fiber’s video customer count (obtained through the Copyright Office). (Note:  High Speed Data customer counts and home penetration rates are expected to be higher).  Of special note:  the Provo, Utah, market has grown a whopping 65 customers over the past six months.  While Craig’s analysis is not public, there were several articles on his work including here and here.
  3. Kindle Fire HD - 7, FrontAmazon reverses course and says that the next version of the Fire Operating System (OS) will have an encrypted data option. While The Sunday Brief has decided not to weigh in on the current legal activities between Apple and the Justice Department, it is interesting that one of Apple’s biggest supporters admitted this week that they are dropping device encryption support in their latest OS release. An Amazon spokesperson wrote to TechCrunch that “We will return the option for full disk encryption with a Fire OS update coming this spring.” More on the admission and Amazon’s u-turn here, here, and from the Washington Post here.
  4. Sprint replaced the last of the Dan Hesse operating team with the hiring of Robert Hackyl to lead customer experience and service functions. Hackyl comes from Vodaphone, but also formed T-Mobile USA’s channel strategy “from scratch” during his work there from 2010-2013.  More about the change (from “Bob” Johnson to “Robert” Hackly) in this release.
  5. Sprint has quietly brought back subsidized devices. More in this recent article from FierceWireless.

 

Next week, we’ll use our previously published “To Do” lists and begin evaluate each carrier’s first quarter progress.  We’ll also have our first view at which companies are creating the most shareholder value to date in 2016.  Until then, please invite one of your colleagues to become a regular Sunday Brief reader by having them drop a quick note to sundaybrief@gmail.com.  We’ll subscribe them as soon as we can (and they can go to www.mysundaybrief.com for the full archive).  Thanks again for your readership, and Go Davidson Wildcats!

Aereo, Kindle Fire Phone, Google Cardboard (!) and More

lead picEnd of quarter greetings from Santa Barbara (marina pictured), Austin, Dallas, and the Outer Banks of North Carolina.  As a reminder, the Sunday Brief will take a brief hiatus next Sunday for the Fourth of July holiday (and my 47th birthday).   This week, we will attempt to cover wireless/ mobile software developments for Amazon (Fire phone), Google (MicroMax device; Android L; Android Watch; Android TV; Android Apps on Chrome), and Apple (iOS 8).  But first, a couple of newsworthy items.

 

Aereo – RIP

On Wednesday, the Supreme Court ruled by a 6-3 vote that Aereo, an “over the top” television services company, violated US Copyright Law.  In the majority ruling, Justice Steven Breyer writes:

 Viewed in terms of Congress’ regulatory objectives, these behind-the-scenes technological differences do not distinguish Aereo’s system from cable systems, which do perform publicly.

As a result of the ruling, Aereo suspended operations on Saturday.  At the heart of the matter are two fundamental questions:  1) aereo logoWhat is a “public performance” which is the basis of current copyright law, and 2) “How much content can be withheld from retransmission?”

Without going into all of the details of how Aereo works (you can find that here from CNET), it’s basically a centralized antenna combined with cloud-based DVR functionality for $8-12/ month.  Broadcasters alleged (and the Court upheld) that Aereo violated the “transmit clause” of the 1976 Copyright Reform Act.  This legislation clearly outlines that the retransmission of a signal is a public performance (and public performances are subject to copyright fees).

Because Aereo was found by the Court to be a “public performance” they are subject to retransmission fees for broadcast channels (and therefore subject to the Most Favored Nation clauses of the cable companies which guarantee a relative cost disadvantage for Aereo – today).  However, if Aereo were to configure their architecture to be one of “private” performance (it’s hard to imagine how a unique antenna per customer could be any more private), they would now face the issue of broadcast station blackouts (in other words, while the transmission may be legal, the broadcaster cannot be compelled to show all content (and especially live content), to companies like Aereo).  As an example, even though CBS shows a lot of content on their website (see here), they do not show all of the content, and what is shown is not live streamed.

For more details on the case and a good history of the the definition of “public performance,” have a look at these articles from Ars Technica here and here.  Politically, it pits content developers (who have large centers in Southern California and New York City) against West Coast (and New York City) disruptors who have already upended retail (Amazon), publishing (Amazon), advertising (Google), autos (Tesla), lodging (Airbnb), and hired car services (Uber).   It’s a tension that could impact political elections for decades to come as the West Coast begins to “play the game” with greater vigor.

 

Kindle Fire Phone.  Will it Fly?  Maybe.

On June 18, Amazon released their long-awaited Fire Phone (the full press event release is here).  It’s a high end spectacle of a device, fully equipped with 3D sensing capabilities (which allow you to see 3D products in the Amazon website more clearly), as well as collect information about your daily life through a unique feature called Firefly (bar codes, document capture, websites, etc. – an excellent way for Amazon to have many “eyes and ears” on the world).

There are many features of the Kindle Fire phone, but none are as important as its integration into the lives of Amazon Prime kindle fire phoneusers.  While likely dismissed as a gimmik by their smartphone rivals (and, without a doubt, Amazon is in the smartphone business now), offering free Amazon Prime services to Fire Phone customers is not a “passing thought” promotion.  Amazon has struggled with the concept of moving the allure of Prime beyond free 2-day shipping.  Prime Instant Video has enjoyed limited success.  Kindle Owners Lending Library and Kindle First have had equally “meh” responses.  But half off a killer smartphone over AT&T’s network?  That might work, especially for the AT&T base.

The key to Amazon’s success lies not only with AT&T + Amazon Prime customers, but also with the developer community.  VentureBeat ran a great article this week where they interviewed many developers in the gaming community.  To use a common Valley buzzword, they were “intrigued” at the prospect of existing game modification to include Amazon’s Dynamic Perspective.  However, the 3D feature is currently only capable on the Fire Phone – a similar device would need to be implemented for the Kindle Fire (Tablet) to be able to maximize the revenue potential of the application.

Given the emergence of Android L (which supposedly contains 5,000 new APIs), the growing acceptance of Android 4.4 (KitKat) as the “new” Android standard, and continued upgrades seen in iOS 8, will developers take time to develop for Amazon’s latest device?

The troubling answer for the Seattle retailing giant is “maybe.”  While Amazon’s developer support has been stellar (and, given their excellent support for other Fire Apps, there’s no reason to assume it will not continue), aligning exclusively to AT&T limits their addressable market.  Relying on AT&T’s in-store selling abilities in light of Nokia’s recent and repeated failures is risky and potentially very expensive. Without a doubt, AT&T has a good network, but they carry an Apple smartphone legacy that will be difficult to unroot.

On top of this, the applicability to “mass market” apps such as Pandora/ Spotify (and even Amazon’s Prime Music service) and Facebook/ Vine/ Instagram is limited without 3D photography.  If you watch the VentureBeat hands on demo embedded in the article, you will see what I mean when the reviewer gets to e-mail (a classic 2D app).  The Kindle Fire phone cannot excite email.  It may not be able to excite Pandora.  And if it cannot excite picture-focused social networks, fuggetaboutit.

Here’s what will likely happen:  Many developers will try once, and, with limited Kindle Fire sales, will not try again (absent Amazon throwing in aggressive payments or discounted cloud computing).  Amazon will develop a more affordable device that will be free to all users (across all carriers) with a paid Amazon Prime (and postpaid wireless carrier) subscription.  That’s when the fun will start and Amazon can then begin to offer “sponsored data” services (through AT&T and others).

 

Two and a Half Hours of Android – Three Big Developments From I/O. 

Like many blogger/ analyst/ consultants, I begin each year thinking about trade shows and events:  CES, CTIA, COMPTEL, the Cable Show, and the coveted Apple WWDC.  This year, I was invited but could not attend Google’s I/O 2014.    It looks like I missed a lot in their 2.5 hour presentation.

First, Google introduced Android One, a reference platform that allows handset manufacturers to make less expensive (and slightly less functional) Android models.  This is critical for countries like India, where IDC reports that 78% of smartphones purchased in India were under $200 (see article here).  This reference platform can be used by Karbonn, Micromax (see phone that was featured at IO that was written to Android One specs), Spice and others to deliver maximum functionality for cost-conscious budgets.  The phone pictured has dual SIM-card slots, a 4.5 inch screen, and an FM radio for $100.  (To get an idea of what mobile devices cost today, have a look at the Micromax site on FlipKart here.  There are about 60 Rupees per US Dollar).

While the latest Android release (known as KitKat) is in full bloom, Google announced a new version of Android code-named “L.”  While some of the improvements are iOS catch-ups (e.g., lockscreen notifications, prioritized alerts based on phone activity, etc.), others are extremely innovative (e.g., integration into Android TV and Android Wear, the use of Wear device proximity to keep Android devices unlocked (and vice versa), and the ability to interlock information between Google and non-Google apps).  The new Android L appearance is both flat yet detailed – as one of you who saw an L-equipped device put it to me, a “clearer yet softer version than iOS8.”

google cardboardFinally, Google surprised everyone with the Google Cardboard giveaway.  This is no Oculus Rift, nor is it intended to be.  But, to get the developer community thinking about how to develop a mass market Virtual reality experience (a brilliant idea in and of itself given the overall public “meh” over Google Glass), they included a free cardboard cutout, a few magnets and a rubber band along with a link to some Google software.  Just slide in your Android-enabled smartphone into the cardboard contraption, and voila – you have a DIY Virtual Reality mechine.

The first reaction was an overwhelming “What the..” which has now been followed by a nearly unanimous “I get it – great idea!” chorus.  Rather than regurtitate the analyst reaction to Google Cardboard, read it yourself here and here (the video in the second link is hilarious).

In two weeks, we’ll have our second quarter preview.  If you have friends who would like to be added to The Sunday Brief, please have them drop a quick note to sundaybrief@gmail.com and we’ll subscribe them as soon as we can (and they can go to www.mysundaybrief.com for the full archive).

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

Your Fan Mail Answered

first day of schoolGreetings from Charlotte and Dallas, where summer is beginning its sunset, and the never-ending parade of Facebook back to school pictures reminds me of how quickly our children grow up.  Given the relative lack of events this week in the telecom world (including Steve Ballmer’s retirement announcement, which is meaningless compared to the one that names his successor), I thought I would take some time to answer fan mail (we get a lot of it here at The Sunday Brief), and to request reader participation next week while The Sunday Brief takes a brief hiatus for the Labor Day holiday.

Many of you (about 100) are very recent readers to The Sunday Brief, and several of you have recently asked “What prompted you to start The Sunday Brief?” The purpose of this column is to analyze the gaps that exist between segments, operating systems, companies, and industries.  Our industry scope is broad – anything which affects the creation and distribution of Internet content.  When I was running Wholesale Services for Sprint (I left four years ago this month), I gathered a reputation for lengthy, detailed memos.  All of them contained an executive summary and a call to action, but they were grounded in an analytical understanding of the marketplace and focused on incremental value creation.

Many of my colleagues relegated them to the “Read” file, but several senior Sprint leaders digested every one.  Just the other day, I had one forwarded to me from a senior leader who is no longer at Sprint citing the fact that my 2008/09 bandwidth forecast for cell site backhaul growth missed actuals by 2x (this same forecast was viewed as “crazy” and “out there” by many of my colleagues in 2008/09 as we were courting cable backhaul providers).

Those who read my tomes in 2008 and 2009 (which were bi-weekly then) asked that I consider writing an external version for the masses after I left Sprint.  We started with seventeen readers in late August 2009 (the topic was the dispute between Google Voice, iTunes, and AT&T) and have never looked back.   The first published column in RCR Wireless came about a month later.  The rest is history.

We have published over 175 Sunday Briefs over the past four years, and some have been more memorable than others (comparing leadership in the corporate world to coaching under-10 boys soccer teams was one of the not so memorable columns.  The Internet has permanently immortalized these B-side columns, however.  Click here for that article on RCR Wireless).

hudson taylorOne of the common questions I receive is “What has been the most popular Sunday Brief column?”  Of the 175 or so, the most popular column was one I wrote in March 2010 contrasting Google’s exit from China to Hudson Taylor’s (he was a 19/20th century British missionary) decision to stay.  The article was titled “Google’s Boxer Rebellion: What Would Hudson Taylor Do?” and I am told by several of you who work for Google that it made it to the top of the Mountain View company.  Prior to selling www.thesundaybrief.com to a British soccer team blog site, the Hudson Taylor article had been viewed at least 9,000 times and had been linked by 50 other blog sites.  I still have the original Sunday Brief email and am glad to forward it upon request.

Another common question is “How many people read The Sunday Brief each week?”  I have no idea.  Judging from the emails and conversations on the topic, my unscientific guess is that several hundred of you forward this email on to colleagues (our email list is about 1,000) which allows me to comfortably say that the email is likely read by thousands each week.  We get several hundred unique visitors to the website each month, and probably 100-200 emails each month with questions/ comments/ thoughts etc.  Since we adopted our new publishing format last April, we have added over 700 net new readers (consisting of 721 requests to add and 3 requests to unsubscribe).

One of the most frequent questions I get is “What do you read every week?” or “How do you stay on top of the industry?” As you see from the columns, I read a lot of financial reporting data.  The secret to identifying gaps or understanding where companies or industries are headed is to understand their management.  This includes what they say and do not say in public forums.

Financial data is most relevant when it is paired with management’s statements about strategy and results.  One of the reasons why many readers like The Sunday Brief so much is because we expose the hypocrisy of management, many of whom do not have a clue about the disruptive powers about to engulf them.

I do not read a lot of other financial bloggers (Seeking Alpha commentary is a time waster, IMO), but do read the thoughts of a few financial analysts, including Craig Moffett (now at Moffett Research) and John Hodulik (UBS).  Over ten percent of the subscribers to The Sunday Brief have Wall Street email address suffixes (e.g., jpmorgan.com, ubs.com, ml.com) so it’s important to have a good grounding in Wall Street news.  I am also an avid reader of The Economist.

Within the telecom/ tech industries, I also spend a lot of time on RCR Wireless and the Fierce properties (Fierce Wireless, Fierce Cable).  My favorite read each week is Ars Technica.  I usually go “deep” with one or more articles (click here for a terrific article published this month on Android 4.3 changes).  I also enjoy the user candor of www.dslreports.com.  Unvarnished is the best way to summarize this site led by Karl Bode.

BradFeldEvery former entrepreneur or venture capitalist seems to have a blog site.  Over 95% of them are…. not worth following (I have tried).  They are inconsistent, untimely, self-serving and they provide inconsistent and conflicting advice to eager and naïve entrepreneurs.  However, there are three that you should bookmark.  The first is Feld Thoughts (www.feld.com), Brad Feld’s blog.  I started to read this in 2009 and have never looked back.  Many of Brad’s advice to entrepreneurs can be found in his book “Venture Deals:  Be Smarter Than Your Lawyer and Venture Capitalist” available on Amazon here.  While no blog can fully cover the breadth of topics one needs to start a business, Brad’s would be a good start.

I also occasionally read Fred Wilson’s blog (www.avc.com) from Union Square Ventures and also Mark Suster’s terrific blog called Both Sides of the Table (www.bothsidesofthetable.com).  These blogs tend to focus on the mechanics of running a business which is why I like them so much.  I think I have been reading Mark’s blog for four years and have not found one post that did not challenge me personally or professionally.

As far as books go, there are four that will never leave my home library:

  1. Smart Choices: A Practical Guide to Making Better Life Decisions by John Hammond
  2. Business Model Generation by Alexander Osterwalder and Yves Pigneur
  3. Design Rules:  The Power of Modularity by Carliss Baldwin and Kim Clark
  4. Disciplined Entrepreneurship by Bill Aulet (just released this week)

These four books can take young, technology-focused entrepreneurs a long way in their business plans.  I plan on devoting some time in future Sunday Briefs to the nuggets in Bill Aulet’s recently released book.  I have read it cover to cover twice and it’s absolutely superb.

the blipOne of the most thought-provoking pieces I have read this summer is “The Blip” by Benjamin Wallace-Wells, a columnist for New York magazine.  It was forwarded to me in July by a NYC resident who asked for my thoughts on the article.  Rather than opine on the article, I’d like to ask each of you to read it and send me your thoughts (just as your kids are getting their first homework assignments, we are trying something new at The Sunday Brief and actively soliciting feedback from our readers).  Please send your feedback to sundaybrief@gmail.com and indicate whether your comments are anonymous or can be public (we will default to the former).

If we get enough feedback this week, we’ll publish a Labor Day special edition.  Otherwise, try out the website (www.mysundaybrief.com) and read up on an old issue that is in your “Read” or “Sunday Brief” or “Patterson” folder.

Speaking of mojo, we had 19 referrals last week to receive the email edition of Sunday Brief.  Thanks for passing it on.  If you have friends who would like to be added, please have them drop a quick note to sundaybrief@gmail.com and we’ll subscribe them as soon as practicable.  Have a terrific week!

The Value of a Good Value

2013-07-26 12.12.08Greetings from soggy Atlanta, mild St. Louis, and red-hot Dallas.  I took this picture Friday morning to remind us all of the value of entrepreneurship.  eTrak, a PAG client, was in the process of readying a multiple hundred-site order, and had to move into the Board Room to finish up the process to hit the customer desired due date.  “These schools want our product badly,” said the eTrak President Bill Nardiello.  The excitement yet exhaustion of the team showed early Friday morning – it’s likely they were there through the night to meet the shipping deadline.

This is why Adam Smith classified entrepreneurship as one of the factors of production (along with land, labor and capital).  Someone has to take the first step.  In personal and commercial asset tracking, eTrak took the risk and is now beginning to reap the rewards.  Many of you are probably remembering a similar time in your business right now – and smiling.

I also led with the picture because we are discussing the value of a good value this week and the possible implications for AT&T.  Nowhere else was this more apparent than in Google’s launch of their Chromecast product (more on the product including a cool commercial here).  For those of you who missed the announcement and overall hoopla, Google offered Chromecast + three months of Netflix for $35.  The Netflix service could be applied to new or existing service.  Predictably, many current Netflix customers saw the device as an $11 computer-to-TV connection product as a result.

Google Chrome device

The results were astounding.  Amazon:  Out of Stock.  Best Buy:  Out of Stock.  Google Chrome Store:  Ships in 3-4 weeks.  The sellout happened in days (really hours), not weeks.  It happened after all of the Netflix promotional coupons had been used up, so most buyers were paying a full $35 for wireless/ cordless streaming.  It was kind of Black Friday meets mid-July doldrums.  We needed something (other than Windows RT clearance sales) to get excited about this summer, and Chromecast was it.

On top of this, Apple announced earnings this week.  If you read their conference call transcript (as well as that of Verizon Wireless), it’s very apparent that the iPhone4 (free with 2-year contract at Verizon, AT&T, and Sprint) is an important introductory product to new smartphone users.  While Apple focused their conference call comments on the value being generated abroad from the pre-paid/ no contract developing world (where 3G networks are the norm and LTE is emerging but not ubiquitous), it’s very evident that even in North America, the value of a good value (free iPhone 4 devices with a corresponding 2-yr contract) is very important.

kindle fire hd with lteThis concept is not new if you work for Amazon.  The Kindle and Whispernet products were based on the value of a good value mantra – just look at all of the price reductions that have occurred on the standard Kindle hardware product.  Amazon bundled the cost to the carrier to download a book into its price – this was a radical concept in 2007.  The carriers (Sprint and later AT&T) priced services to Amazon at a wholesale or per kilobyte level.  If the Kindle had to carry a separate MRC because of the wireless carriers’ historical bias to sell subscriptions, it would never have become the electronic reading standard.

The Amazon model has eluded tablets and laptops.  No one appears willing to take the risk and embed a wireless carrier chipset in every new Google Nexus 7 (a stunning device, BTW, and going on my wish list).  With the advent of shared plans, wouldn’t this be the time to try one embedded SKU?  Maybe with just an LTE as opposed to a 2G/3G/LTE integrated chipset?  Would the value of “free” carrier connectivity drive additional postpaid connections and shared plan usage?

With this lingering question, we turn to AT&T’s earnings which were announced Tuesday afternoon.  AT&T had a very good quarter with 551,000 postpaid net additions, with nearly 75% of that total being tablets.  In addition, they added 484,000 connected devices, the strongest showing since the end of 2011.  884,000 total net additions have no voice or text ARPU.

With the Sprint iDEN network turndown at its last (and heaviest) quarter, it’s highly probable that absent the iDEN network bluebird and tablet additions, AT&T would have posted negative postpaid net adds for the quarter:

AT&T reported retail postpaid net additions: 551,000

AT&T reported postpaid tablet net additions: 400,000

Retail postpaid net additions less tablets: 151,000

Est. iDEN net additions:  300,000

Retail postpaid net adds less tablets and iDEN    (151,000)

Based on Verizon Wireless’ comments on the relative insignificance of iDEN to their retail postpaid gross adds picture, the 300,000 iDEN number is probably conservative.  In addition, AT&T made comments on the conference call that the second quarter was the “best ever” for business net additions.  Overall, it must have been a tough quarter for AT&T’s consumer smartphone business (particularly for the iPhone given T-Mobile’s April launch), even with an aggressive trade-in program that drove up customers under contract but drove down quarterly margins.

AT&T implemented the upgrade program with purpose, however.  The LTE network is robust but new (and therefore under-utilized).  Rather than run a “double your data” promotion, they chose to allow customers to upgrade their phones at discounted rates while they trade in their old smartphone to AT&T.  They did this prior to changing their handset upgrade parameters to 24 months (from 20).  As a result, there are millions of new customers who likely own an LTE-capable phone.  Assuming the customer uses exactly the same amount of data, AT&T will achieve $2.50-3.00 in additional profitability per Gigabyte consumed (and more if the upgrade triggered conversion to a shared data plan).

All of the benefits of these upgrades will be felt on a full quarter basis in Q3.  This will drive up ARPUs and profits.  It will also likely accelerate device attachment IF AT&T can create a compelling, Chromecast-like offer.  How can AT&T use their market leadership to realize extraordinary gains?

Start with the Kindle Fire HD.  We know from this week’s Amazon earnings that Kindle sales are good on a global basis, but could stand to be better in the US.  Leveraging the success of the smartphone trade-in program, why not have a Kindle trade-in program that allows all current Kindle owners to trade up to a new 3G (Kindle reader) or a 4G (Kindle Fire) version?  The Kindle Fire could then be added to a Mobile Share plan like a Samsung Note or an Apple iPad.  Or, if the customer is not an AT&T customer today, a $59 for 10GB annual plan could be offered.  Separating the Kindle/ AT&T relationship is less important than it was five years ago, and Amazon and AT&T could benefit from LTE’s ubiquity and speed.  It would also be an easy and cost effective way to allow customers to experience AT&T’s new network.  This low-cost, low execution risk opportunity is probably worth several hundred thousand retail postpaid conversions over the next six quarters.

After Kindle, move on to HotSpot adoption.  Google’s Chromecast success played to two deeply rooted needs: 1) The need to effortlessly connect to the television (“works every time” from YouTube to the TV), and 2) Frustration with the rising costs of content in the cable model.  Free(r) and easier access to shared web content on existing in-home devices is now possible with a one-time $35 purchase.  Other solutions exist, but not for $35.

AT&T has an even easier model – they have installed a valuable yet widely unused component in every one of their smartphones.  It’s called a HotSpot.  73% of AT&T’s postpaid base uses a smartphone, and 35% of them are using an LTE device (thanks to things like 2Q’s aggressive trade-in program).

HBO_Cinemax_Free_Preview_Weekend-300x168

The HotSpot is a premium service, like HBO or Cinemax or MLB Extra Innings.  Why not have a “free weekend” for all (LTE) HotSpot customers?  This would certainly be a social media darling; would it be enough incentive to get the 40% or so of smartphone customers who don’t know how to activate an AT&T HotSpot off the couch and learning?  Bolder yet, what about in conjunction with U-Verse to increase service bundling (maybe HBO to go)?  The possibilities here are endless, and there’s no extra equipment to sell.  The data network is largely empty on the weekends (I have speed test history from my AT&T Samsung Galaxy SIII to prove it) and social (and traditional) media will market it for you.

Finally, AT&T needs to leverage the fiber-fed buildings that they are installing as a result of project VIP.  They announced that they would have 250,000 business locations covered by these buildings at the end of 2013.  This probably equates to 40,000 or so actual physical structures, or about 2x the current footprint of tw Telecom.  While strategic business revenues are on the rise (up more than 15% in the second quarter and an $8 billion annualized revenue stream), the rest of the business market is suffering.

With each VIP building added, AT&T achieves a lower unit cost and opens up the door to new integrated revenue opportunities.  Wireless coverage (including Wi-Fi) can immediately be addressed through deployment of in-building solutions.  Storage and backup solutions can be implemented which never leave the AT&T network (adding new meaning to the term “private” cloud).  Location-aware devices can be pinpointed to the room, and not within a large radius, for emergency management services.  And the quality of the video surveillance system – it would be best if you stayed away from these buildings as the cameras have 41-Megapixel quality.  VIP presents many opportunities to tap into latent business demand beyond faster speeds, provided customers are presented with the value of a good value.

Bringing Amazon devices into the AT&T Postpaid fold, driving HotSpot adoption through HBO-like Free (LTE) Weekends, and maniacal focus on the best possible customer experience (and AT&T market share) for each of the VIP fiber-fed buildings provides the basis for differentiation against Verizon.  It sets AT&T above the T-Mobile fray, and drives incremental value without changing pricing plans or new product development.  It also establishes AT&T as the price/ performance leader across wireless and wireline.

Positioned correctly, AT&T could drive the same hysteria as Google just accomplished with Chromecast and erase some of the past memories of network failures (worth watching this Daily Show link – caution: Daily Show language).  The components are there.  Will AT&T take the risk?  Stay tuned.

Next week, we’ll add Sprint earnings to the mix and see what that means for T-Mobile.  Until then, if you have friends who would like to be added to this email blog, please have them drop a quick note to sundaybrief@gmail.com and we’ll add them to the following week’s issue.  We will also be posting some additional analysis to the www.mysundybrief.com blog site.  Have a terrific week!