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Deeper: CBRS – Share and Share Alike

cbrs top 10 slide

The following articles provide a good overview of CBRS.  There are a lot of things changing with CBRS each day, and we will be sure to keep the list updated as new developments occur.

  1. One of the best government sites is the NTIA CBRS page here. Included in this is the original NTIA October 2010 Fast Track Report cited in this week’s TSB
  2. The FCC Report and Order on CBRS from 2015 is here.
  3. This Ruckus on-line tutorial is a terrific place to start if you need a 20-minute high level overview of CBRS.
  4. The CBRS Alliance has a page devoted to certified devices that is updated frequently. The latest certified devices are here.
  5. Light Reading had a recent article summarizing AT&T’s, US Cellular’s and Verizon’s outdoor interests. It’s here.
  6. Charter’s SVP Technology Craig Cowden’s address at MCWA in 2018 is here (20 min). A good summary of the value of CBRS to the cable industry.  Charter’s FCC application for their CBRS tests is here.
  7. Adam Koeppe’s June interview with RCR Wireless concerning 5G, CBRS, MIMO, Beamforming and more is here. The Light Reading article referenced in the TSB is here.
  8. A good summary of MIdCo’s 2018/ 2019 trial with Telrad and Federated Wireless from Fierce Wireless is here.
  9. Telecompetitor interview with Federated Wireless CEO Iyad Tarazi is here. In this article, Iyad describes Federated’s role in the Kinetic Edge Alliance, which we ran out of time to discuss and is a very interesting intersection point between computing, proximity, and network sharing.  More on that group here.

CBRS – Share and Share Alike

opening pic

Greetings from Lake Norman/ Davidson, North Carolina, where the college football season has started.  We took in the Davidson College home opener and the Wildcats (red jerseys) defeated Georgetown 27-20 to a crowd of more than 2,300.  It was an exciting part of the Labor Day weekend and a good win for the Cats.

 

This week’s Sunday Brief focuses on the potential of Citizens Broadband Radio Service (CBRS) to change the telecommunications landscape.  We will also have an update on C-Band spectrum auction news.  First, however, a quick follow up to last week’s article on AT&T’s system and network architecture changes.

 

Follow-up to last week’s AT&T article

We had greater than expected interest concerning last week’s TSB including receiving several background articles that we had not uncovered in our research.  One of the most important of these was a blog post by AT&T Senior Vice President Chris Rice on their Domain 2.0 developments that was posted on August 21.  In this article, Chris describes their major architectural change:

 

We started on a path for a single cloud, called AT&T Integrated Cloud (AIC). This was our private cloud, meaning we managed all the workloads and infrastructure within it. Originally, AIC housed both our network and several of our “non-network” IT workloads and applications.

But we quickly learned it wasn’t optimal to combine both types of workloads on a single cloud. It required too many compromises, and the IT and network workloads needed different profiles of compute, network and storage.

We opted for a better approach: Create a private cloud for our network workloads, optimize it for those workloads, and drive the software definition and virtualization of our network through this cloud approach and through the use of white boxes for specific switching and routing functions.

 

The change to last week’s article is subtle but not insubstantial:  AT&T’s network cloud (formerly AIC) is optimized for network traffic loads and functions (but still built on white box/ generic switching and routing), while non-network functions are operated in the public cloud through Microsoft and IBM.

 

john-donovanIt’s important to note that the executive champion of this cloud strategy, John Donovan, is going to be retiring from AT&T on October 1 (announcement here).  We have included an early speech he gave on AT&T’s Domain 2.0 strategy in the Deeper post on the website.  John brought engineering discipline to AT&T’s management, and, while the parlor game of his replacement has begun, the magnitude of his contributions to Ma Bell over the past 11+ years should not go unnoticed.

 

CBRS – Share and Share Alike

When we put together a list of Ten Telecom Developments Worth Following in mid-July (available on request), we were surprised by a broad range of CBRS skepticism in the analyst community, especially given the breadth of US wireless carriers playing in the CBRS alliance.  “Nice feature” or “science experiment” was the general reaction.  Many of you chose instead to focus on the C-Band auctions, which are important and addressed below.

 

After some reflection, we have come to the conclusion that the most important feature of CBRS is neither its mid-band position (3.5 GHz), nor the mid-band spectrum gap it fills for Verizon Wireless (more on that below), but the fact that at times all of the spectrum band can be shared.  Customers receive the benefits of an LTE band without a costly auction process.

 

If you are intimately familiar with CBRS, you can skip the next couple of paragraphs.  For those of you new to TSB or the industry, here’s a copy of the slide we used to describe CBRS in the Ten Telecom Developments presentation to start your education:

cbrs top 10 slide

 

 

The commercialization of shared LTE bands is pioneering and one of the reasons why it has taken nearly a decade to move from concept to commercialization (the original NTIA report which identified the CBRS opportunity is here).  This does not appear to be a singular experiment, however, as Europe is proceeding with shared spectrum plans of their own in the 2.3-2.4 GHz frequencies (more on that here).

 

To enable this sharing mechanism in the United States, a system needed to be developed that would prioritize existing users (namely legacy on-ship Navy radar systems) yet allow for full use of the network for General Authorized Access (GAA) users when prioritization was not necessary (opening up to 150 MHz of total spectrum for GAA which could power 5G speeds for tens of millions of devices nationwide).  A great primer on how CBRS generally works and how spectrum sharing is performed is available here from Ruckus, a CommScope company and one of five Spectrum Access System providers.

It’s important to note that the Environmental Sensing Capability (which determines usage by priority) and the Spectrum Access System (which authorizes, allocates and manages users) are two different yet interoperable pieces of the CBRS puzzle.  And, while the ESC providers have been approved by the NITA (CommScope, Google, and Federated Wireless), the SAS providers have not been approved (more on that here in this Light Reading article).  While all of the SAS providers have not been made public, it’s widely assumed that they include the three ESC providers mentioned above.

 

Delays in the SAS approval process have not kept the CBRS Alliance from heavily promoting a commercial service launch on September 18 (news release here).  This event will feature FCC Commissioner Michael O’Rielly, Adam Koeppe from Verizon, Craig Cowden from Charter, and others who will celebrate the Alliance achievements to date and place the development as a central theme going into 2020.

 

CBRS Use Cases:  Not Everyone is Waiting for Private Licenses

The myriad of CBRS use cases mirror the different strategies for telecommunications industry players.  Here are four ways carriers are using CBRS in trials today:

 

  1. CBRS as a last mile solution for rural locations (AT&T and rural cable providers MidCo Communications mapMidCo and Mediacom Communications). In the MidCo configuration, outdoor Citizens Band Service Devices or CBSDs (see picture above) are placed in proximity to potential (farm) homes passed (see nearby map of MidCo territories in the Dakotas and Minnesota).  Per their recent tests, MidCo was able to connect homes up to eight miles from the outdoor CBSD.  They estimate that CBRS will add tens of thousands of homes and businesses to their footprint (they serve 400K today so every 10K new customers is meaningful).  Good news for an over the top service like Hulu, Netflix, and YouTube TV and bad news for DirecTV and Dish.

 

AT&T has been testing CBRS as a similar “last mile solution” in Ohio and Tennessee using equipment from several providers including CommScope (ESC, SAS) as well as Samsung (network).  These trials are expected to wrap up in October.  If AT&T can find a more effective last mile solution for copper-based DSL in rural areas, revenues and profitability will grow (by how much depends on Connect America Fund subsidies and service affordability).

 

AT&T has been mum on their trial progress to date.  In June, however, AT&T asked the FCC to allow them to turn up antenna power in these markets to test various ranges and speeds (bringing the power allowances to a similar level of the WCS spectrum that AT&T already owns and operates in the 2.3 GHz spectrum frequency).  This was met with strong opposition by a coalition of providers, and it’s not clear that AT&T’s request was ultimately granted.  More on the AT&T request and response can be found in their FCC filing here, and in this June 2019 RCR Wireless article.

 

  1. CBRS as an additional LTE service for cable MVNOs (Altice, Charter, Comcast). It’s no secret that cable companies are eager to continue to grow their wireless presence within their respective footprints (and corporate is equally as eager to improve profitability and single carrier dependency).  CBRS would add a secure option that is seamlessly interoperable with other LTE bands to create an alternative to their current providers (Verizon, Sprint, etc.).  It also provides a new “secure wireless” service for small and medium-sized businesses which can be deployed with Wi-Fi.  A cheaper alternative for out-of-home wireless data?  Count cable in.

 

We spent some time a few weeks ago talking about the evolution of Verizon plans, specifically how their cheapest unlimited plan now includes no prioritized high-speed data (article here).  Is CBRS a better alternative to deprioritized LTE?

 

The short answer is “not yet.”  LTE Band 48 is only available across the most expensive devices, and, presumably, if customers can shell out $1000-1500 for a new device, they can probably afford extra LTE data allowances above 22-25 Gigabytes (see previous article linked above).  Notably, the new Moto E6 (budget-minded Android device) includes neither CBRS nor Wi-Fi 6 (specs here).  The new ZTE Axon 10 Pro phone does not include Band 48 or Wi-Fi 6 (specs here).  The OnePlus 7 Pro, however, does include Band 48 but not Wi-Fi 6 (specs here).  And, if rumors are to be believed, the upcoming Apple device announcement in a couple of weeks will disappoint everyone – no 5G, no CBRS even though the new device will likely support the 3.5GHz spectrum band in Japan, and likely no Wi-Fi 6 (which is why the Apple Card will likely be used to offer attractive financing options).

 

This leaves cable companies with a good selection of Samsung and Google devices that can use CBRS (Galaxy Note 10, Galaxy S10 5G, upgraded Pixel 3X and 3XL, and likely the upcoming Galaxy 11 release).  For cable to win on this front, they may need to provide plan incentives to influence the pace of upgrades and request this band for Moto and low-end Samsung devices.

 

  1. CBRS as a mid-band LTE outdoors/ public venue solution for Verizon. It is no secret that Verizon is going to use CBRS GAA as a part of their carrier aggregation solution (see this August 2019 article from Light Reading for more details). Such a solution is usually not designed for greater throughput in rural markets alone – Verizon clearly sees some form of CBRS as a portion of their overall licensed/ un-licensed solutions portfolio.

 

The question that will be answered in the next quarter or so is whether CBRS is valuable enough to be a part of Verizon’s licensed portfolio (e.g., they buy 20 or 30 MHz worth of private CBRS licenses, or whether they use the GAA portion in the same License Assisted Access (LAA) manner as they use 5.0 GHz Wi-Fi).  It’s likely that if CBRS is important, they will be at the auction table.

 

It appears that the C-Band (3.7-4.2 GHz) license quantity and auction schedule is in flux, if the latest report from Light Reading (and the corresponding New Street Research analysis references in the article) is true.  This also impacts Verizon’s near-term interest in CBRS PALs.

 

Verizon’s interest is important as they can drive manufacturers to quickly include Band 48 in devices.

 

  1. CBRS as an indoor and/or private LTE solution for wireline. One lesser-discussed option for CBRS is as a private LTE indoor solution for enterprises and building owners.  While we touched on this option for cable companies (who will undoubtedly drive business ecosystem development), this could also have ruckus cbrs routerinteresting implications for companies like CenturyLink (Level3), Masergy, and Windstream.  Ruckus, a traditional Wi-Fi solutions provider now owned by CommScope, already has an indoor unit for sale here (picture nearby).  The implications for in-building coverage are significant because 3.5 GHz does not overlap with existing deployed frequencies (including existing 2.4 GHz and 5.2 GHz Wi-Fi solutions), and, as a result, will not increase interference that deploying an AWS (1.7/ 2.1 GHz) or EBS/BRS (2.5 GHz) might create.  With solutions as cheap as industrial Wi-Fi and minimal interference concerns, there might be more value created with CBRS indoors than outdoors.

 

Bottom line:  CBRS is a real solution for rural broadband deployments and will attract the interest of large and small rural providers.  CBRS will be important to wireless carriers when Samsung and Apple join Google and Facebook in building a robust ecosystem.  This is a good/great but not an industry-changing technology.  If the first commercial applications are successful in 2019 (the odds are good), demand for Private Licenses will be significant (if not, expect more pressure to resolve C-Band spectrum allocation issues quickly).

 

What makes CBRS great is dynamic spectrum sharing among carriers.  Should that continue with all new frequencies auctioned (including C-Band), you should expect to see competitive pressures grow in the sector, particularly with private LTE/ indoor applications.

 

Next week we will provide the first of two third quarter earnings previews, focusing on wireless service providers ahead of the Apple event.  Until then, if you have friends who would like to be on the email distribution, please have them send an email to sundaybrief@gmail.com and we will include them on the list.

 

Have a terrific week!

 

The Sunday Brief: Earnings Drivers for the Second Quarter (Part 3)

 

san diego fourth of julyGreetings from San Diego and Dallas.  Hopefully most of you are reading this after your Fourth of July weekend has ended.  This has been a busy week in telecom.  Late Friday, as we predicted, the FCC unanimously approved the Sprint/ Softbank and Sprint/ Clearwire mergers.  This paves the way for the Clearwire shareholder vote on Monday (July 8) and then the synergy expectations game begins.  Exciting changes are afoot, and, as I indicated in my Bloomberg interview last Monday, they must execute with an unprecedented degree of precision.

Many of you commented on the interview through LinkedIn or through direct emails/ texts.  A couple of you asked me for my sources on the EBITDA and debt levels that I mention in the interview:  Sprint is here, Clearwire is here, and Verizon Wireless is here (click on the transcript for the net debt comment and the financial and operating information for the trailing 12-month EBITDA).  The exact numbers (and I have excluded the EBITDA for Sprint and Verizon’s wireline operations in this metric) are Sprint wireless + Clearwire adjusted trailing 12-month EBITDA = $4.3 billion; Sprint + Clearwire adjusted net debt as of 3/31/2013 = $20.2 billion; Verizon Wireless net debt = $6.2 billion, and Verizon Wireless trailing 12-month EBITDA = $31.0 billion.

This equates to a debt-to-EBITDA ratio of ~ 4.7x for the combined Sprint/Clearwire and 0.2x for Verizon Wireless.  Clearly two different ends of the spectrum (pun intended) when we are looking at financial “wiggle room” should synergy expectations be delayed.   The 4.7x is better than it would have been under Dish, and there are few doubts about Sprint’s ability to pay their debts for the next few years, but Verizon’s options are far greater.  It’s why Verizon has returned more equity value to their shareholders in the past six months than the entire market capitalization of Sprint (see chart below).

We’ll talk about Sprint more after their earnings announcement on July 30, but, as I said in the interview, a new captain (Softbank) with discarded (iDEN) ballast and cash availability filling their sails makes the Sprint ship more formidable.  But the straits they must navigate are narrow, and the room for error is slim to none.

In the “missing expectations is everything” column, Samsung Electronics reset second quarter expectations this week – consolidatedApple vs. Samsung 5-yr chart revenues would only be 20% higher, and operating profits only 47% higher (to $8.3 billion).  The stock was not bludgeoned as Blackberry was, but it did add to the chorus of ecclesiastical analysts who are convinced that smartphone growth will never return to the good old days of 2011/2012.  Here’s one analysis by The New York Times who almost feels obliged to quote Mark Newman from Sanford C. Bernstein at the end.

The reporting misses two key factors that affected smartphone sales – 1) the Galaxy S4 really did experience supply chain/ inventory shortages with Sprint and T-Mobile at the end of April (and expectations did not adjust); and 2) Verizon and AT&T adjusted their handset upgrade programs from 20 to 24 months, creating potential confusion among the current subscriber base (these changes do not take effect until January and March, 2014, respectively).  As others begin to aggressively adopt T-Mobile’s “Pay for your device each month” model, the power of high-end devices like the Galaxy S4 become affordable to tens of millions of additional users.  This is also will be very good news for Apple.

In the “It’s good to be king” column, Amazon is facing a fresh set of charges alleging that it is taking price increases on books where there is less demand (and as a result less competition) for the title.  The first report of this came from The New York Times on Friday.  This is an excellent article, but leaves me at a loss – don’t most publishers have their e-book formats distributed across multiple operating systems (Amazon, Google, Apple, Nook)?  Did Amazon simply raise the price to the Google Books level (I spot checked several popular books and they all happen to be nearly or exactly the same price)?  Regardless, this article could not come as a less opportune time for Amazon as the Apple price fixing trial awaits a decision.

Basic RGBIn the “Every dog has his day” column, Xobni (Inbox spelled backwards), an innovative yet aging contact management application was purchased by Yahoo! for a rumored $30-40 million (although there appear to be another $30 million or so in earnouts according to TechCrunch).  I was a Xobni user during the Mobile Symmetry (MS) days.  The software in 2009 was better than anything else in the market – it tried.  But, as my former MS colleague, Neil Tenbrook, said, “This contact management stuff is hard!”  Xobni raised $42 million (not even a 1x return before earnouts), had 100 million+ Microsoft Outlook downloads, and some success in the iOS, Blackberry and Android formats.  But it missed the restructuring of information, the demise of email as a communications medium, and the rise of contact management through social/ business networks.  Good luck to the team as they integrate into Yahoo – if done right, I might even rethink using a Yahoo email account.

Finally, in the “Just Weird” column, we have Prince.  In a wide-ranging interview with V magazine, he is asked whether he owns an 1372803915_prince-v-magazine-cover-467iPhone.  Prince’s response:

“Are you serious?” he says. “Hell, no.” He mimics a high-voices woman.  “Where is my phone?  Can you call my phone?  Oh, I can’t find it.”    

 

I think there is a bit of Prince in all of us.  Even if it’s a very tiny amount.

This week, we continue our evaluation of second quarter earnings.  Here are our findings to date:

  1. The beginnings of a meaningful metrics (but not EBITDA) change will appear at T-Mobile.
  2. Verizon’s lead in profitability will widen because of their high mix of LTE-based traffic.
  3. Sprint’s 2Q will be driven by networks in transition (iDEN to CDMA; 3G to 4G; contract to no contract; government-subsidized to consumer-driven).
  4. No one will see an EBITDA dip due to new phone brand launches (Samsung, HTC, and Blackberry numbers all back this up).
  5. AT&T will (slightly) surprise on LTE footprint and postpaid additions (thanks to Sprint’s iDEN turndown), but disappoint on many other metrics.

That leaves us with cable and LEC/ CLEC wireline earnings.  As you can see from the table at the end of this column, publicly traded cable stocks have been driven up in the past month by M&A speculation.  Through mid-April, only Comcast and Charter had posted gains for the sector.

Outside of synergy speculation, there are two reasons to be excited about cable and, to a lesser extent, LEC/ CLEC broadband.  First, the housing sector is beginning to recover.  As the chart from the St. Louis Federal Reserve shows, new housing starts are beginning to come back from historical lows.

new housing starts graph

Because we suffered a 75% decline in new housing starts over three years, it’s hard to see the bottom.  Clearly, however, we hit it in 2009 and a have recovered about half of the expected gains.  (Note:  that leaves at least 500,000 new units to get back to a median historical level for the industry, or about $600 million in new telecommunications services opportunity).

Turning housing starts into profits depends on strong and steady plant investment, especially in high growth areas such as Texas, Florida, Georgia, North Carolina, Arizona and California (see here and here for ADP job figures).  This favors cable companies such as Brighthouse Networks (Tampa/ Orlando), Comcast (Houston, Atlanta, South Florida), Time Warner (North Carolina, LA, Dallas, Austin, San Antonio), Cox (Orange County, Phoenix, San Diego), and Suddenlink (West Texas, who is having an economic boom like no other).

However, with the exception of Arizona, the states mentioned are in the heart of AT&T territory (although parts of FL and NC are managed by CenturyLink).  This is where they have concentrated much of their fiber investments for the past decade.  When the South and West recover, AT&T’s opportunity grows.  This is one of the reasons why we started to see consumer revenues grow in Q1 (+2% annually) and why 2013 will be the fastest growing year for U-Verse since their early launch days (2008).  With “mover” activity on the rise into and within these markets, it’s a promising time for AT&T.

On the enterprise front, fiber and Ethernet connectivity from office buildings to geographically redundant and secure servers is growing.  The transition from client-based servers to private and “hybrid” clouds began in 2005 (if not earlier).  Much (although not all) of the server growth for the mid-market and non-essential enterprise information is occurring offsite.  This is driving up the need for bandwidth and accompanying managed services.

Since this issue is running a bit long, I’ll reference the latest earnings and investor conference presentations from tw telecom (TWTC) as reference for fiber/ Ethernet trends.  They are investing $350-370 million in 2013 to densify their networks in 75 markets and satisfy the “fiber to the building” need.  While they will face formidable competition from Verizon, AT&T, CenturyLink/ Savvis, Zayo, Level3, and Comcast (and Time Warner) Business, the dynamics of the recovery are covered in their earnings and investor conference discussions.  Companies that are successful in this space are unwavering, consistent, and patient.  There are no “quick bucks” with metro fiber.

Next week, we’ll take a closer look at Dish’s options after Sprint/ Clearwire (opinions welcome).  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.  Have a terrific week!

ytd stock returns

The Sunday Brief: Who’s Hiding The (Negative) Postpaid Subscriber Surprise?

b_strong_whiteGreetings from Dallas and Atlanta.  Tragedy and horror exploded on both sides this week in Boston and West, Texas. Our prayers are for the many suffering, rescuing and recovering. These events remind us how much we appreciate those who run to trouble, protecting those they may not even know.

Outside of the tragic news coming out of Boston, it was a fairly eventful week in telecom.  Verizon and America Movil (parent of TracFone) both announced earnings, which we will discuss below.  Google decided to buy the municipal fiber network in Provo, Utah (as opposed to building one from scratch).  (Note: a report out on Friday seems to indicate that they received a bargain basement price for the asset.)  Time Warner Cable announced that they will be adding live, out-of-home streaming of live TV on Apple devices (others already offer some streamed content, but TWC’s deployment looks to be the broadest lineup yet).  And then there is the much anticipated Samsung Galaxy S4 release, with phones starting to ship next week.  In a sign that demand for the new Galaxy will be brisk, Sprint is now sold out of pre-ordered S4s.

Speaking of Sprint, they received an unsolicited bid from DISH this week which generated a few dozen emails, texts, and phone calls asking for my take on the transaction.  At the end of the day, Sprint’s Board (see link to see their current members) has the following to consider:

Softbank:            $4.03/ share in cash and 30% ownership in the recapitalized Sprint

DISH:                     $4.76/ share in cash and 32% ownership in the new DISH/Sprint

$0.73/ share results in a ~$2.2 billion cash difference between the two offers (using 3.01 billion outstanding shares).  What is harder to determine is the value of the remaining equity interests – Does the recapitalized Sprint have the opportunity to create more value than DISH shares?

This leads to the following question (and, before you answer this question, please refer to the attachment):  “How broad and deep does Sprint’s data (LTE) network need to be to compete effectively against AT&T and Verizon Wireless?”  We have raised this question in several Sunday Briefs, citing the fact that Sprint is heavily dependent on third party networks (namely Alltel, which is now owned by Verizon Wireless) for voice and 3G data coverage.  Until their announcement this week with C-Spire, a regional provider focused on Mississippi, Memphis, Mobile and the Florida panhandle, Sprint had not reached an LTE roaming agreement with any other provider.

Sprint’s data coverage vs. VZ and AT&T

The attachment shows the current data coverage state of three networks (as of April 20).  At the top is Verizon’s LTE and 3G network for the Southeastern US.  They have committed to take lighter shades of red to dark red in the next 90 days.  Even if they miss that by a quarter, they remain the clear leader (Verizon’s LTE network covers 287 million pops in the US today, and they have ~15 million remaining to fully cover their 3G CDMA footprint).

As we have discussed previously, an LTE-focused network means more efficiency:  Lower costs per GB, the opportunity broadly to implement Voice over LTE (VoLTE) without a lot of handoffs, and lower handset subsidies resulting from single-mode chipsets are three of the myriad of benefits a new and faster network brings.

The second network (lower right) is AT&T’s, with the current (HSPA) data network covering just over 290 million pops (LTE to be deployed by the end of 2014).  Project VIP, as we have discussed several times, is the most ambitious network enhancement that suburban/ ex-urban/ rural America has seen in the past 50 years.  Particularly in the Southeast (BellSouth territory), AT&T will focus on deep coverage from fixed wireless data and DSL improvements.

In the lower right is Sprint’s current 3G network, excluding roaming (source: Virgin Mobile’s website.  See Straight Talk’s map on right Sprint map WalMart Straight Talkfor a nationwide view).  There is a lot of white (and not a lot of orange) in Sprint’s map, highlighting the continued dependence by Sprint on ALLTEL/ Verizon for roaming throughout the Southeast (the situation is more bleak in the Western US as the Straight Talk chart shows).

Without self-sourced LTE coverage, Sprint will need to deploy and extensively use other carriers’ networks (namely Verizon and AT&T).  Even if LTE capacity is available, those GB of data will not be cheap.

A recapitalized Sprint (courtesy of Softbank), however, will have a balance sheet that can combat this issue (an extra $10-15 billion in network build will help both in-building and regional coverage).  It is hard to determine how DISH will a) cross market to customers in the white area (where DISH has a distribution advantage over cable for video) and b) raise money as a highly levered company to expand the orange service area in the attached charts.  It is not clear from their conference call that DISH’s management has performed a granular assessment.

If Sprint’s network looked like VZ or AT&T, DISH’s offer would be extremely compelling, but can DISH pull off a network expansion to achieve the cross-marketing synergies it promises in their proposal?  It’s unlikely given the $11 billion of expense and $2 billion of capital synergies they have included in their estimates.  (The full DISH presentation on the Sprint acquisition is here.  Synergy slide is page 4).

There will be plenty more to discuss on the Sprint/ DISH offer in coming weeks. While Sprint’s Board has a lot to consider, it’s fairly apparent that DISH is not going away.  Engagement will be critical – there’s a sequence here that can create competitive differentiation for Softbank, Sprint, and DISH (and perhaps T-Mobile).

After analyzing this week’s earnings announcements from Verizon and America Movil, plus the positive surprise from T-Mobile, I noticed a gap that does not seem to have been picked up by the telecom community.  The news from this week signals a 300-600K postpaid subscriber surprise by either AT&T or Sprint.

Here are the facts as we know them today:

  1. T-Mobile stemmed their Q1 contract losses by 300,000 (losing 199,000 as opposed to 510,000 in Q1 2012).  Branded prepaid customers also increased for T-Mobile.
  2. The T-Mobile improvement did not affect Verizon Wireless’ numbers.  VZW actually accelerated their postpaid subscriber gains (from 501K to 677K).
  3. In turn, Verizon also announced on their earnings call that through TracFone, they had added over one million customers in the quarter over WalMart’s MVNO called StraightTalk (to those of you who politely corrected my network choice in the column on WalMart, look again.  You were duped into believing the color and not the coverage of the network in the StraightTalk collateral).

At a minimum, #1 and #2 above mean at least 478K subscriber losses need to be absorbed by AT&T and Sprint (or the postpaid market miraculously grew in what is historically the weakest quarter of the year).  However, given the size of iPhone’s addition through StraightTalk, one has to believe that the net effect is actually higher.  As the chart below shows, there are only two places this postpaid growth can come from – AT&T and Sprint.

Postpaid net subscribers by quarter 1Q 2013

Let’s assume that AT&T has 200K postpaid additions for 1Q.  That would imply a 400K loss by Sprint just to keep the total postpaid net additions growth on par with 2011’s Q1 level (again, none of this includes the portion of StraightTalk/ TracFone growth that came from postpaid customers).  Sprint’s loss would be closer to 700K to match 1Q 2012’s level.

While many analysts are expecting an increase in net losses for Sprint due to lower iDEN recapture rates, the news thus far this month (T-Mobile stems sub losses, VZW increases postpaid gains, and TracFone launches their iPhone offering and adds over 1 million net new subscribers through VZW) cannot be good.  Either Sprint had modest losses (and AT&T breaks even on postpaid subscribers) or Sprint’s losses were steep.

Clearly, there will be no positive surprises next week.  After AT&T announces earnings Tuesday afternoon, we’ll have a pretty good idea what Sprint’s number will be.  We’ll also know the extent of subscriber movement across the industry.  Stay tuned for a full roundup next Sunday and throughout the week at www.mysundaybrief.com.

Thanks again for the many Sunday Brief referrals.  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.  Have a terrific week!

Samsung’s Phone Evolution (as told by Ars Technica)

Samsung’s Phone Evolution (as told by Ars Technica)

A great article (click on link above) highlighting the evolution of mobile devices.  As you wax nostalgic (“I had one of those..”) think about two things – 1) How the supply chain to mass produce devices changed during this period (just ask HTC about supply chain issues), and 2) The sudden bloom of mobile applications that fueled the acceleration of the chipset-OS-handset-spectrum band-backhaul-CDN ecosystem.