Monday, April 30, 2018

Why T-Mobile Needs Sprint to Increase Business Revenue

On Sunday, April 29, 2018, T-Mobile and Sprint announced their intent to merge creating a $146B transaction to hopefully close in 1H19.  During the call, CEOs John Legere and Marcelo Claure talked up the consumer benefits of a combined company and that with this new company, the US would take back 5G leadership from the Asians.

There are so many areas to address in this proposed merger from regulatory hurdles, consumer benefits, job growth (or layoffs), the ‘mother of all networks,’ the winning brand, which executives came out ahead, etc.  I’ll start with the business service side because I’ve been asking this question to T-Mobile since the Un-carrier 9.0 announcement in March 2015 (Un-carrier for Business). The offering helped stimulate additional subscriber growth and impinged upon competitors’ specific business segments. Beyond the discounted plan structure, the ability to use free Wi-Fi during air travel, and free 2G global roaming, sophisticated higher revenue business services have not been in the T-Mobile portfolio.  



Sure, T-Mobile’s SyncUp fleet management solution or DIGITS offer another layer but those products also compete with similar or more sophisticated services from Sprint, AT&T and Verizon. It’s probably safe to say that much of T-Mobile’s business growth are lines in the small-medium business segment.  

For those who are wondering what sophisticated business services may be, here’s a Sprint example below: 

With a strong consumer message, I continue to wonder what of the business prospects with the combined company.   To be sure, much of the T-Mobile’s and Sprint’s business revenue challenges are unique. T-Mobile either doesn't see the return on investment in creating a sophisticated business portfolio, as that wouldn't be relevant to its subscriber base or they were waiting on Sprint all along.  Sprint has the business services (wireless and wireline) but lack the network credibility of their competitors.   I'm happy they addressed my question on the merger call and followed up with this responding vague Tweet. 


The low hanging fruit from the T-Mobile business expansion standpoint (and in their Twitter response) is rural America, bringing broadband competition to wireless and wireline incumbents. But that should already be on the T-Mobile radar, merger or not.  For Sprint’s part, the company’s 2.5 GHz 5G vision would be a compelling one in upselling and retaining its incumbent business base. Yet with capital constraints and other financial challenges, the pace, breadth and full realization of that Sprint-only 5G network is questionable (i.e., lots of major regions or national). Sprint is already in LTE catch up mode against competitors. 

A far-reaching network is everything. Verizon and AT&T know this and have invested tens of billions in their networks.  Both companies have captured consumer and business marketshare as a result. A new T-Mobile with a true 5G national network, combining low (600 MHz), mid-band (2.5 GHz) and future millimeter wave assets will surely provide a formidable network competitor to the big two, and foundational to future business revenue expansion.  

Assuming the deal is done and approved by 1H19 projections, it’s logical that parents, DT and Softbank, would increase capital (and not count on OpEx synergies) to accelerate the network vision (pun intended).  T-Mobile has a solid track record in integration (MetroPCS), network expansion and great execution. I’d expect no less from the combined Sprint and T-Mobile network planning and engineering teams. T-Mobile is already on track to plant a national 5G network flag thanks to its 600 MHz (albeit with thin dedicated spectrum), when that will be supplemented by the 2.5 GHz (>300M POPs) is the big question.   If the deal isn't approved, T-Mobile will need to build up its business portfolio to truly compete.   

[[[updated May 2, 1018]]]

On T-Mobile's 1Q18 Earnings Call, CEO Mike Sievert addressed the attacking the business segment at the new T-Mobile.   He stated: " Our business plan is funded for an expansion of our enterprise team. In year one, we’re going to take advantage of this set of capabilities and get after it and we funded our plan in year one to hire aggressively to get after the business market."

Wednesday, March 7, 2018

Here's How AT&T's Enhanced Unlimited Plans Are Competitive

Well, it's the first quarter and carrier(s) historically have restructured its rate plans in order to remain competitive or gain the upper hand.  Restructuring is different than running short term promotions to goose up the quarter's number. T-Mobile and Sprint are already doing that. For this first quarter, we find AT&T 'enhancing' their two rate plans, formerly known as Unlimited Choice and Unlimited Plus. Now, the company adds the Enhanced moniker to lengthen the product names.  The announcement was buried in a press release about regional promotion offers and the new rate plans began life on March 1.

The changes in a nutshell:

Unlimited Plus Enhanced (pricing includes $10/month autopay/eBill credit): 1 Line – $80; 2 Lines – $150; 3 Lines – $170; 4 Lines – $190; 5-10 Lines – $30/line.

Each line includes up to 15GB/month tethering. Each account includes free HBO for life regardless of whether customer subscribes to an AT&T video service and a $15/month video credit for DIRECTV or DIRECTV NOW. 

Unlimited Choice Enhanced (pricing includes $10/month autopay/eBill credit):  4 lines for $160/month: 1 Line – $65; 2 Lines – $120; 3 Lines – $140; 4 Lines – $160; 5-10 Lines – $30/line.

Full 4G LTE speeds (vs. 3Mbps previous). Each account includes free HBO for life regardless of whether customer subscribes to an AT&T video service and a $15/month video credit for DIRECTV NOW.

Looking at the new versus the old:
  • the additional line rate went up 
  • the first/single line went down 
  • more GB for tethering 10 -> 15 GB
  • no more throttled at 3Gbps (DL) for Choice subs
  • $15 video credit - DTV or DTVNow
Clearly, there are pros and cons. Some may view increased cost, some may view the changes gives more choice and features. Others will see that it's changing the tables (but continuing the strategy) for bundling wireless service and video.  It's all those things depending on one's own perspective. But the true test will be how competitive the 'enhanced' move is against other carriers, and which ones?  Let's face it, creating and refining rate plans isn't a simple task (hat tip to all price planners) but the final product needs to be an effective Swiss Army knife.  What's the holistic view and how do the Enhanced plans stack up?

 Those who long follow carrier competition, you know that typically the big two's rate plan moves are usually against each other.  Yet, in today's environment, T-Mobile's multi-year momentum needs to be addressed.  (Way back machine: In the late 2000s, AT&T went toe-to-toe against T-Mobile's value pricing. In an earnings call, then CFO Pete Richter said that it was a mistake and AT&T wasn't going to do it anymore.)  That was then, this is now.

AT&T introduced Unlimited Choice to address potential and existing customers' price sensitivity and wanted the AT&T network (the same is true for Verizon's gounlimited plan). As the chart above shows, Choice Enhanced beats T-Mobile One on single line but stays in line up to line 4 (all non-promotional pricing).  Moreover, the new Choice Enhanced pricing beats that of Verizon's gounlimited.  The same holds true for Plus Enhanced against Verizon's beyondunlimited.  Both restructured plans provide a nice $10+ price gap against its Verizon counterpart.

Moving forward, can T-Mobile stand losing out to price against AT&T? Maybe, as Magenta will argue that its real competitor is AT&T's Plus Enhanced plan which it beats. Sprint for its part remains the price leader and with its promotions, it just needs to acquire new subs.  Yet Verizon is in a quandary as this AT&T price move not only affects consumers but the more lucrative enterprise and other business segments.  First in my mind is FirstNet.  While AT&T is the lone FirstNet provider, it needs to bring the public safety entities into the FirstNet fold. What better tool than this more advantageous rate plan to help shift first responder accounts from Verizon onto AT&T?

It's the third month of the first quarter.  How vulnerable are Verizon Wireless consumers and business customers to this change? The rate plan is only a week old but I suspect that AT&T on the feet sales folks have been talking the price savings up in business and potential FirstNet accounts. The question is will Verizon react this month or the next? The price gap is decent.  Tempus fugit. 
  

Tuesday, February 27, 2018

2017 Prepaid Roundup - Winners and Losers

Yes, it's true. 2017 is two months behind us and the wireless industry is talking about the up and coming 5G.  While the US carrier sector focuses on the higher revenue and lower churn bearing postpaid segment, prepaid is often overlooked. Though prepaid experiences lower average revenue per user and higher churn, prepaid revenue and subs are still a formidable wireless segment.

The big 5 prepaid players, some with flanker brands, dominate the net addition or loss numbers. Therefore, the focus will be on AT&T, Sprint, T-Mobile, Verizon and America Movil.


Losers

It's pretty obvious from the above chart which company is the year's biggest loser. America Movil lost over 2.9M subscribers. According to the company, the dominant contributor was Safelink (government subsidized lifeline program) disconnects. America Movil wasn't the only company that bet big on the government program. Sprint's Assurance Wireless brand targeted the same segment and also suffered previous losses in its prepaid base.



The second loser was Verizon prepaid. After what looked like an upward trend in 2Q and 3Q, the company crashed with 184K losses, mostly with prepaid basic phones. Verizon and America Movil are moving to increase revenue with smartphone subscribers, in essence deemphasizing the classic pay as you go customer.  These two companies are somewhat late to the party as that's been the strategy for T-Mobile's MetroPCS and AT&T's Cricket for several years.

Winners

The clear winner in terms of sub adds is clearly AT&T's Cricket.  This flanker brand has been the steady growth catalyst since 2015.  What's important for AT&T is the momentum shift from 2016 in which T-Mobile (MetroPCS) dominated with over 2.5M adds versus AT&T's ~1.6M. It's likely the two company rivalry will continue. Despite losing the overall 2017 growth title, T-Mobile is a winner. Last but not least is Sprint with its major brands Boost Mobile and Virgin Mobile. Though Sprint came out 373K subs in the positive and paled in comparison to AT&T and T-Mobile, one needs context.  In 2016, Sprint lost about 500K subs and in 2015 the loss number was over 1.5M.  So 2017 was a win for Sprint in my book  

2018  

Coming out of 2017, each player is focused on growing subscribers using the multi-line strategy. While the revenue per user part is less than a single line, the playbook is decidedly reminiscent of postpaid. Remember the old voice days when the financial community were shortsightedly concerned that carriers were leaving money on the table with meager $10/month add-a-lines?  The tradeoff obviously is in lower churn. More lines equals the less likelihood to churn.  The equation changes a bit with prepaid as price is also a main consideration.   At the end of '17 and also now, competitors are moving to the 4 lines for $100/month.   As this is tax 'refund' season (for some), competitors are throwing in the free phone promotion here or there.  But Cricket has somewhat escalated a price war with a $40/month unlimited single line price. The promo duration ends on April 12th. The fine print is that the plan price is only for one year.

Surprisingly, competitors haven't matched as the equivalent plan is still $50.  Historically, the sub activity has  usually occurred in the 1st and 3rd quarters.  It's hard to say whether each competitor will be the instigator for more plan action but there is a balance between acquiring more subscribers while showing higher ARPU/ARPA/ABPU trends and increasing margin AND decrease churn. It's a tall order.

Distribution will define further growth opportunities. MetroPCS can certainly ride the T-Mobile postpaid's coat tails as the company expands into the hinterlands with its 600 MHz spectrum.  Similarly, Cricket can expand its national brand footprint as it gains more dealers.  It's likely that AT&T and T-Mobile will dominate the prepaid scene as Verizon's focus has always been the more lucrative postpaid.  Sprint's tight corporate budget also suggests that its acquisition money should heavily favor postpaid to further its turnaround story (I'm still waiting for Virgin Mobile's 'game-changing' contribution.  Lastly, America Movil will likely continue to shed lifeline customers with incremental growth in the Walmart exclusive Straight Talk.  Let's see what happens.  




Monday, February 5, 2018

AT&T Prepaid - 4Q17, A Strong 2017

AT&T's reinvigorated prepaid group has been plugging away after the Leap Wireless (Cricket) acquisition and integration in 2014. Rather than keep the then AT&T Aio flanker brand, Cricket's name had better traction in the prepaid sector.  While AT&T is more than just the Cricket brand (remember GoPhone?), Cricket brings in the lion's share of the additions.

Overall, the Cricket unit has been a positive development, adding over 1.3 million (M) subs in 2015 and over 1.5M in 2016.  Its playbook mirrors its chief rival, MetroPCS which was acquired in 2012. The regionally limited MetroPCS brand expanded along with the T-Mobile national footprint, increasing the brand's distribution reach.  This has also been the case as Cricket increased its footprint and distribution.  With about a 1.5 to 2 year head start, MetroPCS has been the industry prepaid net add leader, with more than 1.3M in 2015 and over 2.3M in 2016.  Given this trajectory, one would expect them to lead in 2017.  However, for 2017, the overall prepaid net add leader is AT&T with just over 1M net adds to T-Mobile's 855 thousand.  



The overall trend, based on the leaders' numbers, is that prepaid isn't growing as hot as it was several years ago.  4Q17's numbers for both companies seem anemic in a Year over Year comparison.  Yet more confounding for industry watchers, AT&T has incorporated prepaid IoT (they say vehicle connectivity) into its 3 and 4Q17 numbers. Those account for 152 thousand additions. If we remove those numbers, AT&T still wins 2017 with 861 thousand, barely edging out T-Mobile's prepaid group.

Looking ahead to 2018, there are two things I'm looking for in the near term:

  1. 1Q18 net add numbers: Generally, carriers' 1Q numbers have been the year's strongest. Will these numbers be 2016 or 2017 levels? As of this writing, Boost, Cricket and MetroPCS's lead offer are similar - 4 lines for $100. 
  2. AT&T Prepaid IoT ramp:  AT&T has been building IoT connected vehicle business with auto manufacturers for several years now with the fruit of embedded connections for every vehicle. As new models and more manufacturers get online, the prepaid IoT numbers should increase. Churn and ARPU for this segment should be interesting if broken out (ideally).        

Monday, January 29, 2018

Verizon Prepaid - 4Q17 (More Cowbell, er ARPA!)

Verizon's prepaid group is going through a roller coaster ride.   For many quarters, the company's prepaid group had been losing subscribers at an alarming rate. From 1Q15 to 2Q16, the losses totaled 758,000! A momentary hike of 83,000 net additions in 3Q16 reversed in the next two quarters of a low 26,000 losses. It seemed that with new plans, the prepaid group was going to be on the upswing with positive growth in 2Q and 3Q17.  However, 4Q17 saw subscriber losses again.




To be fair, Verizon's retail wireless business is predominantly postpaid. Prepaid only accounts for less than 5% of the company's retail subscribers.  However for 4Q17, Verizon stated that its 184,000 prepaid sub losses were predominantly basic phone subscribers as it "deliberately reduced" focus in this area.  This makes sense as it's been the overall prepaid sector trend to cater to higher-ARPU bearing smartphone plans.  Some can argue that it took too for Verizon to come around to switch its tactics, in order to address an increasingly lucrative prepaid sector.  AT&T and others have long argued that given the no-contracts postpaid environment, prepaid and postpaid ARPUs were somewhat converging.  

As evident by Verizon's prepaid plans, they are indeed trying to boost ARPU.  Though the minimum single line monthly is $40, the important point is that the company is emphasizing additional lines (as with competitors) to increase ARPA. It's clear that Verizon is not going to be the least cost provider but as wireless veteran observers know, that's not their strategy.  As with postpaid, the company conveys to the market that it is a premium provider with a formidable network.




What will 2018 hold for the Verizon prepaid group? I have to think that there will continue to be basic phone losses but when will the smartphone plan additions outweigh the losses?  The prepaid subscriber base currently sits as about 5.4M, does the company care about increasing the sub count or keeping it level while trading it for newer subs that boost overall revenue? I suspect the latter.