Sprint and Clearwire - It had to be - Network Future?

Now that Sprint will acquire the remaining 50% of Clearwire that it already did not own, what does this say about the near term and future?  While there are many stories about the financial side, most industry insiders knew that the Clearwire acquisition was a strategic imperative. Back in October when Sprint moved to take more control, I offered some thoughts  on why Sprint's long term control of Clearwire made sense. Much of the logic is rooted in the long term network strategy.

Network Vision

Sprint's network strategy hasn't changed since 2010 with the introduction of its Network Vision.  Many analysts derided the price tag and its hosting positioning but today, Sprint's bet seems to have turned out well.

When Sprint announced Network Vision in 2010, it seemed a bit presumptuous that 2.5 GHz was included into the spectrum chart especially since Clearwire had not committed to the effort and especially Sprint did not control any of that spectrum.  Clearwire had its own separate network deployment strategy with capital already sunk in specific markets using WiMAX to power Sprint's 4G data play. 

In order to expand markets, it was logical that Clearwire take advantage of Network Vision but that didn't happen. Executive tensions (between Sprint and Clearwire), the need for Clearwire corporate independence and lack of capital to expand contributed to stalling the grand Network Vision execution.  With the urgency to stay in the LTE game against wireless competitors, Sprint worked with Clearwire on specific markets to deploy the TD-LTE flavor in specific 'high data tonnage' markets.  It was clear, Clearwire would provide the complement to Sprint's near term PCS-based LTE strategy.  

Fast forward to 2012, what has changed?  The answer - Softbank.  Though the Softbank-Sprint acquisition approval is scheduled for mid-2013, Softbank's $3.1B bond purchase in October freed Sprint to make specific strategic moves beyond Clearwire in the form of US Cellular subscriber and spectrum acquisition in November. 

Back to the 'new' Sprint network,  surprisingly, the network slide hasn't changed.  To Sprint's credit, they're executing on their vision.

But what has changed is a bit more detail specific to LTE.  Today's 800 MHz band primary is envisioned for voice. With better in-building penetration properties, having voice is still the 'bread and butter' revenue bearing service.  800 also hosts the soon to be discontinued iDEN platform. Eventually 800 will also run LTE with VoLTE.  However, 800 LTE is more than 2-3 years away. The near term LTE solution is in the PCS band. But with only a 5 X 5 deployment and also running 3G, the analyst community questioned whether this could handle increasingly high-data usage especially in light of an unlimited data service proposition. 

Enter TD-LTE and Clearwire

To address high data use, Sprint engaged Clearwire in a data offload arrangement.  Rather than a national TD-LTE view, Sprint would identify specific high-data tonnage markets for Clearwire to buildout its TD-LTE. The concept: with plenty of 2.5 GHz spectrum, Clearwire (and Sprint) could address subscriber [retail and wholesale (think data MVNOs)] capacity and still offer a speed differentiation. Yet with an independent Clearwire, Sprint clearly had no control of its future. Therefore, it was a strategic imperative for Sprint to take over Clearwire.   Sprint also had to act as the financial community was advocating Clearwire sell "excess" 2.5 spectrum to raise cash.  This flies in the face of any network planner as history has shown that spectrum always appreciates and the overused 'spectrum is the lifeblood of a network' adage still holds.

Two "2.5 GHz Dollar" Questions 

Assuming that the Clearwire acquisition goes through, will Sprint expand or accelerate the original Clearwire deployment plan?  I say yes, they have to eventually.  Whatever the TD-LTE markets previously agreed upon, it only address specific high density markets.  To offer a broader coverage story that rivals competitors, Sprint will need to show a bigger TD-LTE footprint.  It's taken for granted that a data-offload (of PCS LTE) strategy is still in play.  

There are two questions in my mind that Sprint need to address.  First, a broader future question is when Sprint will exploit the national 2.5 GHz coverage.  With a national footprint, Sprint ensures a richer wholesale platform and deeper capacity.  Sprint strategy guys have likely played this scenario out.  With less than ideal propagation (relative to 800 (and 700)), small cells and associated backhaul will play a prominent role (read more capital).  The second is more of a technical question.  When will Sprint take advantage of its potential speed advantage. With aggregating spectrum, Sprint can position speed and unlimited as a marketing differentiator much like Verizon Wireless' coverage.  Of course the answer is when the TD-LTE ecosystem commercially supports this on the infrastructure and device side.

Stay tuned for more Sprint moves in 2013. 

DISH Has Terrestrial Approval - now what?!

Now that the FCC has approved terrestrial use of DISH's 40 MHz of spectrum (2000-2020 MHz and 2180-2200 MHz), what are its options?

1. Build it out - it's capitally intensive to build out a national network so a wireless carrier partner is necessary.  Why a carrier? It's in their core competency to implement and run networks.  Sprint is in the best position to meet DISH's wireless buildout goal with its Network Vision (spectrum hosting capability) strategy.  Stating the obvious - having a carrier such as Sprint host allows DISH to bring services up quickly and minimize a huge self-built price tag.

2. Sell the spectrum - getting money in the short term is always desirable.  But as the industry has seen, spectrum will always appreciate.  Yet there's been precedence for this. Spectrum Co (cable companies) sold its AWS spectrum to Verizon Wireless. They realized an appreciation in the base price from when they bought it in 2006.  More important aside from the money, cable companies (Cox, Comcast, Bright House and Time Warner) has strategic wireline and wireless possibilities with Verizon/Verizon Wireless.  With this in mind, DISH could cut a sale deal and wholesale at favored rates from the buyer. Presumably, the spectrum buyer will be a wireless carrier. Sprint would make the most sense.

BUT........
 

Don't forget the devices that will run on the DISH spectrum. Device and chip makers haven't exactly created product yet to meet this need. There is a ramp up time to incorporate it into the product portfolios. It doesn't happen overnight - look at the time in which Sprint/Clearwire announced TD-LTE 2.5 GHz support to when devices will have that band and technology incorporated.  This is a factor in both the above scenarios.

Let's see what DISH does......... 

Why Sprint + DISH Makes Sense

Today's Bloomberg report  suggesting a possible deal where Sprint hosts DISH's spectrum is logical. While DISH has held this spectrum for some time, they have yet to throw services on it. DISH needs a mobile component as all their fixed line rivals (e.g., AT&T, Verizon and Cable Cos) have or will have mobile capability.  The media and industry speculation with Google in mid-November has yet to materialize.

Keeping Up with Competitors

From a fixed line view, these competitors are pushing for subscribers being able to access content in any device (i.e., smartphones, tablets, PCs, TVs, cars?). Of course the service provider will love to upsell an alternate access medium to customers. While DISH is a capable satellite provider, it has little experience in the terrestrial side. A national buildout of their MSS spectrum would be capital intensive and outside of their core competency. 

Enter Sprint

Sprint's big bet in their 2010 Network Vision strategy that hosting spectrum would be an element of its wholesale strategy. There was much promise as then cable company (SpectrumCo)  partners had a near national AWS footprint and Clearwire needed a platform to expand to new markets. So far, only the nearly defunct LightSquared was the only shortlived spectrum hosting deal. Therefore, any spectrum holder who needed to bring up service is fair wholesale game.  With the Softbank cash infusion,  Sprint has publicly stated that it has the flexibility to do more things.  Aggressively courting DISH and hosting MSS spectrum should be a no-brainer despite any previous tension on MSS spectrum interference with with Sprint PCS operation.

Possibilities

It's an inevitability that MSS will run LTE. If MSS bands were to increase Sprint's LTE capability beyond their 5X5 channel implementation, a wider LTE band helps Sprint LTE capacity allowing Sprint's Unlimited data proposition to extend. Speed is another factor in which channels can be aggregated to provide a fatter LTE pipe.  

A DISH deal allows for a long term alternative (and a lever) to being locked in with Clearwire's TD-LTE. At a minimum, a DISH+Sprint PCS/MSS LTE pipe complements  any data offload.

Raining Tablets at AT&T? A Portfolio Status Report

Earlier in the month, we took an initial look at the AT&T tablet portfolio to determine the progress of consumer choices there were.  Since that post, one addition, the iPad mini joined the portfolio on the 16th of November.  

Here's how the tablet portfolio looks (online without refurbished models).

Manufacturer	Models & WWAN	OS
Apple	iPad 2 (3G) 16GB,  iPad (current gen LTE) 18, 32, 64GB,  iPad mini (LTE) 16, 32, 64GB	iOS
Asus	vivoTab RT (LTE)	Windows 8 RT
Pantech	Element (LTE)	Android
Samsung	Galaxy Tab 8.9 (LTE),  Galaxy Tab 10.1 (LTE),  ATIV (LTE) SmartPC (LTE)	Android Android Windows 8  Windows 8

To AT&T's credit, the portfolio has 8 tablet models and many memory level iPad choices. So rather, AT&T has 7 iPad models to sell.  This expands the portfolio to 13. At this snapshot in time (after Black Friday), will there be additional announcements ahead of holiday shopping? There may be one or two in the wings but any more tablets creates too many choices which is a problem itself.  Carriers wish to optimize its inventory and SKU count, balancing choice with carrying costs.

While AT&T has high tablet net add hopes, let's look at Verizon Wireless' online portfolio (without refurbished models).  There is a similar apples-to-apples comparison since this carrier also offers a shared data plan.  

Verizon Wireless Tablet Portfolio     

Manufacturer	Models & WWAN	OS
Apple	iPad 2 (3G) 16GB,  iPad (current gen LTE) 18, 32, 64GB,  iPad mini (LTE) 16, 32, 64GB	iOS
Motorola	DROID XYBOARD 8.2” (LTE) DROID XYBOARD 10.1” (LTE)	Android Android
Samsung	Galaxy Tab 2  7” (LTE),  Galaxy Tab 2 10.1” (LTE),	Android Android

Verizon Wireless' portfolio offers the same choices on Apple products but is limited to Android support. This isn't that much of a surprise as the carrier has just started supporting Windows Phone 8 smartphones. Verizon Wireless' 11 models isn't far off from AT&T's 13.  What is different is each carrier's approach. AT&T is offering an aggressive $100 discount while Verizon Wireless has no such incentive. However, the $100 discount requires a two year contract whereas Verizon Wireless allows month to month.

From the carrier view, a two-year subsidized plan is good for overall churn reduction and ensures customer data use. Of course US consumers have yet to be acculturated to tablet data and like smartphones it will be a multi-year endeavor to create the demand. 

Verizon Wireless Double Data Comes to a the $80 Prepaid Smartphone Plan

Verizon Wireless seems to be building up to drive Q4 2012 and Q1 2012 prepaid net additions.   Coming off a decent prepaid Q3 with 228K net additions, the prepaid group looks to better 2011 Q4's 250K net additions.  How does the company get there? 

Given the smartphone adoption trends, the company wants to take advantage of this in the Q4 holiday selling period. To accomplish interest, Verizon Wireless has taken a page from its postpaid double data promotion it ran in 2011 and early 2012.  The plan under the limelight is the Prepaid $80 Smartphone plan that normal provides 1 GB of data along with unlimited talk and text. This is already competitive with postpaid but now with a 2GB.

Here are the plan terms in minutaie but the highlighted points are the important ones:

• For a limited time only, customers who purchase the Prepaid $80 Smartphone plan will enjoy 2GB of data for the price of 1GB when they purchase and activate a new Smartphone between 11/18/2012 through 1/31/2013.
• Unlimited Talk, Text & 2GB Data Plan includes unlimited domestic calls only, texting* to anyone on any network in the U.S. and participating carriers in Canada, Mexico, and Puerto Rico and 1GB Data.
• Purchases and activations on the Unlimited Talk, Unlimited Text & 2GB Data plan will receive 2GB as long as the plan service remains active.
• The Unlimited Talk, Unlimited Text & 2GB Data plan will not be available after 1/31/2013. Any activation on or after February 1, 2013 will not receive the promotional benefits.
• If you have a sufficient balance for your monthly access, enjoy the benefits of your calling plan. If you don't have enough funds to cover the monthly access, you will be charged 25¢ per minute, 20¢ per text, 25¢ per picture or video messaging sent (per recipient) and received and 5¢ per MB.
• 1GB Data Package – An optional data overage package is available for $20 for customers who have reached 100MB or less remaining on the 2GB data allotment. An optional data overage package for prepaid customers is not available for purchase at the point of sale. Customers can add the 1GB data package through the IVR, My Verizon Mobile and My Verizon online once 100MB or less remaining of the 2GB data allotment.

Target Customer Segment

Value-seeking smartphone customers who want the Verizon Wireless network. 

Pros
- Continue to drive prepaid net additions 
- Keep filling the 3G network with high-value users.
- Better than a postpaid deal, addresses the postpaid value switchers
- Double data for free and a limited time offer has an excellent track record at Verizon Wireless. 
- Users get to keep the plan as long as they keep their plan active. 

Cons
- Only 3G smartphones, no latest and greatest LTE smartphones
- There are less expensive similar options over at all you can eat competitors Boost Mobile, T-Mobile, MetroPCS (even with LTE) and Leap.

Thinking about the 4G Coverage POP/Market Race - 1

The latest in the LTE coverage race: Verizon Wireless' latest network statement states that the company has hit 441 LTE markets. AT&T has also announced its expanded 103 LTE markets/150 million POPs covered on top of the overall 285 million POPs on its 4G HSPA+ network.   

Coverage and then there is coverage

The POP or population covered and market race is on again for 4G/LTE coverage. Carriers had been battling in this numbers race back when 3G was introduced.  Population covered had been the norm in showing coverage. However, that is just one component of market positioning.  The other one is geography.  From the national map view, Verizon Wireless is pretty much in the driver’s seat with the 2008 Alltel acquisition.  To Verizon Wireless’ credit, the carrier has been effectively exploiting its geographic advantage and is central to the “Why Verizon Wireless?” marketing strategy.  

Why haven't AT&T and other tier one carriers T-Mobile and Sprint matching geography coverage?  Simplistically, these carriers are more or less taking a population density approach.  They are covering where most people are using their phones. As one carrier analyst relations professional explained in the past, “We’re not going to build a network to cover cows.” There is financial logic to that as capital expenditures are scrutinized by investors.  What’s the return on investment on covering cows?  Does a company really have enough capital to match Verizon Wireless’ geographic coverage? The short answer is yes but some are in better financial shape than others.   In the 3G realm, forging roaming agreements becomes the equalizer.  For example, Sprint got the map coverage to largely with an agreement with Alltel (pre-Verizon Wireless takeover).  

Leap in another example uses Sprint as its main roaming partner.   

Therefore, the operational cost of roaming outweighs the capital cost in building a network in specific markets.  Besides, the ability to provide coverage and connection to customers is extremely important in light of the expectation of US national coverage.  This is all fine for 3G networks but as the industry moves to LTE, a different marketing dynamic takes hold which fuels this vicious coverage arms race again.

The next post the complexities and confusion that 4G and LTE bring…  

Building a National Wireless Network - DISH & Google?!

While the Wall Street Journal reports that Google and DISH are in talks to build a wireless (presumably national) network, the media pickup on this is interesting. To be sure, it makes good for good reading. Google has tried to expand from its core search/advertising business before. The Android OS is probably its greatest success in the mobile space, more so than its hardware statements in Nexus smartphones and tablets.  The Chromebook is great concepts to dovetail with the cloud craze the industry and business community is all really keen on these days.

People can also point to Google's capabilities in building data centers and fiber networks.  The biggest testbed for a hardcore service provider play is in the suburbs of Kansas City with Google Fiber. There is no doubt that Google has the deep pockets and some technical capability to embark into the wireless service provider game.  However, it lacks the expertise as it's outside Google's core competency.  Though it may be true that they can acquire the talent, a national network is no small feat and tremendously capital intensive.  Google's signaled its intention to play in wireless sector in 2007 with Auction 73 (700 MHz spectrum). 

This time DISH has the spectrum and it needs a buildout partner.  DISH is a service provider and has the correct service culture but it doesn't have any terrestrial cellular expertise.  It would make better sense that DISH would approach an existing national carrier to host its spectrum.  Sprint's Network Vision was built for this scenario. 

One cautionary tale is Cox's attempt with its own AWS spectrum.  After a year or so, the company exited the wireless retail business.  Incumbent wireless/cellular carriers have the towers, tower relationships, right of way clearance expertise and backhaul networks.  Google does not have any of this except perhaps the fiber/IP backhaul as a critical component. If DISH finally delivers on a wireless service promise, Google may not be the entire infrastructure builder but perhaps a funding partner with a formidable IP backbone.

Q4 2012 - Raining Tablets at AT&T

In the October Q3 2012 earnings call, AT&T Mobility President and CEO Ralph de la Vega addressed the Q4 outlook for net additions to be based on tablets. The broader view of course is is to stimulate data adoption and revenue.  He said,

"We also anticipate a higher number of net adds from tablets in the fourth quarter."

Further at the November 7 AT&T Analyst event in which the $14 billion wireless/wireline investment (Project Velocity IP) was announced,  Mr. de la Vega addressed tablets again in the Questions and Answer session in the context of Windows 8 support and Q4.  

He stated, "It's gonna rain tablets."

Given these statements, let see what AT&T has planned to realize that projection. There are three views on net additions. First, there are direct LTE-equipped tablets that are available within the AT&T portfolio.  Second, there are the indirect benefit of WiFi equipped tablets stimulating wireless broadband adoption from mobile hotspot devices.  Lastly, there is the wholesale component that customers such as Amazon's will offer tablets with built-in data. 

In this post, we'll focus on the direct customer purchase view, the backbone of AT&T's effort to stimulate mobile share plan adoption and tablet rainmaking is a $100 tablet discount/two-year commitment promotion. This was announced on November 9th.   

The AT&T tablet portfolio should mirror the handset portfolio philosophy   That is to provide customers with the widest array of choices in operating systems and price points.  Each tablet is mobile broadband enabled (no surprise).  Going into the Windows 8 launch, the company's tablet offerings centered around the Apple iPad  and several Android-based offerings from HTC, Pantech and Samsung. Looking at the emerging AT&T tablet portfolio in Q4, several initiatives and products have been announced since the earnings call. To provide choice and OS diversity, Windows has been introduced.  Below are the device announcements since the late October earnings call.

• November 5 - Samsung ATIV smart PC, a full Windows 8 tablet at $799.99 without a contract, $699.99 with a two year commitment. A WiFi-only ATIV smart PC is not available.  

Samsung Galaxy Tab 10.1, an Android-based (Ice Cream Sandwich) tablet offered at $499.99 without a contract. A Wi-Fi only Tab 10.1 currently has an average selling price of $350.

• November 13 - Asus VivoTab RT($699.99 retail), a Windows RT platform device. The Asus announcement showcases the $499.99 promotional price which includes a free mobile dock/keyboard and extra battery. However, this deal is contingent on a Windows Phone smartphone purchase to knock it down $100 ($599.99) and a two year data plan commitment arrives at the final $499.99 promotional price. A WiFi-only VivoTab has an ranges from $550-$600. 

The device announcements have indeed provided a spread in price points. In the past, manufacturers were criticized on the high cost of a mobile broadband connected tablet (~$130) relative to the WiFi-only option.  Now with the $100 discount and mobile share plan options, AT&T seeks to minimize that price gap.  Still with a consumer eye, the price points may not be that appeal to the mainstream.  However with an eye towards small business and enterprise, the offerings may be palatable.  The difference now than before, aside from the price promotion, is that Windows 8 may bring business traction. With Microsoft as a enterprise friendly brand, Office, Exchange and VPN support among other security features helps Windows 8 receptiveness. A mobile broadband connected that is IT friendly makes the case for workforce mobility and productivity. 

Back to the consumer view, Q4 has a lot of room left for announcements but as Black Friday approaches, many selling companies start seeding the consumer mindset for the holiday buying. As the weeks progress, AT&T should be announcing additional vendors. As more announcements are made, we'll keep a running tally and opine whether the raining tablets scenario seems credible enough to push up Q4 net additions.

T-Mobile USA Q3 2012 - Postpaid Trouble Continues, Reliance on Prepaid

T-Mobile released their Q3 2012 numbers along with commentary through the Deutsche Telekom parent.  Some of my thoughts ahead of this release were substantiated and some were not.  The US unit earnings slide touches on four areas, two financial and two operational performance metrics. From a broad view, the financial indicators are on a downward trend. Service revenue, earnings revenue and margin are all down.  Let's dissect the two important operational areas - net additions and ARPU. 

Net Additions: Though there were 160K net additions, the glass half empty side looks at the postpaid losses.  With nearly 500K of postpaid subscriber losses, it's alarming.  The company blames the iPhone 5 as a key element for the decline.  So where are these people going? AT&T had record iPhone 5 activations and Sprint's iPhone 5 with an unlimited data proposition are the likely culprits.  How does the company reverse its postpaid slide?  Q3 2012 represents the ninth quarter  of postpaid losses.  Its shift to promoting Value plans as part of the greater postpaid strategy may help its margins and lower device subsidy costs but really, is it working?  To deflect this, DT Chairman Rene Obermann cited that there are now 1.5 million iPhones running on the T-Mobile USA network. The last iPhone count was 1 million back in June 2011.  Pushing the glass half full view, the prepaid and wholesale business is contributing to the company's growth.  While wholesale should be positive across the industry, the MVNO business is a consistent performer that makes up almost 12% of the customer base.  The machine-to-machine side represents about 9% of the company.  These two areas should be all accounts continue to add to the customer count throughout the quarters. The prepaid additions are on a very good positive slope, beating previous quarter additions handily.  The introduction of the Monthly4G plans that offer alternatives to Boost, MetroPCS and Leap plans.  Going into Q4 and with the company increasing its customer acquisition spend, can T-Mobile sustain a 300K+ net addition run?



ARPU:  One take away on the postpaid ARPU is that it's going down.  While the chart shows data ARPU increasing, the subscriber base was traditionally more voice centric.  Minutes of use came in at 899 compared to 986 a year earlier.  This follows the industry trend. The quandary for the company is that it will continue to see a decline in overall ARPU as it pushes its value plans. That may be OK if the business case shows that margins are better in the long run. On prepaid ARPU, the $21 mark was flat sequentially. If the higher ARPU bearing Monthly4G plans take hold en masse this should go up slightly. 

Churn:   Overall and postpaid churn increased for obvious reasons. The postpaid churn went from 2.2% the previous quarter to 2.3%. Closest rival Sprint has turned its churn fortunes around but its highest postpaid churn rate was 2.01%. Verizon Wireless and AT&T are near 1% as a gauge. 

T-Mobile USA Q3 2012 Highlights - The Five Core Areas

The T-Mobile USA Q3 earnings release comes in two forms. One is folded in the parent, Deutsche Telekom's overall earnings.  The second is directly through the US unit.  Surprisingly, the expected Five Core Areas of Focus slide that had been a mainstay in the parent's earnings deck didn't make it.  

However, this was addressed in the US release.   There is no doubt that positive notes will be slotted in any PR/earnings release. Here's what the company had to say and my takeaways in relation to the Q3 earnings news:

Amazing 4G Services Highlights:

• T-Mobile continues to advance its $4 billion 4G network modernization plan, which includes installing new advanced equipment that paves the way for the launch of Long Term Evolution (“LTE”) service in 2013.  <<This reinforces the obvious that T-Mobile is spending the necessary money to make it possible for AWS LTE. While the company is aggressive, a 2013 launch is still nebulous. Is it Q1, 1H, 2H? >>
• Las Vegas and Kansas City were the first cities where T-Mobile customers benefited from the launch of HSPA+ on 1900 PCS spectrum, which delivers enhanced voice and data coverage, as well as faster speeds on unlocked devices such as the iPhone; just yesterday, Washington DC, Baltimore, and Houston also went live.  The Company expects to announce further network strengthening in many additional cities in the coming months.  <<Refarming the PCS spectrum to enable HSPA+ is the foundation for its BYOD (read iPhone switcher - as blatantly stated) strategy. It's tough to fully market speedy iPhone HSPA+ service when the national network isn't there.  When it gets there, the company will certainly make a big splash.>>  
• In the third quarter of 2012, T-Mobile completed the transaction announced in June 2012 with Verizon Wireless for the purchase and exchange of AWS spectrum licenses in 218 markets across the U.S.  This transaction improved T-Mobile’s spectrum position in 15 of the top 25 markets nationwide. <<Getting more AWS spectrum allows the company to increase its capacity to continue its unlimited data proposition.  An unknown is whether the additional spectrum may be shifted to increase T-Mobile's long term LTE data throughput speed as a marketing differentiation.   With an LTE-Advanced capable network, that's certainly possible to achieve.>> 
• T-Mobile continued to expand its compelling 4G smartphone portfolio, including adding more devices under the popular Samsung Galaxy lineup, such as the Samsung Galaxy Note 2, and announcing the upcoming availability of two Windows Phone 8 smartphones, including the exclusive Nokia Lumia 810. <<This is a necessary PR item - to continue to show that new and cool halo devices are coming into the portfolio.  In theory, these should be the halo devices being pushed in the Q4 holiday selling season.>>

Value Leader Highlights:

• T-Mobile is a champion of “bring your own device (BYOD)” wireless, with affordable value plans that separate the cost of wireless service from the purchase of a new phone. << Value plans are important to court BYOD iPhone users as they get typically a $5 monthly break off 'Classic' subsidized handset plans.  Honestly, this BYOD plan has been around for many years. T-Mobile sees a plus in this since they don't have to subsidize handsets and get better margin from Value customers.  Of course financing new phones continues to be an option for Value plan users. To the customer, it's usually a wash but clearly there are bigger financial benefits for T-Mobile.>>  
• In early September, T-Mobile launched a new Unlimited Nationwide 4G Data plan that is a key differentiator in the marketplace. <<These prepaid plans provide a compelling alternative to Boost, MetroPCS and Leap plans. With a better national brand, T-Mobile can exploit these plans to take back customers from those rivals.  With 365K branded prepaid net additions in Q3, these plans have to have had an impact in light of MetroPCS' and Leap's Q3 massive net subscriber losses.>>  

Trusted Brand Highlights:

• As part of its brand re-launch program, the Company increased investment in advertising to highlight its fast and reliable nationwide 4G network and its blazing fast data speeds in the U.S. <<In the past analyst conferences, T-Mobile and Sprint have always talked about how much their marketing budgets are dwarfed by Verizon Wireless' and AT&T's spend.  Shifting spokeswoman Carly Foulkes from girl next door to woman in control will continue. Honestly, T-Mobile needs to assert its brand to stay relevant in the consumer mindset as Q4 holiday selling begins.  Over the years, we always look forward to what T-Mobile will do for Black Friday. Recall the 'free airline ticket' promotion?>>

 Multi-Segment Player Highlights:

• In the Business-to-Business (B2B) segment, T-Mobile looks to serve as a trusted communications advisor, helping businesses develop cost-effective, high-value communications programs that meet their business objectives –through bring-your-own-device (BYOD), and mobile device management (MDM) programs as well as attractive international mobility and mobile broadband data plans.  The Company continues to aggressively expand its B2B sales force. << This is a very important area for T-Mobile. As it was consumer-focused for many years, it largely ignored the business space.  Now the company finds itself starting from scratch to build an effective B2B sales force. It's a tough sell as national rivals Sprint, AT&T and Verizon Wireless are very entrenched.  What is T-Mobile's differentiation in this area?  It's not that clear other than the same proposition on the consumer side - value.>>  
• T-Mobile launched three new Mobile Virtual Network (MVNO) partnerships during the quarter: Spot Mobile, Solavei, and UltraMobile, adding to its existing partnerships with TracFone/SIMPLE Mobile and Roam Mobility. <<MVNOs represent almost  41% of the company's prepaid business and 12% of the customer base. These should have been technically counted as wholesale. >>  

 Challenger Business Model Highlights:

• The Company continues with its efforts to drive operational efficiencies through the Reinvent program and is on track to achieve $900 million in annual gross cost savings, which the Company has started reinvesting in customer acquisition programs. << The first part of the rather long sentence is about the cost containment is emblematic of every other wireless carrier. But the details on reinvigorating customer acquisition may suggest further marketing spend, whether targeted or more broadly. >>  

  

T-Mobile -Thoughts Ahead of the Q3 2012 Earnings Release

T-Mobile USA is set to release its Q3 earnings and performance metrics on Thursday , November 8th as part of its overall parent's (Deutsche Telekom) Q3 2012 release.  DT's US unit is fresh off an merger/acquisition announcement of MetroPCS in October  and that had grabbed much of the news around the carrier but the Q3 earnings numbers should reveal whether T-Mobile would continue key trends or reverse them.  The company has provided five focus areas throughout previous quarters and many of its Q3 progress points will fit again in these areas.

Under Amazing 4G Services, we should expect to hear about network progress (LTE buildout) and new halo devices. Under the Value Leader, we should expect to hear about any new services or marketing initiatives. In furthering the Trusted Brand, T-Mobile has been talking about expanding their distribution. For the last two quarters, the company has been putting a lot of effort into opening new 'doors', the first fruits of this may show up in Q3.  With the Multi-Segment Player focus, this is mostly about expanding wholesale (machine to machine/MVNOs) and ramping up the B2B efforts.   Finally the Challenger thrust should roll up cost control and churn containment.  Maybe there will be light shed on acquiring iPhone switchers. However, some performance metrics continue the bellwether of corporate direction. 

Net Additions:  The trend doesn't look good for the company as its postpaid base continues on a negative trajectory since Q3 2010. On the other hand, T-Mobile's prepaid business is the bright spot in preventing a totally bleak story. The fact that the company has been able to post positive net prepaid additions in an ultra competitive prepaid segment is notable. Throughout the years, prepaid has been on the rise and makes up more of T-Mobile's customer base. In Q2 2010, the prepaid business accounted for about 20% of the base. By Q2 2012, that percentage increased to over 27%.  Q3 looks to increase that percentage.  Switching over to postpaid, the company still needs to reverse the slide.  The unlimited data and plan value story should resonate and pits the company against Sprint's own unlimited data proposition.  How well the company markets to iPhone switching will be a key element in increasing its postpaid pool.

  

Any increase should signal somewhat to the traction of its expanded distribution strategy.

Churn:  Looking at prepaid churn, the company is doing a good job in stabilizing that base.  Q3 should continue the downward direction. However, the churn number currently at 6% is very high relative to rivals.  In contrast, Sprint's multi-branded prepaid group posted 3.37% for Q3 while dedicated prepaid plays MetroPCS and Leap are in mid-3% and mid-4%, respectively.  On the postpaid side, the magic threshold for Q3 should be sub 2%. Rival Sprint crossed that mark two quarters ago. T-Mobile remains the only national carrier to be above the 2% postpaid churn mark.

ARPU: The carrier is also behind in these metrics relative to its national rivals. The downward postpaid ARPU trend is in stark contrast to AT&T, Sprint and Verizon Wireless which has been sloping positively nicely. While AT&T is the postpaid ARPU leader at over $65, Verizon Wireless is T-Mobile's closest ARPU neighbor at $56 in Q2 before they moved to the new ARPA stat. On the prepaid side Sprint remained over the $26 mark in Q3 while regional Leap and MetroPCS are in the 40s.  To move the mark in prepaid, T-Mobile needs to focus on the high-value users. Of course this will be moot in 2013/2014 once MetroPCS starts to get integrated.

Finally Network: There will undoubtedly be discussion on how well the LTE buildout is progressing. T-Mobile while it pushes its 4G speed (AWS=based HSPA+), it should be stating how the well the PCS refarming is going. This refarming is central to moving ahead with its AWS LTE plans.  The PCS HSPA+ network also serves as the honeypot for additional unlocked GSM iPhone users. Given the jump that other national carriers have in LTE, there should be a mention or reiteration of when T-Mobile expects to launch LTE markets. 

MetroPCS' Rich Communications Services - A Bit Early

MetroPCS has the bragging rights to be the first 4G LTE carrier to deploy Rich Communications Services (RCS). To MetroPCS' credit, it is one of the most aggressive carriers to deploy bleeding edge technology - first US carrier to launch LTE and first US carrier to deploy voice over LTE (VoLTE). Is this all public relations positioning? Yes and no.  Once on the LTE path, the service aspect is the crucial element that brings return on investment.

MetroPCS has already launched exclusive LTE plans with differentiated services. One motivation is to move its CDMA base onto the more efficient LTE network. It also helps the carrier in the long term as it empties that PCS spectrum and allows for refarming.  The other motivation is to encourage switchers from other carriers. MetroPCS' high-value plans and unlimited options may resonate with a tech forward/price sensitive demographic.  But beyond service plans the other natural offshoots of LTE have arrived - VoLTE and RCS services.

VoLTE on the surface sounds like a cool thing to have for a consumer but do they go out of their way to ask for it? No.  VoLTE has more benefits for the carrier than the consumer because it is packetizing voice into the data stream.  So there won't be dedicated and inefficient use of a voice channel(s).  All spectrum can be used for data - more efficient.  

RCS on the other hand is purely customer facing. RCS is supposed to be the carrier answer to monetize the data networks and a foil against over the top (OTT) providers (e.g., Skype, Tango, WhatsApp, etc.) in terms of SMS/Chat, video calling, voice, and content sharing, ergo Rich Comm Services.  The value proposition is that a customer doesn't need to download all these disparate applications with  the multitude of login names and passwords. All this could be accomplished with just the phone number. The carrier's application can do all of this for you through its own network.  MetroPCS has embraced RCS and offers those services under the joyn brand. 

    

joyn is an umbrella service brand for a joint mobile operator (carrier) effort to monetize data, fight OTT providers. joyn was announced at Mobile World Congress 2012. While most of the attention was directed at European carriers, it's notable that MetroPCS, a prepaid and regional provider is the first out of the gate instead of tier one carriers.  Of course it's easier to execute on a smaller network and therein lies MetroPCS' advantage. 

Though laudable, MetroPCS' challenge is to educate its subscriber base on the merits of ditching OTT and adopt joyn.  This sounds great because all of joyn services are for the most part free (as part of the subscription). However operating joyn for now is within the confines of the MetroPCS network and with specific handsets using the joyn client. The issue without other carriers on board, OTT apps will continue to proliferate unless a customer's friend and family base are all on the MetroPCS network.  It's unlikely.  Joyn will take a while to implement as the power comes with all the other carriers playing ball. For now, MetroPCS' launch is a bit early to realize the true promise of joyn.

Apple at UI Innovation Crossroads

The news of the high profile departures of two Apple executives show that even though Apple seems to be impervious to competition, it shouldn't sit on its laurels.  The WSJ reports key to the purging were the missteps from Scott Forstall's much maligned new map implementation and John Browett's faux pas and demoralizing retail work staffing formula.  The commonality was that it gave Apple a public relations black eye.  For the Apple faithful and mainstream Apple consumers, it may not really mean a whole lot.  Yet Apple watchers may have some takeaways. 

The map implementation embedded in the iPhone 5 launch, while a strategic effort to distance the company on reliance on Google, was not what was expected from Apple's (Steve Job's) perfectionist culture. Though previous iOS releases and other software had its own share of bugginess while Jobs was at the helm, the PR headaches spearheaded by Apple faithful early adopters should be alarming.  While there was incremental changes to iOS, one view is that Apple has gone conservative. When I attended Nokia World in 2011, a Nokia executive argued that Apple hasn't changed their software (UI) since it launched in 2007.  There were many analysts who countered with a logical message that basically stated the U.S. adage, "If it ain't broke, don't fix it."  There is some truth to this as it's mucking around with the Apple secret sauce that is uniform in its desktop, phone and tablet experience. It's this UI that has been the magnet and foundation for its halo products.  The UI is simple, intuitive and works. Enough said, right? Yet the UI is also the foundation for the Android OS and the OEM variants. Sure there are differences but it's pretty much alike.  Here we are in 2012 and iOS 6 is really no different than in 2007. There are incremental additions for sure. Windows Phone 8 just launched and while Microsoft is challenged with getting user traction, Windows Phone (back to 7) is radically different and some can argue innovative.  At the 1:00 minute mark, Joe Belfiore visually presents the above argument.

    

As an analyst, I don't really have a dog in this fight on defending any company.  However, Microsoft has really thought differently.  Will Apple need to jump ahead to show software innovation?  It should but it likely won't for at least a year or more.  They're in the driver's seat with record adoption in tablets and smartphones.  Microsoft to some extend had to think out of the box because it was losing share in mobile and desktop. Some can argue that it was defensive but again to their credit, rather than do incremental UI upgrades to Windows 7 (which were in my view incremental upgrades to Vista and XP), they had to take the offensive and take a risk and do a wholesale change.  Like Apple, the experience is uniform across its desktop, mobile and tablet hardware but the UI is so radically different.  How will the public accept this?

Back to Apple and why is it in a software innovation crossroad?  For one, it needs to stay safe and protect its growing base of users. Their UI is so well known and simple that it needs to protect any wild swings of experience.   But heartening for Apple is that Jony Ive, the SVP of industrial design (the hardware design magician) now has the 'Human Interface' responsibility. 

It will be telling in the next year or two to see where the signature Apple UI heads. To be sure, it cannot sit still for another five years.