Tuesday, October 30, 2012

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.

Thursday, October 25, 2012

A Clearwire Graphic

While looking for some Clearwire Q3 Earnings material, this graphic nicely popped up.  It's clear that Clearwire is punctuating its vast national spectrum versus the tier one carriers.

For those who are curious:
  • Operator A is Verizon Wireless
  • Operator B is AT&T
  • Operator C is T-Mobile 
  • Operator D is Sprint
Looking ahead for roaming:

  • AWS LTE stands to be a major roaming frequency with Verizon Wireless and T-Mobile in control.
  • PCS LTE roaming should eventually happen. Sprint is the early adopter out of the gate.
  • Cellular 800/850 LTE - big question mark on what will be when AT&T and Verizon Wireless refarms.

Wednesday, October 24, 2012

AT&T Mobility - Q3 2012 Highlights

Quarterly Earnings performance releases are always half-full for some and half-empty for others.  AT&T's Q3 could be characterized as such because there were some shining areas but there were also areas where expectations were higher.  Inject the Verizon/Verizon Wireless comparison and things get tough.  There were plenty of highs associated with revenue and even remarked some of the growth percentages in a down economy "are pretty darn good."  While others can highlight revenue and expectations around those areas, I'll focus in areas where I had my own thoughts and expectations.

Overall Net additions of 678,000 were disappointing particularly in the postpaid segment with only 151,000. Mobility CEO Ralph de la Vega noted that iPhone 5 supply constraints limited the segment's performance and most of that inventory serviced the existing loyal iPhone base. However, it's hard to not compare to rival Verizon Wireless' Q3 1.535 million postpaid net add number. Nice stats thrown out:

  • Smartphones made up 81% of the postpaid sales. Followers should note that Q2 delivered 77% in comparison suggesting that the carrier is doing a good job in pushing the mobile data utility proposition. As a gauge with Verizon, smartphones made up 79% of its postpaid sales.  AT&T appears to be doing slightly better job in nailing down data users. 
  • 6.1 million smartphones activated, 4.7 million were iPhones leaving 1.4 million to be split among Android, Windows and BlackBerry platforms. Interestingly, AT&T did not provide the iPhone 5 breakdown that Verizon presented (650K). We can just assume that AT&T did well since they reported record iPhone 5 preorder/sales during launch weekend. 
  • About 64% of the postpaid base are smartphone users.  

Commenting in the Q&A for the future, Ralph mentioned two things that stuck: 

  1.  Q4 postpaid net adds should increase with help from tablets and the mobile share plan. To be fair, mobile share impact wasn't as AT&T expected. Verizon Wireless' data share plan was out of the gate sooner.  The thinking is that as new LTE tablets (iPad mini, Asus Vivo and Samsung Smart PC, Kindle Fire) become options (thinking promos here), subscribers would see the value in sharing data. 
  2. AT&T wasn't going to play the traditional net addition game. I assume this was in the context of driving revenue. Rather, revenue was going to be layered service such as Digital Life, a remote monitoring and automation platform that has consumer/business direct services and wholesale partnership opportunities.  The company showed a demo of what could be at a house during the spring CTIA 2012 in New Orleans.  

On the prepaid side, the trend continued downward for a year. The 77,000 net additions were the lowest since Q1 2011 which was 85,000. 

Again in comparison against Verizon Wireless which delivered 228,000 net additions this quarter, this should be a wake-up call to AT&T's prepaid group which represents over 7% of the 105 million base. Given the industry acknowledging that prepaid is a growth segment, AT&T should be playing stronger.

Churn trends were a bit upward. The important postpaid value of 1.08% didn't beat last quarter's sub 1%. Overall churn at 1.34% was higher than Q2's 1.18%; this may be attributed to prepaid and wholesale.   

ARPU (postpaid) continued an upward trend at $65.20 but didn't cross $66.  That may have been optimistic on my part.  Still AT&T continues to lead the industry in this category with a formidable cushion compared to Sprint and Verizon Wireless.  Though the mobile share plan didn't have much opportunity to take full traction in Q3, offering an Average Revenue per Account metric was premature.  Still, that should be the future path (2013?) if mobile share continues to gain subscriber traction.      

EBITDA margin did not match Q2's 45%, coming in at 40.8%. The company's annual guidance of 42.5% was reiterated in slides. Again with Verizon Wireless' 50% figure in comparison, the gap is formidable.  

The LTE Network is rolling out ahead of schedule.  There is no doubt that meeting the Verizon buildout challenge is key to negate any marketing advantage.  Though AT&T's LTE completion timetable is at the end of 2013, Verizon's revised mid-2013 completion provides some incentive to report further accelerations in coming quarters.

Investor Relations

Finally, one must give credit to AT&T Investor Relations for using social media in talking up quarterly earnings.  This is the second quarter that I recall that AT&T has done this.  Some may dismiss this as another element in public relations but that's the point - put an executive face and provide commentary to frame the quarter's messaging.

Hopefully, more IR websites will incorporate this approach and supplement the dry (but useful) presentation files, archived webcasts and 8K, 10Q/10K links.  

Sprint - Thoughts Ahead of the Earnings Release

Sprint is the third Tier 1 carrier set to release its earnings and performance metrics, October 25th at 9:00 AM  The company is in the midst of a turnaround cycle. For the most part, it is succeeding as evidenced by customer service, churn decline and postpaid growth (on the Sprint platform). This turnaround story is in part what drew the October 15th SoftBank $20 billion acquisition.  While the deal isn't expected to close until next year, Sprint ahead of this earnings call has moved to acquire controlling interest in Clearwire as a foundation for the 'new' Sprint's future plans. Regardless of the good news for Sprint, its meat and potatoes operations either support its continued the turnaround trend or present areas of challenge.

Net Additions:   

On a macro view, the overall net additions are in the positive range largely due to the strength of Sprint's prepaid strategy and wholesale business. The number of MVNOs using the Sprint platform has been a welcomed component in driving net additions.   On the postpaid side, there are two stories that newcomers need to focus on.  One is the iDEN side which has been bleeding subscribers for a couple of years. There's no secret that the iDEN network will cease in mid-2013, the thrust is to retain the remaining 4.4 million iDEN (as of Q2 2012) customers of which 3.1 million are postpaid. It stands to reason that the remaining iDEN subscribers are a loyal base that depend on the push to talk function and have it well integrated in its operations.  They're the candidates to migrate to the CDMA-based Direct Connect. However, Verizon Wireless and AT&T has been very aggressive in courting these customers throughout the years. In Q2, Sprint presented a 60% iDEN subscriber recapture rate, the expectation should be that percentage should increase.  iDEN losses amounted to under one million in Q2 of which over two-thirds were postpaid. Sprint has warned that these losses will pick up towards iDEN's end of life.  What will Q3 hold in total iDEN losses and most importantly, the recapture message?

It's clear that the Sprint platform (a mix of CDMA and now LTE) will continue to be positive.  The upswing in its Q2 442K postpaid net additions were largely helped by the 1.5 million iPhone gross adds which brought in switchers (40% new to Sprint).  Observers will continue to pay attention to the iPhone numbers that should manifest itself partly in churn and postpaid net adds.  With its unlimited proposition and a Sprint LTE iPhone, will 40% stay flat or increase?  

On the prepaid front, the Assurance growth engine (as well as other companies with similar offerings like Tracfone's Safelink) had been impacted with the FCC's modernizing of the Lifeline program in Q2. Will this continue to impact Q3 results? A big bet in prepaid was the introduction of the iPhone at Virgin Mobile. However Sprint did not provide the granularity of prepaid versus postpaid iPhone activations.   It'd be nice to understand the Boost and Virgin Mobile brand's contribution to the prepaid story.

Churn:   From a trend view, Sprint is definitely turning around. Though the postpaid figures incorporate the iDEN bleeding, the results have been good.  For the Sprint platform (Q2 1.69%, Q1 2.0%), it has offset iDEN figures well (Q2 2.56%, Q1 2.09%). To follow a turnaround story that incorporates the anti-churn tool (iPhone), one hopes that the Sprint platform percentage to continue to decline.  Will it break 1.5%?  

Similarly on the prepaid side, the trend looks decent but detail needs to be examined on the Sprint platform figures for Q3. As a reference gauge with Q2/Q1 numbers, Sprint platform reported 3.16%/2.92% while the iDEN side came in with 7.18%/8.73%.  Prepaid churn is tough as it's the nature of the offering but sticky products and decreased trending help the cause.

ARPU: Sprint 's approximately $61 postpaid ARPU mark follows only AT&T. With AT&T just increasing to $65.20 in Q3, The expectation for Sprint is to cross $61 given Sprint's sharp growth slope.  

Prepaid ARPU (Q2 - $26.59/ Q1 $26.82) is trending down partly as the result of possible dilution associated with lower ARPU bearing Assurance customers. Logically, as those customers increase in number, it offsets the higher-ARPU bearing Boost and Virgin Mobile Beyond Talk subscribers. However, Sprint executives have always touted the low-churn aspect of Assurance users along with low acquisition costs. Therefore, they argue, Assurance users are provide stable profit in the long term.  

Tuesday, October 23, 2012

AT&T Mobility - Thoughts Ahead of the Earnings Release

AT&T is set to release its earnings and performance metrics, October 24th at 9:00 AM  Its earnings has followed Verizon in the past and observers cannot help but compare the two.  Each carriers' wireless divisions are reaping the lions share of revenue growth while the landline business units continue to struggle.

Net Additions:  AT&T does a good job with net additions.  In previous quarters, these numbers had been boosted through the wholesale group.  Its postpaid organic growth is fine but has not had the tidal wave acquisition momentum as Verizon Wireless.  Q3 should be no different as the postpaid and prepaid net adds should fall in line with previous Q3s.  Q3 has usually trended up for the carrier. Wholesale should continue to bring in the lion's share of the net additions.

Previous Q3 postpaid net additions have been 745K in 2010 and 319K in 2011. With Q2 2012 coming in at 320K, the logic should be to trend up, also given the iPhone 5 factor. The iPhone has helped the carrier attain switchers in the past, what the percentage is for Q3 should be telling. At the height, the iPhone brought in mid-40% figures for activations that were new to AT&T. 

The prepaid trend is on a worrisome declining trend. Though additions are admirably positive, the trend is reverse to that of Verizon Wireless' prepaid.  Each carrier has a substantial postpaid base to protect to avoid rate plan cannibalization. Each is bleeding somewhat from the unlimited propositions from MetroPCS, Sprint prepaid brands (Virgin Mobile and Boost), Tracfone's Straight Talk and finally Leap's Cricket. A downward trend is obviously a bad thing but any upward trend suggests that AT&T has looked more aggressively at this segment and wants to play more aggressively.

Churn:  The trend is in a good direction, both overall and postpaid.  Though Verizon Wireless has been the industry leader for many years, AT&T is doing an admirable job in churn.  The magic mark of note in postpaid is when that value dipped below 1% last quarter. 
Continued downtrends are obviously desired.  As grabbing switchers has always been a big battleground issue, any reports of a upward voluntary churn indicator would raise eyebrows. However with the iPhone as a key anchor and its own reports of record iPhone 5 sales, expectations for postpaid churn should go down and buck previous Q2 trends of a rise/remain flat.

ARPU (Rather - Postpaid ARPU):    AT&T has been the leader in postpaid ARPU. In Q2, it neared $65. As a gauge, Sprint is closest with <$61 and Verizon Wireless changed the game in Q3 with shifting the conversation to Average Revenue Per Account (ARPA).  However, Verizon Wireless' Q2 postpaid ARPU came in a little over $56. 

For Q3, AT&T should break $66 and allow the carrier to continue to reign in postpaid ARPU. Also it may be that AT&T will continue to report ARPU as a metric since it wants to continue to tout that leadership role. Since Verizon Wireless is reporting ARPA, the carrier may bring also  offer their own ARPA calculation either this quarter or the next depending on how much pressure the investment community brings to bear.  A likely scenario may be that AT&T will report both ARPU and ARPA but eventually support ARPA-only down the line.  Since ARPU has been pretty standard in calculation and ARPA seemingly is straight forward, every carrier has to buy-in to make it work for the industry.

EBITDA Margin(The indicator for profitability): Since this figure is a company's indicator for success, it is an important competitive performance metric.  AT&T continues to chase its rival Verizon Wireless but the gap is decent as Verizon Wireless' whopping Q3 50% figure is rather impressive.  For Q2, AT&T came in at 45%, jumping almost 3% from the previous quarter. No doubt that EBITDA should increase but likely less than 50%. 

Monday, October 22, 2012

Carrier WiFi Offload - Some Thoughts - Part 2

In Part 1, Verizon Wireless and AT&T were discussed. To summarize, AT&T has good depth in hotspot/hotzone assets that formulate their WiFi data offload strategy.  Verizon Wireless on the other hand does not have any assets and currently partners in a white label fashion with Boingo to offer WiFi access as a benefit for mobile broadband customers. Therefore, Verizon Wireless does not really have a WiFi offload strategy (aside from some stadium/convention center WiFi buildouts to save its cellular network).  That can change possibly with a potential CableWiFi partnership.Now onto the other Tier 1 carriers.

Sprint: Sprint currently doesn't have a WiFi offload strategy. They do not own any WiFi assets and like many carriers, encourage their subscribers to use WiFi with the smartphone WiFi feature.  Sprint got out of the WiFi game in 2007 with the sale of some airport assets to Boingo. Given that one would expect a WiFi relationship like Verizon Wireless'.

Yet Sprint's unlimited data proposition, its background Clearwire WiMAX flate-rate wholesale deal, and tenuous financial state at the time may have negated a need for a WiFi partner. Going forward, it remains to be seen if WiFi is a necessary strategy component given the pending SoftBank deal and Sprint's majority control of Clearwire (use more 2.5 GHz bandwidth for capacity and speed).  It now for the most part has owners economics in furthering the unlimited data proposition. Aside from the broader Network Vision sites, small cells and/or distributed antenna systems are likely going to be deployed to help with meeting subscriber capacity issues. Nevertheless, the wild card is Boingo and its strategic WiFi provider partnership with the Competitive Carrier Association or CCA (which Sprint is a member).

T-Mobile: Similar to AT&T, this carrier owns its share of WiFi hotspots.  Though the numbers are much smaller, they do at least provide a wholesale and direct to subscriber revenue opportunities. T-Mobile's WiFi strategy foundation was also based on supplementing the lack of cellular coverage and then building services such as Unlimited Hotspot Calling and Hotspot@Home.   

Unlimited Hotspot calling also addressed adding additional calling minutes. Not that it makes a difference today, a WiFi calling feature is a popular feature for globetrotters as a free alternative to paying for global voice roaming rates, provided there is WiFi access. 

When AT&T purchased Waypoint, it grabbed the Starbucks contract from T-Mobile. But as anyone knows who frequents that coffee chain, the WiFi is free and clear.  T-Mobile still has WiFi presence in airports and hotels. Some can argue that it provides a dual benefit. The direct to consumer WiFi allows for the company to opportunistically address the tablet/laptop user who must have a WiFi connection. With hourly, weekly or monthly plans (and global roaming), T-Mobile no doubt eeks out some revenue from this line of business.  With this and the lack of substantial WiFi hotspot assets, carrier offload is not a the core of its WiFi strategy.  As with Sprint, Boingo is a wildcard for T-Mobile (as a member of CCA) to embrace since.   

As stated, Boingo is a possible resource to tap for carriers to expand a WiFi offering but Boingo is a WiFi aggregator (cobbling smaller players like hotels, motels, RV campgrounds, independent coffee shops, etc.) with limited WiFi assets (mostly in airports). The issue for Boingo is how they can bring substantial domestic WiFi hotspots to the table without outlaying any CapEx.  

Friday, October 19, 2012

Carrier WiFi Offload - Some Thoughts - Part 1

It's well known that WiFi plays an important role in mobile data consumption.  From the consumer view, it's faster than 3G (and maybe 4G in some cases), it's usually free, and it's seemingly ubiquitous.  

From the carrier view, any subscriber getting off the cellular data network helps capacity and saves on the customer's data caps, if any.  Some carriers can argue that open WiFi is not secure and worried about possible liabilities of customers throwing their data 'in the clear' on unsecured networks.
Given the differing carrier stances, here is where I see carriers' WiFi strategies. 

AT&T: Before the company bought Wayport in 2008,  it boosted its hotspot count.  Since then, AT&T has been reinforcing its national leadership in WiFi hotspots. AT&T smartphone and mobile broadband customers get the benefit of automatically connecting into AT&T hotspots or HotZones.  Their nice (and proprietary) smartphone client does this seamlessly without the customer needing to hunt for the correct SSID.  In this instance, it's a win-win. Customers get a seamless fast experience and AT&T offloads the data traffic.  It continues to invest in this technology with more and more hotspots deployed monthly, quarterly, annually.  So AT&T's WiFi strategy is to own the assets and in directly monetize through customer subscriptions.   

Verizon Wireless/Verizon: Verizon has never really warmed up to WiFi in the cellular network. These statements were made in the 3G deployment era and have continued as the corporate position when executives are asked about their WiFi strategy.  On the surface, it appears Verizon Wireless' WiFi strategy is not to have one.  However, a little known fact is that they indeed have a relationship with Boingo albeit a white label one.  Boingo powers both Verizon fixed line as well as the wireless business unit.   Unlink AT&T, only mobile broadband and specific fixed hi-speed internet (e.g., FiOS) customers are eligible.  Smartphone customers cannot take advantage.  But that may soon change with the introduction of CableWiFi in May 2012.

Cable is my Frenemy:

Cable companies have always been aligned with Sprint but with missteps on Clearwire, cable wireless retail strategy (Pivot), the relationship ended.  In 2006, cable companies' AWS spectrum foray (a.k.a. SpectrumCo) also included Sprint. But Sprint got out of SpectrumCo in 2007 cashing out its share. Fast forward to August 2012.  The FCC approved the sale of the former SpectrumCo AWS portfolio to Verizon Wireless.  Verizon Wireless and the cable companies are friends. Verizon Communications (fixed line) are enemies. All this closeness opens up the possibility that Verizon Wireless will use CableWiFi coverage to address data offload and will be Verizon Wireless' WiFi strategy.  

If so, Boingo is left without a dance partner.  To its credit, Boingo saw the writing on the wall and going to court members of the Competitive Carrier Association in September.  In fact, Boingo became CCA's strategic WiFi partner.

 More on other companies in the next post!

Carrier Q3 2012 Earnings Releases

The following are the US carrier Q3 2012 earnings release dates:

Time (ET)
Thu, October 18
8:30 AM
Wed, October 24
9:00 AM
Thu, October 25
8:00 AM
Thu, October 25
4:40 PM
Tues, October 30
9:00 AM
Wed, November 7
11:00 AM
Thu, November 8
4:00 AM

Thursday, October 18, 2012

Why the Surprise over Sprint Controlling Clearwire?

There are people in the media and the industry who are astounded that Sprint would enter into control of Clearwire, especially with the history of friction at the executive levels.  To be sure, Clearwire and Sprint have been on their respective rollercoasters but the relationship is symbiotic and beneficial in the long term.  

Clearwire's value proposition is its spectrum depth. Though it seemed to be handicapped with the funky non-standard 2.5 GHz band and more TDD than the standard FDD, this has turned around for the better.  What's good?

  • The spectrum depth allows Sprint to continue to offer an unlimited proposition. It does so now using WiMAX technology under a flat-rate contract with Clearwire. When TD-LTE comes, the current thinking is to address 'high tonnage' markets for data offloading from the Sprint 5 X 5 channel PCS LTE network.
  • Having TDD spectrum can be advantageous. You can devote more channels to the downlink. Most of the data consumption is on the downlink anyway whether it's mobile or fixed.  Under a FDD scenario, the bands are usually the same 'width.'  If there isn't a lot of uplink traffic, it feels like it's less efficient.  
  • That funky band (sometimes a little variation - 2.6 GHz (close)) is now positioned to be a global LTE roaming band with presence in Asia and Europe.
If purchasing Clearwire wasn't an overt condition of the SoftBank deal, it should have been logical given the speed ambitions of Mr. Son. Allowing a non-fully controlled Clearwire can upset that plan.  The Clearwire takeover scenario would never have come into play with out the SoftBank acquisition. Sprint was in no financial position to further outright fund Clearwire as it was busy with its own turnaround execution.  

Network Vision Looks Better

Bob Azzi (Sprint's public face for Network Vision) must be relieved.  When Network Vision was conceived, it was pre-built with spectrum hosting/network sharing in mind.  Although LightSquared signed on, their business model went south due to GPS interference.  The Sprint conceived 2010 Network Vision graphic below kind of blatantly put the 2.5 GHz band out there even though Sprint didn't own the band.
Meanwhile Clearwire was expanding on its own WiMAX network in specific markets with expansion encumbered by CapEx and customers to help with that pesky revenue thing.  Throughout Network Vision, analysts including me, expected that Clearwire would jump on board. But they didn't.  Some point to money, some point to independence but the end result is that Clearwire was not on the Sprint Network Vision bandwagon.  This may have changed as Clearwire and Sprint worked out their TD-LTE deployment priorities. Sprint desires specific markets that Clearwire had no network, the Sprint Network Vision platform would be the natural choice rather than spending the CapEx on a parallel network.

What Could Be: If there is enough money (thanks SoftBank), Sprint and Clearwire can be more aggressive in TD-LTE expansion, going to more geographic markets than planned (constrained). Sprint's slim PCS-based LTE won't have that spectre of capacity challenged.  Moreover, more channels (and maybe hardware and backhaul and....) can be thrown to not only address capacity but also speed, addressing Mr. Son's fast mobile speed experience expectation. 

Verizon Wireless - Q3 2012 - The Network Fill Story

As many in the industry know, Verizon Wireless was the first company out of the block with an aggressive LTE buildout schedule. The overall thrust was to mirror its vast 3G geographic footprint by the end of 2013. Now as it has done in the past, its rollout execution has accelerated that timeline and now the company states that it should be done by mid 2013.  

Why?  The faster it can get a full LTE network, the ability to implement VoLTE advances.  There is an operational cost benefit to this.  Why mirror? There isn't an elegant handoff from LTE to CDMA. And of course, the ability to deliver a data byte is cheaper/more efficient on LTE than EV-DO. Of course that's old news.

Onto Q3 and what some of the data tells us.  Since LTE is established as the most efficient data platform, the carrier wants its customers to consume data on that network versus 3G.  The question of how many subscribers are actually on the network comes up. In certain circles, the answer will point to return on investment... 

"You spent so many billions on the LTE network and you only have X% of the base on it?! What are you doing to change that?"   

In Q3, Verizon has admitted that they've spent substantial marketing into moving people onto the LTE network. Its most reliable network messaging has been supplemented with the largest LTE network and speed messaging to the consumer base.  On top of this, the carrier (like the majority of carriers) are pushing LTE smartphones at various price points marrying that effort with the new shared data plan.

To that end, Q3 had paid off as highlighted in their earnings slide below.  Most notable is the smartphone penetration hitting 80%.  In previous quarters, mid 70% were good.  Crossing 80% is the goal and the carrier seems at this point to have good momentum going into Q4. The upsell is decent - migrating subs from featurephones to smartphones. Again with only 53% of the base in smartphones, the carrier has a nice upside.

3G Smartphones Still?! Out of 6.8M smartphones sold, the company doesn't quite provide the LTE smartphone count since 4.5M were LTE devices (which also includes smartphones and modems, tablets & hotspots). Still a clue was divulged when the CFO revealed that 3.1 M iPhones were sold an of those 650K were iPhone 5s (LTE) suggesting the remaining iPhones were 3G - roughly 2.4M. So we can safely say that the iPhone 4/4s though helping out in ARPU/ARPA, those aren't helping to fill the new and shiny LTE network.  These  3G users will likely transition in 2 years unless Verizon entices with an upgrade promotion. By the way, the company is trying to minimize their upgrade percentages to help margins.     

So the takeaway, 14.9M LTE devices of the 95 M retail sub base on the network -  roughly 16%. Is that good? It depends on internal Verizon Wireless planners and financial types' expectations.  For certain, this is an important metric to pay attention to in subsequent quarters for every carrier deploying LTE.

Verizon Wireless - Q3 2012 Highlights Impressive Adds

Quarterly earnings releases are always greatly anticipated and with Verizon coming out of the gate as the first carrier in Q3, the company has always stood as a reference bar for performance metrics, particularly in subscriber growth.  

Net additions were impressive - the best performance in 4 years. The metric is always an indicator of organic growth/switching and how the company is performing in postpaid and prepaid.  Verizon specifically uses the term retail to pull out any wholesale component. 

What stands out is the monster net addition count.  

Postpaid: This is the shining beacon for Verizon Wireless with 94% of the retail base in this category.  The 1.5+M postpaid is the highest ever. As a gauge, Q2 2011 yielded 1.25+M net adds.  Of course part of the strong addition growth comes the shared data plan platform in which tablets (there is even a bullet point on tablets) and data devices (mobile hotspots) are contributing. 

Additional notable call highlights supporting the segment's performance:
  • Highest gross additions in 4 years at 6.8 million
  • Sold: 3.4 M Android smartphones, 3.1 M iPhones (650K iPhone 5s - hampered by supply constraints) - this punctuates the power of Apple. The iPhone sold also show the carrier's switching and upgrade strength - 4/4s iPhones are still desired.
  • 78.8% of smartphones sold were postpaid vs. YoY of 59.6% - yes, they're successful partly because of admitted marketing ramp up.
  • 53% of the base postpaid base is smartphones and ~9% is internet (devices) so there is room for smartphone growth which suggests average revenue per account has upside potential.
  • Switchers: 31% of adds were new to Verizon Wireless. This shows the the network 4G LTE messaging is resonating and helping.
  • Smartphone Upsell: 44% of the gross adds were new to smartphones

Prepaid: From a quarterly trend view, this quarter dipped below Q4 2011's 250K and less than last quarter's 299K net adds.  Though the segment is positive, we have to watch for its trajectory as the company exits Q4. A consideration may be that the company is putting a great effort in the seemingly more profitable postpaid segment.     

Churn: While this looks alarming relative to the previous quarter, this quarter's .091% betters YoY's .094%. Besides, historically, Q2 churn has always been lower so the trend continues. Honestly, this is a boring (albeit great story) every quarter.  

Wednesday, October 17, 2012

Leap LTE - Burning the Candle at All Bands

Leap (Cricket) is comparatively a slow mover in LTE deployment. Its first market began as a test market in December 2011 in Tucson, AZ. Just today, Leap launched its second market, Las Vegas. 

The commonality between the two announcements have been the only release device being the Huawei Boltz USB modem at $149.99 or as my analyst brethren (rounds down) say $149.  Though many carriers have traditionally launched with modems first, carriers have traditionally taken a lot of heat over the lack of other devices (yes, smartphones) at launch.  Leap follows continues the trend with more smartphones in the pipeline.   

Service Innovation Unrecognized

For those who follow Leap, it's perplexing why they are emphasizing mobile broadband plans as they have been de-emphasizing their 3G mobile broadband plans. Leap has been bleeding 3G mobile broadband customers for many quarters. Perhaps some of it was planned as those customers had no data caps and pounding the 3G network for relatively inexpensive price points.  Perhaps the new LTE data plans stand to be more profitable.

$50 Plan - 5 GB @ 3 Mbps
$60 Plan - 5 GB @ 6 Mbps

The company doesn't get credit for its speed-dependent rates.  This model follows the fixed line internet model where one pays more for faster throughput.  Back to the modem which may appear archaic in today's WiFi hotspots like the (also Huawei) Crosswave.
It's likely that Leap wants to control the data consumption to protect the network and customers alike.  

Lots of Future LTE bands  

Here is where Leap seems to be schizophrenic with its LTE strategy and burning the candle at all bands, making things complex.  These latest markets have been launched using AWS bands.  Earlier, Leap signed on with Clearwire in March 2012.  Yet there is another band in the mix - 700 MHz A Block (Chicago only).  This came about with the swap with Verizon Wireless approved in August.  So let's recap what Leap will need to support in the coming years:

  • 700 MHz LTE (Chicago-only, what's that all about?)
  • 2.5 GHz TD-LTE 

It's safe to say that multi-band support is giving device makers challenges but on top of this, it's safe to inject other LTE roaming band support into the mix. Still, the carrier has promised 21 million POPs covered by the end of the year. Network engineers and installation people must be frantically working.

Verizon Wireless Thoughts Ahead of the Earnings

Verizon Wireless is set to release its earnings and performance metrics tomorrow, October 18th at 8:30 AM. The wireless group has been a rock steady performer as evidenced by many quarters of impressive net additions and churn.    

What to hope for this year's Q3? 

Net Additions: Wholesale net additions have been helping out many carriers' numbers. This is a trend that should continue given emphasis on M2M.  The true test is how many new postpaid customers the carrier will bring on board. As Verizon Wireless is mainly a postpaid company and the postpaid market penetration increases, there are high expectations for the carrier to continue to crank out more customers.    

Verizon Wireless has never gone below 500,000 postpaid net adds since Q1 2010.  With Q2 2012 delivering 888,0000 postpaid, the expectations are high. Yet a shining light has emerged since Q2 2011 for the prepaid group, turning the ship from losing subs to greatly contribute to the overall numbers.

There are equally high expectations for Q3 from the prepaid side given the momentum over the previous quarters.

Churn: It's like a broken record. Verizon Wireless can do no wrong in terms of churn.  Their subscriber loyalty and network messaging has proven out quarter after quarter. Any spike would be alarming. Any drop only strengthens their operations.

ARPU (Rather - Postpaid ARPU):    Postpaid ARPU is likely to going up but the largest US carrier has a lot of catching up to AT&T and Sprint.


This could be the quarter that Average Revenue Per Account (ARPA) gets introduced.  Executives have been on the media and investor circuit arguing that ARPU would be dated and the true indicator should be by account, given its thrust into shared data plans. 

SoftBank & Sprint Deal - Speed Expectations & Implications

In the October 15, 2012 Japanese Strategic Partnership announcement, SoftBank's CEO Masayoshi Son cited slow US network speed compared to Japan.  Though the chart reflects 2011 data and may change as the US builds out LTE in the coming years, the point is that Japan leads the way. Conspicuously absent, by the way, are know speed-forward countries South Korea and Singapore.

Reading between the lines, SoftBank has lofty speed ambitions based on the Japanese market. While LTE will be the great speed equalizer in the US market stands now, competitors cannot claim overall speed dominance.  Sure AT&T and Verizon Wireless go back and forth citing 3rd parties (here and here), the reality is that carriers cannot officially state that their LTE is faster than competitors.  Part of the speed equation is capacity.  While speed brings in the early adopter speed geeks, the bigger carrier thrust is to make the data service available to everyone.  This means having sufficient capacity within spectrum constraints.

US carriers have been providing operating expectations though. Some more specific than others.

Verizon Wireless' latest LTE market expansion announcement alludes to speed ranges:

"In real-world, fully loaded network environments, 4G LTE users should experience average data rates of 5 to 12 megabits per second (Mbps) on the downlink and 2 to 5 Mbps on the uplink. When customers travel outside of 4G LTE coverage areas, devices automatically connect to the Verizon Wireless 3G network, where available, enabling customers to stay connected from coast to coast."

AT&T positions its LTE speed in comparison to 3G in its latest LTE market expansion in Dallas-Fort Worth release. 

Faster speeds. LTE technology is capable of delivering mobile Internet speeds up to 10 times faster than 3G. Customers can stream, download, upload and game faster than ever before."

Interestingly, rather than stating a range, it pits it has superior LTE speed against Verizon Wireless citing a PC World comparison (here). 

Now back to Sprint.  As it builds out its Network Vision strategy, its LTE implementation is a rather small 5X5 MHz channel implementation. Smaller channels and balancing capacity may yield slower speeds but that doesn't stop its marketing.

Looking ahead when Clearwire comes into the picture with their TD-LTE technology, the current Sprint view is for data offload in 'heavy data tonnage' markets. This suggests a capacity approach given Sprint's unlimited data proposition.  Yet Clearwire's spectrum depth also allows Sprint to add the additional speed component, thereby realizing Son's vision of blowing the doors off competitors (in Japan and the US).  If speed (along with unlimited) is going to be a market differentiation, Clearwire and network expansion and tweaks will be necessary in the coming years.  This means more capital is necessary for Clearwire to do so.  Direction and commitment will be necessary from the 'new' Sprint.