T-Mobile's New International MVNO Partner - Vodafone! Slap in Verizon's Face?

What is It?

T-Mobile announced that it reached an agreement with Vodafone Americas for new MVNO-based services for Vodafone's 400 US based multinational customers and potentially 500 customers who do have a strong US presence. Availability for the service is expected to roll out in late fall 2015. 

Analysis

Clearly both parties benefit from this relationship.

For T-Mobile, this is a way to get more subscribers on its network. 400 US based multinationals get the carrier indirectly into enterprise where competitors AT&T and Verizon Wireless have long dominated. While the knee-jerk reaction is to focus on smartphones, the announcement helps T-Mobile's other wholesale segment, machine-to-machine (M2M). 

For Vodafone, the US-based mobile offering provides the operator to enable service bundling opportunities, including low cost mobile roaming across its 27 country footprint.   The T-Mobile agreement should be more than an overall US play as Vodafone Americas include Canada and Latin America.  The company will push this as part of Vodafone's OneNet solution which touts fixed-wireless solutions.  The solution bundles include the usual enterprise operator offerings such as cloud services, M2M, telecom expense management, security and access to a global IP-VPN network.

The question for T-Mobile is many total wholesale subscribers do 400 multinational customers come with? Perhaps, it doesn't matter since in wholesale, there is none of the high cost of customer acquisition as in its retail segment.  The benefit that carrier is also hoping for is to move enterprise multinationals from Verizon Wireless and AT&T.  

So given Vodafone's long history with Verizon Wireless, it does seem to be a slap in the face. After all, the 400 target customer accounts are all US based and the potential for the other 500 potential accounts have a strong US presence, which means some could be existing Verizon Wireless clients. But then like many multinational enterprises, deals with multiple vendors provides choice and negotiating leverage which means T-Mobile/Vodafone Americas may not have exclusive deals.

It's also telling that Vodafone did not cut the MVNO deal with AT&T since AT&T's current LTE US footprint is larger overall. But if T-Mobile's wholesale business unit follows its retail unit, being the low-cost value provider could be the swaying element on top of its expanding national LTE network message, one with a goal that meets 300M POPs by end of year 2015.

Video: Takeaways From 3Q14 Tier One Carrier Earnings

It's beginning to be like a regular thing - Dan Meyer from RCR Wireless and I talk about what we've learned from everyone's earnings reports.  No doubt there were tons of noteworthy details missed but we had 30 minutes....

RCR Article  - Verizon, AT&T, T-Mobile US, Sprint: what did we learn?

Straight to the video

The Addictive and Competitive Nature of Speed

Many in the industry assume that LTE is pretty much done and moved onto the next big thing.  Verizon Wireless and AT&T have messaged that their networks exceed 300 million people covered and T-Mobile and Sprint both have declared national LTE footprints.  At the CTIA Mobile Con convention in Las Vegas, panels were already talking up what’s next – LTE Advance and “5G.” In truth, LTE continues to be rolled out in the U.S. and globally. In contrast, at the CCA (Competitive Carriers Association) Convention, smaller carriers were grappling with LTE buildouts, launches, device access, and roaming issues in order to serve their markets and remain competitive.  

Still LTE has been a boon for the wireless industry. On the network side, the technology is more operationally efficient than 3G; it can deliver more bits and at faster rates to users with the same amount of spectrum resources.  On the customer acquisition and retention end, LTE has been instrumental in switching users’ rate plan decisions from voice to data.  Witness the movement from tiered minute bucket rate plans to tiered and unlimited data plans.  Data is sticky and competitive. This has been validated by carriers’ decreasing churn rates, the markedly increased data allowances in plan changes, and limited time data promotions in the first three quarters of 2014. Once users taste what they can do with data whether it’s browsing or through apps, they remain hooked.   Though data has been around since the 3G days, it’s speed and low latency that enhances our user experience. This phenomenon is similar to fixed line evolution. 56K modems gave way to DSL, which gave way to fiber-based internet access. In some lucky markets, Google and AT&T are going to offer 1 Gbps service.  Over time, we’ve become more productive with speed, we depend on it and now we expect it, not only in the fixed line but also in wireless.   

Yet in the U.S., we’re often reminded about how slow our mobile broadband speeds are relative to Asia.  There have been incendiary articles how we lag the Japanese or Koreans perhaps to ignite emotion and also action. Softbank Chairman Masayoshi Son said as much in his talk to the U.S. Chamber of Commerce in March.  There, he presented a slide that put the U.S. second to last with an average 6.5 Mbps LTE download speed (By the way, Australia was #1 with 22.5 Mbps).   To U.S. carriers’ credit, they continue to invest in their mobile networks to fortify capacity and speed out of necessity and to ultimately provide market differentiation.     

Speed has always been used as a competitive differentiation, aside from the usual network coverage.  In 2013, AT&T claimed the Fastest LTE Network based on some publications and drive tests. Remember the tagline “Faster is Better?” In early 2014, T-Mobile self declared that it of America’s fastest nationwide LTE network based on crowd sourced data. Its aggressive network buildout allowed for presentation of a “Data Strong” tagline and introduced “Wideband LTE” into the marketing lexicon.  Verizon Wireless has also entered with their own brand– “ XLTE” that runs on its AWS spectrum assets with the tagline “The Need for Speed.” For its part, Sprint Spark has potential but yet to be realized.  

Outside the carriers, publications such as PCMag and PC World conduct their own speed tests and declare winners. RootMetrics has been gaining carrier marketing credibility with its own independent drive tests.  In JD Power fashion, it awards winners in many categories including speed, which carriers happily have cited in their own public relations

releases.  The marketing speed card will never let up. Though we hear about network reliability, it’s speed that we can easily discern as we use our smartphones to watch the YouTube video, pull up a weather app or visit a webpage.  We have a multitude of speed test app choices including those from Ookla, OpenSignal, Sensorly and even the FCC to make our own validations. 

Carriers again continue to push the speed envelope as they employ different network and device techniques to improve the user experience.  Specifically, an exciting feature to be rolled out is carrier aggregation with other complementary alphabet soup hardware and current and future techniques such as CoMP, MIMO, and FeICIC.   If we use spectrum/channels as a roadway lane analogy, carrier aggregation allows for piecing different lanes into a superhighway. That may sound like hyperbole, complex, and fraught with execute challenges but it’s in the 3GPP standards releases and carriers say they’re committed.  For example, both AT&T and Verizon Wireless are looking to aggregate their 700 bands with their AWS bands in the future.  Down the road, T-Mobile may eventually aggregate their AWS and PCS bands.  However, in the near term, Sprint (under the Spark banner) says it’s implementing “2X carrier aggregation” on its 2.5 GHz band by end of year 2014 and 3X in 2015 with expected speeds of 100 and 150 Mbps, respectively.  We, of course, shall see since a whole host of factors can including distance from the signal source, network congestion, and physical terrain or blockage affect speed. The point is that the user’s speed experience is going to go up dramatically.  These speeds will exceed fixed line offerings and some Wi-Fi hotspots. In fact, it’s already happening.  

While attending the CCA Convention and CTIA, I routinely abandoned the hotel and airport Wi-Fi for a faster and lower latency LTE experience.  I was addicted to speed.   Recently, my not so fast follower friend, Bob upgraded to an iPhone 5s from a 4s (non-LTE) a couple of weeks ago. He said, “Wow! I can’t believe how fast LTE is.”  He moved to an increased data plan and setting to add his six grader son on soon with an iPhone 5c.  He and his son too quickly become speed addicts.

Bullet Point Analysis: The Significance of Sprint's New Family Share Pack $100 Promotion

WHAT IS IT?

After much speculation and talk, Sprint finally announced its new Family Share Pack plan, 12 days after new CEO Marcelo Claure took over for Dan Hesse. The new plan structure that begins August 22 mirrors that of larger competitors Verizon Wireless and AT&T in that:

• Account subscribers share a bucket of data (vs. individual levels (i.e., Sprint Framily & T-Mobile's Simple Choice Family)
• There are multi-tiered data options
• Subscribers have an access line charge per device but gets less expensive after a specific data threshold
• 'Phone' (feature & smartphone) access line charges differ in full pay (Easy Pay) vs. the traditional 2-year option
• Flexibility to add on devices (e.g., mobile broadband hotspots and tablets, maybe in the future wearables or cars) 

Promotion:  

• From August 22 to September 30, a family with up to 10 lines gets 20GB of Shared Data and Unlimited Talk & Text through 2015 plus an additional 2GB of data per line up to 10 lines for $100.  
• Waiving device access fees for plans >20GB, up to 10 lines (switchers only)
• Coupled its long running up to $350 switching credit (Sprint retail and telesales

ANALYSIS

• First and foremost, Sprint delivers on aggressive pricing. Its use of the $100 price point is easily understood and counterpunches against T-Mobile's lead family offer. At the same time, it presents an advertised $60 price gap against Verizon Wireless and AT&T.  
  
• Mimicking AT&T's and Verizon Wireless' data share plans is important as it signals Sprint's intention to go after larger competitors' subscribers.  While T-Mobile has formidable momentum, fighting against a competitor with just 24.5 million postpaid customers makes no sense. Rather the fruit is going after the combined ~174 million AT&T and Verizon Wireless postpaid base.  Now Sprint has a simple apples-to-apples comparison for sales reps to show both data value and a large pricing gap.  
• Mirroring competitors' data share plans is essentially adopting a "best practice."  Both AT&T and Verizon Wireless have discussed not only the the anti-churn merits of these data share plans, but also their subscribers' trend to add additional devices/lines. This bodes well for increasing data ARPU/ARPA/ABPU. 
• Family Share Pack allows for an easily understood way of adding connections for devices, in the short term tablets but in the future, automobile connections and wearables.
• The new plan structure de-emphasizes the previously touted Unlimited differentiation though that is to be expected to continue with the yet to be launched individual $50 unlimited plan. 
• Finally, the promotion comes at the right time in Q3 and not Q4:
• Sprint needed to get this plan in place before the new iPhone model(s) are announced and launched. Apple is supposedly unveiling its new iPhone (s) on September 9. Historically, these new devices are available about 10 days after announcement. For 2014, September 19 is interestingly a Friday and follows past availability trends.  Therefore having a new plan in place for this event is essential for retaining and switching the Apple loyalists and early adopters upgrading within two weeks of availability.  
• T-Mobile CEO Legere has put much stock into calling the new iPhone launch as a prime postpaid switching event for T-Mobile. With Sprint's new pricing and data value, it blunts T-Mobile's encroachment on to the Sprint base. Moreover, with a more price sensitive demographic (than AT&T and Verizon Wireless), T-Mobile may be vulnerable for those subscribers who want to chase price.
• The September 30 promotion end of life gives urgency to fence sitters to get a very low $100 price and generous amounts of data in the two sweet spot of iPhone upgrading.  Moreover, it neatly closes the door on Q3.  If Sprint doesn't market this urgency with marketing and sales rep training, then I'd be shocked and disappointed.

COMPETITIVE IMPACT?

• It's likely all competitors will hit Sprint's network and its poor speed performance. To be fair, Sprint's LTE  highway (5X5 MHz) in the PCS 800 MHz band doesn't help a speedy experience. The high speed potential 2.5 GHz markets are still in buildout mode and only 100M POPs covered by end of year 2014.  Competitors are already expanding their LTE highways (AT&T (no branding), Verizon xLTE and T-Mobile Wideband LTE are being advertised and marketed heavily).
• T-Mobile CEO has already started on the attack on the day of Sprint's announcement  A look at his Twitter feed telegraphs T-Mobile's likely competitive pushback in store rep messaging and likely advertising.  The fact that a well produced graphic and amount of attacks shows how serious T-Mobile is taking Sprint's move.  
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• UPDATED: Aug 21- T-Mobile has announced a bounty for Sprint subs, essentially giving its customer advocates unlimited LTE data for 12 months or for unlimited customers, a $10/month credit for a year. 
  
• It's unclear how AT&T and Verizon Wireless will respond beyond the easy attack on Sprint's network. These conservative competitors have not traditionally responded immediately against smaller competitors. The 2014 AT&T and Verizon Wireless plan moves have largely been against each other.  It's likely that they are feverishly working up plan response scenarios based on how the port-out view looks. Everyone in the carrier industry knows that Q4 and Q1 are hugely important battleground quarters and a strong response will be necessary.
• Can AT&T and Verizon Wireless be drawn into dropping price or providing more data? It remains to be seen. Looking ahead, Sprint promises this is but one plan move with more ahead, presumably the $50 unlimited individual plan.  Yet Sprint can do more if it has the mettle. That is to complement its plan pricing with device pricing. Sprint has already talked up Brightstar device buying synergies. If this can leverage to a lower phone and plan price selling strategy, it would be pretty formidable.  

Video: Talking about Sprint's New CEO Challenges on Bloomberg TV

Today, August 11 is the day that new entrepreneurial CEO Marcelo Claure takes the helm at Sprint.  The wireless industry is watching what he'll do. For me, it's how aggressive he will be in acquiring customers and accelerating the 2.5GHz buildout beyond its current pace.

One of the questions has been when these new price plans will come into the market place, Q3 or Q4? I argue that the big iPhone 6 announcement and subsequent availability ~10 days later will is a de facto deadline that kicks off Q4. The new plans need to be in place for Sprint to stay competitive.
Aug. 11 (Bloomberg) -- Bill Ho, principal analyst at 556 Ventures, and Bloomberg Intelligence’s John Butler discuss expectations for Sprint’s new Chief Executive Officer Marcello Claure and look at the challenges he faces as the head of the nation’s number three wireless company. They speak on “Market Makers.”

Sprint: Looking at Claure's Upcoming Moves

Sprint (or really Softbank) has named Brightstar founder/CEO and board of director Marcelo Claure as its new CEO.  Mr. Claure has a wireless background, is a successful entrepreneur and by all accounts from his background, a hard charging doer.  While he is an outsider, he has wireless and global experience. 

Mr. Claure is expected to move to Overland Park to take over the helm from Dan Hesse who has brought back Sprint from uncomfortable times, engineered the undoing of an AT&T-T-Mobile merger, fought off DISH's acquisition of Clearwire, and Sprint's acquisition by Softbank. Yet Mr. Hesse's turnaround wasn't fast enough for Softbank. T-Mobile's comeback and meteoric rise didn't help the situation at the expense of Sprint prepaid and postpaid.    

With a new sheriff in town, how will Claure approach his new role?  Similar to many CEOs taking over new organizations, he'll likely assess the operations and management team. History has shown that many CEOs replace predecessors' execs and replace them with his own trusted team. For Mr. Hesse, he brought in AT&T Wireless alums Steve Elfman, Bill Malloy and Bob (H) Johnson during his tenure. While it doesn't appear that Mr. Claure has an operating company operations background, he will have to be a quick study, including an earnings call debut for Q3 2014 this fall.  The question is how many Sprint executives will remain and how many Brightstar (or even for that matter, Softbank) executives will make a relocation to Overland Park?

The Sprint announcement perhaps telegraphs some upcoming moves. 

"..first priority will be to continue the build out of Sprint’s network by leveraging its strong spectrum holdings as well as ensuring that Sprint always maintains truly competitive offers in the marketplace."

Marcelo Claure: "In the short-term, we will focus on becoming extremely cost efficient and competing aggressively in the marketplace." 

Masa Son: “Marcelo is a successful entrepreneur who transformed a start-up into a global telecommunications company. He has the management experience, passion and drive to create the strongest network and offer the best products and services in the wireless industry.” 

The Network Vision Strategy - infrastructure: Can Mr. Claure affect the pace of LTE buildout? Everyone knows that Sprint has been touting the potential speed of Sprint Spark. However, this has been overshadowed by T-Mobile's deft network execution and unilaterally embracing speed as part of its marketing differentiation. John Saw replaced Bob Azzi ostensibly to accelerate the pace of Spark buildout, notably keeping intact the Network Vision strategy with still a disappointing 100M POP 2.5 GHz LTE target in 2015. In earnings calls and investor conferences, executives have stated that they're going as fast as they can and pushing infrastructure vendors as hard as they can.  Given this, does Mr. Claure have any room to push the buildout? Of course Sprint is flush with 2.5 spectrum and there had been previous media reports that Verizon Wireless was interested in some of it. Will this option be part of 'leveraging its strong spectrum holdings?"

Cost Efficiency: In the 2Q 2014 earnings call, Sprint's CFO stated that Sprint will continue to look to drive cost out of the business. This isn't really a surprise as it appears to be the similar refrain from competitors' CFOs. To some extent, larger competitors had somewhat formalized this. Verizon has long touted its corporate-wide Lean Six-Sigma program to gain efficiencies and drive out costs. AT&T's Project Agile has some of the same goals.  Sprint for its part had a very painful but some argue necessary draconian (no photocopying) era ushered in with former GE alum Bob Brust.  Sprint has already touted the synergies of volume device acquisition and pricing through Brightstar and Softbank as a positive impact on cost reduction.  How will Mr. Claure drive additional cost out of the business? Headcount immediately comes to mind but Sprint has also been on the path of personnel downsizing over the years.  Headcount reductions may be a core piece of 'containing' costs.

Aggressive customer acquisition & price wars: There is an expectation from the Softbank Chairman that Sprint should offer the best products and services in the wireless industry. T-Mobile's back from the ashes and customer growth story plays well to the media, regulatory and the financial community.  To some, they're giving the store away to drive the customer growth numbers at the expense of margins. This approach may very well be Sprint's next service move. To some extent, this is the Softbank Japan strategy in which it disrupted the Japanese mobile market at the expense of larger competitors KDDI and NTT DoCoMo.  To Softbank, this is operating from the same playbook.  Will Claure merely implement the Softbank plays modified for the U.S. marketplace?

Throughout his lobbying for an implicit T-Mobile-Sprint consolidation, Chairman Son had touted a populist message to bring a 'massive price war' to the American marketplace. While this may cringe the financial community since it will impact margins, it really shouldn't matter to Softbank as it has a much much longer view. Besides, Softbank owns a substantial/majority of Sprint anyway. The question from the services view is how aggressive Framily or new service plans will be in late Q3 and Q4 to spur turnaround customer growth. For Sprint it will have to be about price and giving more data in any tiered plans. Retaining unlimited is still an essential differentiator. 

Consolidation of a different carrier: Just throwing it out there - if the Carlson family is finally willing, can Sprint acquire US Cellular for additional presence? Similar CDMA infrastructure and 700 A block support (though US Cellular also operates 850 LTE).

The back half of 2014 will be indeed interesting to see what Sprint does and how competitors will respond, if necessary.   

Video: Key Points in Q2 2014 Tier 1 Carrier Results

Once again, I get together with Dan Meyer, Editor-in-Chief of RCR Wireless to talk about Q2 2014 carrier performance and key take aways from their earnings calls.

Bullet Point Analysis: T-Mobile's Un-carrier 5.0 & 6.0

WHAT IS IT?

On the evening of June 18, T-Mobile announced the latest Un-carrier initiatives – 5.0 and 6.0. Beyond these next levels of iteration that address customers’ ‘pain points,’ the network progress story provides the foundation for these and future T-Mobile moves. 

• The T-Mobile Network (specifically its LTE capability) has been expanding aggressive. T-Mobile stated that by the end of June 2014, The LTE network will cover 230 million POPs and by the end of the year, reach 250 million POPs. T-Mobile counts 16 markets with 15 + 15 MHz (AWS) spectrum – T-Mobile’s uses the moniker Wideband LTE for these markets. To take advantage of LTE, Voice over LTE (VoLTE) is in 15 markets (not the all the same markets above) covering 107 million POPs and national coverage by the end of 2014.

• Un-carrier 5.0, known as T-Mobile Test Drive allows consumers to receive (specifically) an Apple iPhone 5s for 7 (marketing tag – 7 Night Stand) days to use for free. After the test period (they return the iPhone to a T-Mobile store). Test Drives are limited to 1 time per year, per credit card, per customer. For business customers, instead of registering online and receiving the phone by mail, these customers will get their (up to 3) iPhone 5s units by a T-Mobile representative. Instead of one week, the business test drive period is two weeks. Both new and existing customers may participate.

• Un-carrier 6.0 is music focused. Coined Music Freedom, Simple Choice customers with 1, 3, and 5 GB allowance plans may stream audio without drawing from their data buckets. The initial ‘over the top’ music brands include Pandora, Rhapsody, iTunes Radio, Slacker, Samsung’s Milk Music, and yet to be launched Beatport. With customer input, additional music services may be added to list.

• Without an Un-carrier designation, T-Mobile partnered with Rhapsody to build an ad-free unlimited streaming music service known as unRadio. For Simple Choice customers get it for free or $4/month for other T-Mobile customers, and open for $5/month for non-T-Mobile customers.

ANALYSIS

• The Network (marketing tag – Data Strong) – It’s well known within the industry that a strong network and public perception is foundational to customer acquisition and retention. Coupled with competitive pricing and a strong device portfolio, customers are unlikely to churn. Both Verizon Wireless and AT&T have strong network perception, partly due to the reach of their lowband spectrum. T-Mobile’s approach is to fully take advantage of its spectrum portfolio piecing together its AWS properties using carrier aggregation and advanced MIMO antennas. In some markets, it has 15 + 15 MHz (FDD) and 20 + 20 MHz (in 90% of the top 25 markets) in others. What this all translates to theoretical ~147 Mbps DL/ 40 Mbps UL. Of course on a loaded network, customers will likely experience less. At the announcement, it reprised its America’s Fastest LTE Network claim. It’s a certainty that this will continue be a central marketing value proposition.
  

Bragging: Legere shared that T-Mobile’s consumers are the industry’s biggest data users with the following stats: T-Mobile users use 69% more data than the Verizon customer, 61% more against Sprint, and 100% more against AT&T. A network engineering person would initially cringe but these consumption stats speaks to how Neville Ray’s (CTO) team work – creating a network to specifically address speed and capacity. From a marketer’s lens, a fast network embraces the explosive trend of data consumption, particularly the growing millennial segment.

• Un-carrier 5.0 addresses two points and cements a partnership. Customer acquisition and dispelling bad network perception is behind the 7 (or 14 day for business customers) Test Drive. The postpaid market is furiously in a switching game as the number of these type of subscribers reaches saturation. Every Un-carrier move is about customer acquisition. 1.0 was about low priced no-contract plan, 2.0 (JUMP) addressed the ability to upgrade a phone, 3.0 paid the termination fees for switching and 4.0 gave 200 MB of LTE tablet data for life. With 5.0, a free ‘try before you buy’ is a huge marketing bet - specifically use iPhone 5s for competitors’ customers to try the network, without obligation. Engaged them daily with giveaways, contests and other promotions. The brilliant part of this is at the end in which the target customer enters a T-Mobile store to engage in a switching dialog. On the business side, it provides a strong lead generation tool for its infant business group. At the end of the two week test period, the business rep has a stronger position to talk about T-Mobile’s network and plans. T-Mobile is projecting over 1 million Test Drives over the next year.

Using an iPhone 5s gives Apple the opportunity to drive additional volume at T-Mobile. While T-Mobile finally got the iPhone in April 2013, it has set publicly that Android devices drove most of its sales. There is synergy here as Apple also benefits with Test Drive as a tool to convert Samsung customers with its halo device. Apple’s skin in the game is that it is providing all the iPhones. The logical psychology is that the target customer will be smitten with the 5s, benefiting T-Mobile’s iPhone volume commitments, helping to increase equipment revenues and fortifying the business relationship for future promotions.

• Un-carrier 6.0 is essentially T-Mobile zero-rating audio data. This is a good gamble as audio data is tiny compared to the popular data hog video. Legere claims that even if a T-Mobile customer exhausts their data bucket, they will continue to listen to audio without penalty. There are two messages here – to millennials (mostly) use streaming music to your heart’s content and a general one, our network can withstand this anticipated music deluge. In addressing net neutrality, T-Mobile states the zero-rating is unilateral and aside from technical integration cooperation, there aren’t any commercial agreements. However, customer voting on which future music services will be included, some may argue an exclusion and favoritism against emerging companies. 

• unRadio provides an alternative to the over the top streaming music services. For its young (and young at heart) subscriber base, it’s a ‘cherry’ on top of the continuing attractive features of being in the T-Mobile community. unRadio features differentiate from other internet music with features including ad-free listening, unlimited skips, customized stations, and a song ID (called TrackMatch) for music discovery. Therefore, unRadio blatantly provides an anti-churn tool for T-Mobile more so than a primary customer acquisition tool. 

COMPETITIVE IMPACT?

History has shown that most Un-carrier moves responsible for T-Mobile’s formidable subscriber growth and met by competitors in some cases.

- Un-carrier 1.0 - Simple Choice
Response: AT&T Mobile Share Value and Verizon More Everything

- Un-carrier 2.0 JUMP
Response: AT&T Next coupled with Mobile Share Value, Sprint Easy Pay, and Verizon EDGE coupled with More Everything

- Un-carrier 3.0 – Free unlimited international texting and data roaming (EDGE), Stateside International Talk & Text $10 Add-on

Response: AT&T Mobile Share & Mobile Share Value plans w/included unlimited stateside international messaging and $5 World Connect Value add-on and Verizon More Everything plans with free unlimited stateside international messaging

- Un-carrier 4.0 – Contract Freedom (Paying ETF &; Value of Phone)
Response: Limited time AT&T promotion, On-going Sprint switching promotion

Of the two announcements, 5.0 is more threatening as it couples a high-end iPhone with a no-obligation try before you buy opportunity. Fence sitters who are drawn to T-Mobile’s low pricing but concerned about network robustness are likely defectors. As Verizon’s and AT&T’s networks are proven robust, T-Mobile’s play will be pushing Test Drive participants towards the speed angle. As all carriers are in the next phase of LTE progress – carrier aggregation (to increase speed), the vulnerability will be customers with older and less capable 3G or LTE handsets and featurephones.

Video: Trends in 1Q14 US Carriers' Results

Dan Meyer, Editor-in-Chief from RCR Wireless and I talk 1Q14 US carrier results and any trends happening from the big 4. RCR Story Link

Bullet Point Analysis: Boost Mobile Moves Defensive - The Battleground 40, 50, 60 Price Points

WHAT IS IT?

On May 6, Boost Mobile replaced its old monthly plan portfolio with a new Unlimited Select plans at three price points and specific data thresholds.

ANALYSIS

The prepaid sector is often characterized by high churn profiles and low credit scores. However, it is also a sector with high revenue and subscriber growth potential, courting feature phone upgraders (either prepaid customers or postpaid users looking for better deals in prepaid).  Sprint has made big bets on prepaid as a corporate growth engine. Prepaid subs represents 28% of the overall Sprint customer base.  Various sub brands (Assurance, Boost Mobile, Virgin Mobile) address specific prepaid demographics.  Yet 1Q14 was a bad quarter for prepaid with 465K losses, most of it blamed on Assurance brand losses. Boost's unlimited plans (along with Virgin Mobile's Beyond Talk plans) that garner higher monthly ARPU is clearly an important revenue component to Sprint's prepaid strategy and needs to be protected.  

Now with Boost's new plans at $40, $50 and $60, these numbers are the magic competitive price points to wage the prepaid war in mid to late 2014.  Boost Mobile is merely catching up defensively to rivals that already presented those price points and sometimes the same data thresholds.  

• AT&T's flanker brands Aio/Cricket is in integration mode but Aio's price points and data thresholds match directly with the new Boost plans.  AT&T has been very vocal about being aggressive in attaining growth at the 'low end' using Cricket and will be a threat Boost.   Tactically, it's likely that the unified Cricket portfolio will come out with the added lower $40 price point (Currently $50-$70).  Moreover, AT&T's mid-April GoPhone plan action added a $40/500 MB plan to match T-Mobile's $40 Simple Starter launched earlier 10 days earlier.

• T-Mobile's MetroPCS plan portfolio already has the same price points and always has been a strong competitor to Boost. By T-Mobile's 1Q14 prepaid earnings metrics, MetroPCS is doing well and though T-Mobile doesn't break out its contribution, the company added 465K prepaid users.  T-Mobile's internal code word in launching new markets is Apollo. The company is up to 30 new markets and continuing.  This Metro expansion has not only eaten into Cricket marketshare, it certainly has impacted Boost.    

COMPETITIVE IMPACT?

Every competitor has its own differentiation despite the same price points. The challenge is to communicate this to the target audience and cut through the usual selection criteria of device and plan pricing.

• AT&T's GoPhone portfolio has the advantage of built-in international calling and messaging while rivals MetroPCS and Boost need international package add-ons.  
• The new Cricket has high hopes and promise for its parent. Its primary focus is to recapture lost ground from MetroPCS and Boost will be impacted in the mix. It's uncertain if Muve music, which was an apparent differentiator, will continue to be promoted.  UPDATE: Muve Music is said to be on the auction block. Certainly, at a minimum, the expanded underlying AT&T LTE footprint and perhaps speed will be touted.
• MetroPCS continues to expand in an effort to migrate its legacy CDMA users (featurephone) to new LTE handsets on top of expanding its distribution to grab marketshare in new markets.  Boost's plans again are catching up to MetroPCS.

Boost Mobile needed to make its latest portfolio change to keep up with its main competitors.  There aren't any features in the new Unlimited Select plans that stand out against competitors. Boost Shrinkage discount approach is unique but how well does that retain a fickle customer segment?  Cricket and AT&T plans stand out as unlimited international texting (and limited international calling for GoPhone) are baked in.  Metro and Boost need to figure out if these features are competitively substantial in winning prepaid monthly adds.   
     

Bullet Point Analysis: AT&T GoPhone Adjustments, Defensive & Offensive

WHAT IS IT?

On April 18, AT&T announced two smartphone GoPhone prepaid plan adjustments and introduced a Wal-Mart specific plan:

• The $60 plan increased data from 2 to 2.5 GB + enabled Wi-Fi hotspot capability + unlimited talk 

• The $40 plan increased data from 200 to 500MB + 500 minutes of talk 

• Available at Wal-Mart stores nationwide, a new plan with 1GB of data for $45 a month + unlimited talk

Existing $40/$60 plan customers will automatically receive these increase data levels.  Moreover, not announced, the smartphone $50 unlimited calling and texting plan with WiFi-only (no data allotment) is no longer available. Though the plans are supposed to kick off on April 25, the changes are already available online.

ANALYSIS

The plan action with three components are a mix of defensive and offensive moves.  Anytime a company makes a change, there are clearly causes and effects.  

• As I wrote in my previous post on T-Mobile's newly launched $40 Simple Starter, that plan threatened prepaid competitors.  Eight days later, AT&T shored up its entry $40 GoPhone plan seemingly in a defensive move to match Simple Starter data threshold of 500 MB.  On the surface, it's merely a match but AT&T provides a differentiation for a specific segment of prepaid audience, those who text internationally. Still, Simple Starter addresses the needs of the talker as the plan offers unlimited calling; AT&T only provides 500 anytime minutes.  Against Verizon's $45 ALLSET, $40 price point comes out ahead for the price sensitive though Verizon's add-on data options offer better value. 

While the $40's nemesis was T-Mobile, the $60 GoPhone plan goes up against the Sprint's prepaid SmartPlus unlimited plan at the same price point with the same 2.5 GB threshold (throttled to 3G afterwards).  Sprint's other prepaid brands Boost and Virgin Mobile match other competitors such as MetroPCS and Cricket best.

• Finally, the tell tale sign of an offensive against Tracfone's Straight Talk is a Wal-Mart only plan. The $45/1GB plan matches the price point exactly though StraightTalk is unlimited and throttled after 2.5GB. The AT&T brand, WiFi hotspot tethering, as well as LTE access could be a differentiation but traditional value Wal-Mart shoppers may simplistically look at more data.  

• The ace in the hole for GoPhone is international messaging that competitors do not offer for the respective price points. This will appeal stronger to a specific subscriber demographic.  Provided that AT&T heavily markets this either in niche advertising or social channels, it may be lost.

AT&T's prepaid moves should be construed as urgent since it has lost prepaid subs for the last two quarters ( -32K 4Q2013 & -50K 1Q14).  Though the year-over-year view (-166 4Q12 & -184K 1Q13) looks better, the long and short of it is AT&T lost subs. By contrast, Verizon Wireless has had positive prepaid growth for the last eight quarters, decent for a primarily postpaid company whose prepaid subs are less than 6% of the retail/branded customer base.

COMPETITIVE IMPACT?

• AT&T's GoPhone move is just one component of a reversing prepaid strategy which mainly hangs it hat on the new Cricket market expansion. T-Mobile's MetroPCS brand had been targeting AT&T and Cricket heavily with the 'Apollo' market launches.  In the 1Q14 earnings call, AT&T said that the new Cricket will re-launch at the end of 2Q14, likely targeting T-Mobile and MetroPCS trying to reacquire lost subs. T-Mobile's entry plan featurephone switching growth may be blunt if AT&T markets heavily against that segment.

• Sprint overall needs to consider international messaging for postpaid and SmartPlus given this AT&T action. It may be too early to see how Sprint branded prepaid performs since Sprint doesn't specifically break out brand performance. 

• Verizon's ALLSET plan's $45 price point doesn't match well but it may be unlikely that a plan change is unnecessary unless AT&T makes inroads for a couple of quarters and attains notable marketshare.

Bullet Point Analysis: T-Mobile's $40 Simple Starter Threatens Competitors' Prepaid As Well

WHAT IS IT?

On Wednesday, April 8, T-Mobile announced a new plan called Simple Starter aimed at the individual entry smartphone data user.  Specifically with the following features: 

• 500 MB of LTE data 
• Unlimited Talk and Text
• The subscriber has ability to add on data when 500 MB has been reached
• For an additional $5, the customer can add 500 MB/day or $10 for the next week

ANALYSIS

There are benefits for T-Mobile but this minor plan introduction isn't likely to shake up the industry, hence no UnCarrier X.0 associated with it.  Even its previous plan adjustment (31 days prior), that offered additional data and expanded the Simple Choice portfolio from three plans to four and Stateside international texting did not warrant a X.0 or 4.1 moniker.   

T-Mobile Benefits: 

• From a portfolio viewpoint, T-Mobile now has a lower price point to grab entry data users who aren't sure how much data they may use.  

While T-Mobile has an opportunity to upsell its featurephone users, its designs are at other carriers' postpaid featurephone base. As of 4Q13, Verizon Wireless has 30% of its postpaid subs not on smartphones while it's 23% at AT&T and around 20% or less at Sprint.  This is helped by T-Mobile's $650 switching offer (UnCarrier 4.0) launched in January. On pure out-the-door price perspective, T-Mobile bests even the lower and equivalent pricing (recent price moves at the entry end) from AT&T ($25/1GB) and Verizon Wireless ($30/500MB) simply because of the device access charge ($25/AT&T NEXT, $30/Verizon Wireless EDGE). Sprint's $55 single line Framily plan also comes in higher.  Given the target featurephone customer is likely to be price sensitive, T-Mobile may be successful with this segment. 

• T-Mobile also has an opportunity in converting prepaid users to postpaid.  Let's face it, the 'no-contract' has some of the hallmarks of prepaid but it's still postpaid.   Simple Choice and Simple Starter plans do not have the 'handcuffs' that come with subsidized two-year contracts, however, most T-Mobile customers will take advantage of the equipment installation plan (EIP) with 24 month device financing (a different type of contract lock).  A quick scan of the leading monthly prepaid offerings suggest that the $40 price point for Simple Starter has the potential to make inroads into the prepaid sector.   Looking at the table below, most competitors are at the $45 and greater price point.  Note that the only prepaid offerings at $40 are MetroPCS (T-Mobile brand) and Net10 and Simple Mobile (Tracfone that also buys wholesale from T-Mobile).   

Logically, competitors may provide more data than T-Mobile's Simple Starter, but there may also be an element of brand aspiration and effective T-Mobile marketing momentum beyond features and price to help adoption.  

Looking at Simple Starter, the plan is characteristically old school prepaid. That is, if a customer runs out of data, they can refill. In the olden days, it was minutes, now it's data.  Verizon Allset and AT&T GoPhone plans do just that. Innovation-wise and addressing 'users' pain points and frustrations,' Simple Starter is unremarkable. 

• If T-Mobile is successful with drawing price sensitive entry postpaid switchers and prepaid (that's where the industry growth is), T-Mobile has one of several upcoming elements to help drive to their 2014 2-3 million postpaid net add target. 

COMPETITIVE IMPACT?

• It's clear that Tier 1 competitors' featurephone bases are the targets of Simple Starter, helped with the UnCarrier 4.0 switching proposition. As T-Mobile is offering a out-the-door lower price, it will be tough for rivals to drop pricing, especially at AT&T and Verizon because they want to maintain premium network brand positioning.  At Sprint, Framily from a single line price viewpoint is vulnerable. If T-Mobile had been feeding off Sprint users in the past, it will continue to do with the remaining featurephone base. Sprint's equivalent switching promotion may help stem the bleeding in possibly attracting gross adds.  If the T-Mobile postpaid brand aggressively targets the prepaid segments that MetroPCS doesn't, this could spell trouble for Tracfone, AT&T, Verizon Wireless and Sprint's prepaid group.  

• T-Mobile claims to have additional minor and major announcements to come. All those are components to reach or exceed their 2014 goals.  By all rumors, T-Mobile will post stellar postpaid net adds for Q1 2014 (1million+?). Let's see how T-Mobile does Q2 and Q3 go for gross and net adds.  

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