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.

LTE Speed Titles

AT&T has already taken the LTE speed mantle for 2013.  I think that speed will continue to be an important marketing differentiation.  Sprint Spark, based on 2.5 GHz spectrum as that opportunity to break Sprint out of its downward slide.  

My article in RCR Wireless entitled LTE Speed Crowns and Network Dependencies lays out some of my thoughts.  A key piece in increasing speed is when carrier aggregation kicks in. In a nutshell,   it's the ability to piece together disparate pieces of a carrier's spectrum portfolio to make a 'fatter pipe' in order to deliver to the user, a faster speed (and lower latency) experience. Of course there are a lot of hardware dependencies that go into it.

While speed is exciting, what looks to be a Sprint win may be a marketing and revenue loss in the non-metropolitan areas.  That is due to 2.5 GHz's poor propagation characteristics.  It just cannot reach out there and Sprint's problem is that thought it has a lot of the frequency, in order to make it effective nationally, they would have to expend a LOT more money to blanket the U.S. geography. This is a similar argument that you don't see a fully geographic national PCS network.  Verizon Wireless and AT&T will have that advantage with their sub-1GHz portfolio. When these larger carriers piece their deep cellular bands with their 700 spectrum, they will have the ability to deliver greater speed than Sprint outside of the metropolitan areas.  This won't happen for a couple more years late 2015-2017, perhaps.   

Sprint will need to execute on its 2.5 GHz Spark buildout to have a shot at the standard speed surveys that Root Metrics (various metro updates over the course of the year) and PC Magazine (May) performs. It may be that Sprint will win some important metros but may not get the 2014 title until those survey cities are 'Sparked.'  Throwing a monkey wrench in 2014 will be Verizon Wireless and T-Mobile tapping their deep AWS assets. T-Mobile has already been reported to have a 20 X 20 (20 MHz down/20 MHz uplink) in the Dallas area while Verizon Wireless has turned on  20 X 20 in New York.

When Spark reaches some critical market threshold, I fully expect Sprint to turn up the marketing to push speed and unlimited.(And introduce a deep Tri-band device portfolio). It should definitely appeal to the technology forward users.  I'm also thinking that the tech blogs should help the cause. Of course, it depends on getting that network going. 

2014 will be an interesting speed year.  

Spectrum Win-Win for Two Giants

Today AT&T agreed to acquire spectrum in the 700 MHz B band from Verizon Wireless for $1.9 billion in cash and Advanced Wireless Services (AWS) spectrum licenses in several markets, including Phoenix, Ariz., Los Angeles and Fresno, Calif. and Portland, Ore.

The 700 MHz licenses to be acquired by AT&T cover 42 million people in 18 states — California, Colorado, Florida, Idaho, Illinois, Louisiana, Montana, New Mexico, New York, Ohio, Oklahoma, South Dakota, Tennessee, Texas, Utah, Virginia, Washington and Wyoming.  Here are the following CMAs (Cellular Market Areas):

·         California: Los Angeles

·         Colorado: Park, Fort Collins-Loveland, Pueblo,

·         Florida: Miami, West Palm Beach, Bradenton

·         Idaho: Butte

·         Illinois: Chicago

·         Louisiana: De Soto, Claiborne, Morehouse, Lake Charles, Alexandria

·         Montana: Billings, Beaverhead, Great Falls, Carbon

·         New Mexico: Grant

·         New York: Rochester

·         Ohio: Cincinnati, Youngstown

·         Oklahoma: Oklahoma City

·         South Dakota: Rapid City, Harding

·         Tennessee: Memphis

·         Texas: Texarkana, Edwards, Waco, Tyler, Longview-Marshall

·         Utah: Box-Elder, Carbon, Beaver, Piute

·         Virginia: Frederick

·         Washington: Okanogan

·         Wyoming: Sheridan, Casper

Yet another interesting sideline is the involvement of a Sarasota, FL private equity firm, Grain Management.  Verizon is selling spectrum in several North Carolina markets to Grain Management. Grain is also acquiring an AWS license covering Dallas from AT&T—and Verizon will lease that license from Grain.

Recall in Auction 73, the Lower 700 Band was up for grabs.  

How did Verizon do?

• Block A – Verizon Wireless and U.S. Cellular both bought 25 licenses each. In this block, Verizon targeted urban areas, while U.S. Cellular bought licenses primarily in the northern portion of the U.S. 

• Block B – AT&T Mobility was the biggest buyer in the B block, with 227 licenses totaling $6.6 billion. U.S. Cellular and Verizon bought 127 and 77 licenses, respectively. AT&T Mobility and Verizon Wireless bought licenses around the country, while U.S. Cellular continued with its strategy to buy licenses in northern regions. 

• Block C – Of the 10 licenses in the C Block, Verizon Wireless bought the 7 that cover the contiguous 48 states (and Hawaii). Those seven licenses cost Verizon roughly $4.7 Billion. 

Why? It's a win-win because Verizon Wireless wanted to unload the 700 MHz bands (A and B Block) as its C Block and its recent AWS spectrum acquired from Cable Company partners gave a sufficient footprint nationally.  AT&T needed it to fill B Block holes nationally.  It was almost a given that AT&T would be the buyer. As an aside, earlier this month,  Verizon sold some A Block licenses to US Cellular. 

The interesting go-between of a private equity firm is notable.  It's clear that PE firms do not operate networks but a licensing/leasing arrangement from these big carriers will bring in recurring revenue.

  

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. 

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.

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.

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.

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:

• AWS LTE
• 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.