WatchTV - Building the Base to Enable Future Revenue Growth

Is it still price competitive as in the old days? Yes and no.  The price leaders continue to be Sprint and T-Mobile while AT&T and Verizon continue to position themselves as the premium carriers.  Of course the big two's legacy network perception continues to play an integral role both in high-value customer retention and seemingly record low churn.  Despite T-Mobile's continuous poaching, the sky hasn't fully fallen at AT&T and Verizon.

Make no mistake, T-Mobile was "the" catalyst that stimulated postpaid price wars and brought unlimited back at the big two.  Network and price continues to drive service provider selection but with over 120% wireless penetration, the game for several years has been one of switching. Number 3 and 4 players, T-Mobile and Sprint have been marketing their networks to be equivalent to that of the bigger two. Combined with price advantage, T-Mobile has seen greater success in building up its subscriber base.  However, the days of widespread price slashing at T-Mobile has stabilized.  While Sprint continues its price value leadership to acquire new customers and offset churn, the three other providers are moving to maintain or increase profitability.

Now the shift is moving to embedded value, beyond pricing.  At T-Mobile, higher data thresholds on data prioritization, hotspot capability, texting and data abroad, T-Mobile Tuesdays and free Netflix are just examples for retention and acquisition.  To offset content, Sprint cut a deal with Hulu while AT&T rolled in HBO as a benefit of subscribing.  Verizon content play is Go90 but it's not a subscriber benefit as Go90 is an open to all.  However, AT&T's strategic vision is one that centers around content and the ability to deliver and monetize that.  AT&T's acquisition of DirecTV produced the over the top (OTT) DirecTV Now.  Now with quickly closing the Time-Warner acquisition, AT&T announced two new postpaid rate plans that bundle content value, anchored by WatchTV.

WatchTV is a 'skinny bundle' that features well known video channel brands.  Customers on the new Unlimited &More and Unlimited &More Premium receive the base channels.   Premium users will be able to add HBO, Cinemax, SHOWTIME or STARZ as well as music streaming services like Amazon Music Unlimited and Pandora Premium.  For non-AT&T customers, the price is $15.

When DirecTV Now launched, many knocked the limited content available but as the progressed, more channels were added; it's likely to follow a similar playbook to further WatchTV's value proposition. WatchTV is based on the same DirecTV Now platform which may borrow key features including a similar navigation guide, multi-platform access and cloud DVR.   This immediately conjures up the cannibalization issue of current DirecTV franchise of users. To offset this, a $15 credit is available to upsell or tamp down any video churn.

The Rate Plan Comparison

Surprisingly, a new portfolio swap comes in just over three months since the last price change. Inevitably the conversation moves to price.  This introduction is supposed to be on the week of June 24th yet as of this writing, the new plans have yet to be launched.  With some preliminary details on the new Unlimited &More and Unlimited &More Premium plans, they seek relative parity with the previous Unlimited Choice and Unlimited Plus Enhanced.  What has been shared so far is that Choice and &More is the same at 4 lines ($160) but $5 more with lines 1 to 4.

For Unlimited &More Premium, the pricing remains with Plus Enhanced with lines 1-4 ($190) but $5 more for lines 5+.  To me, it's clear that AT&T covets the 4 line account as the 'bread and butter' profile of its users.  Still, there has been no price cuts so T-Mobile and Sprint remain the price leaders while Verizon remains the most expensive, especially withe introduction of the third aboveunlimited tier.  With some price increases, AT&T's challenge is to convert older unlimited and Unlimited Choice & Plus Enhanced account holders to these new plans with the feature value.

Looking Ahead

In the near term, WatchTV is about enhancing competitive postpaid plan value. It comes at the end of the second quarter and ready for steady promotion going into holiday selling. In the long term, the goal is to increase the video viewer base.  To help this, AT&T promises that WatchTV is but the beginning of many new offers to come as the result of the Time Warner acquisition.  Given the rapid pace of WatchTV rollout, there should be many of those promise offers should come by the end of the year.

As AT&T has publicly stated, its long term strategy is to leverage its advertising and analytics business unit to drive future revenue.  A larger subscriber base certainly helps the cause but that advertising and analytics unit is making its own moves to create the necessary foundation to expand its ad tech expertise. The AppNexus acquisition valued at $1.6B is expected to close in the third quarter brings further global capability, something I believe wants to further expand its international portfolio.    CEO Randall Stephenson promised more smaller acquisitions to come after the Time-Warner close.  With the impressive pace of announcements and execution, it'll be interesting where the now media company will bolster its business units.  My money is on further content and ad tech.

2Q16 US Mobile Carrier Wrap & Scotch

An end of the second quarter 2016 wrap up of the top 4 US carrier community. We discussed T-Mobile quickly with smatterings of Verizon's new head of wireless hire, Ronan Dunne and their path to retort T-Mobile and Sprint.  As with previous Carrier Wraps, we discuss prepaid and postpaid trends.



We end by discussing our picks of the session - Glenlivet Nadurra and Macallan 10 yr Fine Oak.

Talking About Sprint Since Marcelo Claure's On-Boarding

Dan Meyer from RCR Wireless and I discuss Sprint's CY1Q16 results but revisit where Sprint is since Marcelo Claure has taken over as CEO.  We look at his priorities when he took over in August 2014 in the areas of:

• The executive team - who is in, who left, how the company is organizing
• Network - CapEx
• Cost containment including leasing companies, layoffs and $2.5B savings target
• Stabilizing revenue, the postpaid subscriber base and being the Value carrier

In the back half of the video, we talk about Glenlivet 12.

2015 Holiday Promos & 2016 US Carrier Outlook

Talking with Dan Meyer from RCR Wireless about holiday promotions and 2016 carrier outlook.

Bullet Point Analysis: Jump! on Demand - more than just device leasing

WHAT IS IT?

Jump! on Demand is T-Mobile’s variation on Sprint’s device leasing idea that started with the iPhone (i.e., iPhone for Life).  The lease term is for 18 months and users may trade-up up to three times (or upgrade to different smartphones [“superphones”]) in a year.  An enterprising customer can milk six upgrades within this term at months 1, 2, 3 and then in months 13, 14 and 15 (or variations).  

Jump! on Demand’s availability begins on June 28, 2015 and to kick the program off, a limited time promotion of an iPhone 6 (16 GB) at $15/month will be the go-to market poster child.  While this shares the Jump! moniker (Un-carrier 2.0), there isn’t any direct connection aside from the theme of quick device upgradability.

ANALYSIS

From a macro view, just copying Sprint’s leasing scheme isn’t enough based upon T-Mobile’s in your face/pro consumer market positioning. The big consumer benefits are:

• 18 month term vs. the Sprint norm of 24 months
• Ability to swap smartphones.  Customers may swap three times in a year (12 months) at AND a maximum of six times in 18 months.
• When a customer upgrades or swaps a smartphone, they receive a new, not refurbished, smartphone. 

WHAT’S IN IT FOR T-MOBILE?

• Customer retention: Every carrier’s base have those early adopters who want the latest and greatest.  Jump! on Demand appeals to that base with up to six swaps in the short 18 month lease term.   This in essence furthers these customers’ device addiction.  Additionally, the Jump! on Demand’s device portfolio contains the most desirable flagship ‘superphones’  (for now, i.e., iPhone 6, iPhone 6 Plus, Galaxy S6, Galaxy Note 4, LG G4).
• New customer acquisition: Any way to get a flagship device for cheap will draw attention. Coupled with plan promotions and lower pricing against the big two carriers, Jump! on Demand is a big and important weapon in the T-Mobile marketing arsenal. 
• Overall net additions: In the Q1 earnings call, T-Mobile increased their postpaid net add guidance from 2.2/3.2M to 3/3.5M. Note also that they added 1.1M postpaid customers in 1Q15 and that they intended to ‘front load’ the adds.  Of course front load could mean three quarters instead of the first half of ’15.
• Better vendor pricing leverage:  Though the price may be a wash from the customer facing view, large carriers with more scale look to limit their device acquisition costs. If a carrier can drive more volume, lower per unit price usually bears fruit, which helps in the whole profit picture.

WHICH COMPANIES WILL FEEL THE MOST IMPACT?

·      In the following order:

1.     Sprint – because the company is an alternative value leader against T-Mobile and those customers who are drawn to the once unique leasing scheme has been topped.  This also moves the focus for specifically those “Cut Your Bill in Half” Verizon and AT&T customers onto T-Mobile.  If the decision makers are device centric and price sensitive, then T-Mobile will be a prime consideration.

2.     Verizon Wireless – T-Mobile is specifically gunning for Verizon because that’s where the majority of the industry’s postpaid users are.  The Never Settle for Verizon campaign (a Test Drive [Un-carrier 5.0) on steroids) kicked off on May 5^th with a trial period from May 13th to the 31^st was extended until June 27.  Extending a switching campaign usually means that it is working.   

3.     AT&T – T-Mobile has historically targeted AT&T back in the same GSM technology days. I place AT&T last since of the big two, Verizon is the bigger fish in terms of postpaid base. Moreover, AT&T’s retention efforts have paid off tremendously in uber low churn metrics.  The aggressive $0 Next messaging has also been widely by AT&T as a key component of customer retention.

• Apple stands to gain in terms of T-Mobile volume based upon specifically the $15/month promotion.  Normally $27.08/month, T-Mobile’s $12.08 discounting is akin to a subsidy but T-Mobile PR cringed at that word.  Regardless of whether it’s filed as a marketing cost, the discounting is real.  Perhaps like in a car leasing analogy, a lower monthly price may be had with assigning a higher residual at lease end.
• Samsung, LG and possibly HTC may likely see more flagship device volume movement since Jump! on Demand calls for new and not refurbished devices. Logically, if there is the possibility of long term device swapping, more units should be in the pipeline. However, the iPhone promotion may increase the volume gap in Apple’s favor.
• Refurb and secondary market companies will sell increase business volumes. Though it’s logical that ‘used’ devices will feed the insurance side and some will find its way into MetroPCS, the secondary market whether domestic or international will see some benefit.

COMPETITIVE RESPONSE?

• There are now two national players offering leasing. AT&T and Verizon may hold off but they cannot ignore this device payment approach. The concept is simple and by all accounts from Sprint’s initial success, customers like it.  T-Mobile adopting the approach validates the concept in the marketplace.  AT&T and Verizon will have to respond and it has to be before Q4.  If not, they will be even more vulnerable.
• Sprint will need to modify its leasing approach, at a minimum expanding the term options, also before Q4. Matching the number of times to upgrade also needs careful consideration and figuring out a positive business case. Sprint has already stated that they can get favorable device pricing given SoftBank's global buying power.  Sprint needs to have a plan in place if it is to keep its positive net add momentum of which device leasing plays a crucial role. 
• Aside from national players, regional players may or may not join. Large regional carrier US Cellular joined the equipment installation plan fray.  For that carrier, an EIP is now competitive tablestakes against competitors, and a component of returning to positive postpaid net adds (after a couple of years in the negative territory).   

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.