AT&T Handset Supercycle and Retaining the iPhone base?

AT&T has veered from its long time conservative promotional activity, relative to its peers.  With so many M&A and then integration irons in the fire, the gross add wireless business seemed to take a back seat. However with the Apple iPhone 12 launch, AT&T has made its most aggressive move to date.  That is an iPhone 12 can be obtained for free, a $800 value. Of course the conditional unlimited plan, minimum trade-in and 30 month installments apply. Moreover, the $800 can be applied against the 12 Pro and likely the 12 Pro Max model. To be sure, in a switcher world, the best promotions are reserved for those who jump carriers, or existing users adding a new line.

What's different this year is that this promotion is opened to existing subscribers without a new line condition. Though this seemed to be widely noted with the iPhone 12 launch,  a similar flagship device promotion happened in September with the Samsung Note 20 5G where a subscriber may get that device for free with similar conditions. Still, it wasn't an iPhone.

Why It Matters

AT&T's multi-year iPhone exclusivity deal allowed it to build a large high-value base. Despite losing that exclusivity in 2011 and 2013 to competitors, iPhone customer accounts generate higher ARPA bearing revenue. Yet despite formidable switching attacks from T-Mobile over the years, AT&T has determined 4Q20 as its time to fight back.  Why?

The device "supercycle" moniker speaks to the 5G rollouts across the domestic landscape in that carriers needed to move their older device base to upgrade. In doing so, they would realize a better user experience from all the network improvements in the past and future year(s).  AT&T's tangible benefits include reduced postpaid churn (i.e., 30 month installment) and higher ARPU/ARPA (i.e., requisite unlimited plan). 

In terms of timing, AT&T has been a leader(?) in with the lowest postpaid upgrade rate for over 20 quarters. This speaks to its conservative promotional activity. By contrast, its conservative peer, Verizon reported higher upgrade rates.  To be sure, the combination of AT&T conservative approach and competitors' aggressive promotions resulted in poor gross/net add performance and even net losses in some quarters.   

On its 3Q20 earnings call, AT&T CEO Stankey noted that the iPhone promotion is a means to reward the longtime iPhone customer base.  It's clear that Apple jumping on the 5G bandwagon was a key factor in the promotion calculation.  If all goes well, Stankey stated with HBO Max adoption, new mobile unlimited plans coupled with a 5G handset cycle would be a key wireless service revenue driver for the backhalf of 2020.  My own retail and customer care checks suggest this iPhone promotion is incredibly popular with desired color variants backlogged until December. 

It's unclear when the promotion will end as reps didn't have any end date in their systems.  If successful, we can expect to see AT&T's device upgrade rate for 4Q20 spike higher than many previous 4Qs. Promotions are of course a part of the business and it will be interesting to see when the promotion ends, traditionally before Black Friday or keep the momentum throughout to the end of the year.  There are likely AT&T business case people who have gamed the right threshold of promotion tied to new and existing subscribers counts, expected plan upsell and device subsidy levels.  Looking ahead, it appears AT&T has a lot of retention momentum for 4Q20.   

A New Verizon - Embracing Prepaid with a Tracfone Acquisition

Verizon announced its intention to acquire America Movil's US Tracfone property which includes not only the Tracfone brand but also nine other prepaid brands.  The Tracfone property brings ~21M subscribers, 90K distribution doors and 850 employees.  

The transaction will include $3.125 billion in cash and $3.125 billion in Verizon common stock and also includes up to an additional $650 million in future cash consideration related to the achievement of certain performance measures and other commercial arrangements.  Expected deal close is 2H21.

Why It Matters

The old Verizon of old is gone in which it eschewed or minimized its prepaid operations for the chase of higher ARPU bearing postpaid users.  Surprisingly after 10 quarters of net prepaid losses, 2Q20 showed a positive net adds. 

As of 2Q20, prepaid only accounted for ~4M users (~4%) of the ~94M retail base. Tracfone by far has been the largest prepaid player and (if closed by 2H21), Verizon will be the largest prepaid player with ~25M subs. As of 2Q20, competitors' prepaid bases:

• AT&T (~18M)  
• T-Mobile (~11+M) 
• DISH (~9M)   

Moreover, the Tracfone unit reported >$8B in revenue which helps to provide a purely wireless growth story even when the other strategic bets didn't pan out (e.g., Yahoo/AOL, Oath, Terremark, etc). But Verizon could be in the driver's seat as Tracfone's America Movil parent has been absorbing years of net losses with the only bright spot in 2Q20 in which the unit beat out its competitors in net adds with 214K.

Looking Ahead

Verizon could work the new acquisition in ARPU to drive greater revenue as Tracfone's ARPU has been steadily increasing to $28 partly due to the strength of Straight Talk. There is room to grow with peers' prepaid ARPU in the mid to high $30s.  Going forward, it remains to be seen in 2H21 what Verizon will do with the multitude of value brands, whether to shrink and focus or leave under the notion that each value segment is important.  My bet is consolidation as 10 brands on to of Verizon Prepaid, Visible and Yahoo Mobile is quite the stuffed portfolio.   

T-Mobile Sprint Deal Done – Integration

Now that the T-Mobile acquisition of Sprint has been blessed, when will integration start? As we all know it’s been a lengthy journey since the $26B deal’s announcement in April 2018.  In September 2018, T-Mobile announced Sunit Patel to head merger and integration efforts.

Flash forward to February 2020, while T-Mobile and Sprint could not work closely on integration efforts, they’ve had a long runway in planning. Here are the key integration areas in my view:

1.     Executives and employees:  Like in most mergers and acquisitions, people are the first to come to mind. It’s almost certain that the acquiring company will win out in the executive suites. Overlapping areas such as human resources, marketing, engineering, operations and retail are likely to have been gamed out already, with few refinements.   The big if is making good on the promise that the acquisition/merger will be job accretive.

2.     Physical headquarters: It’s no secret that T-Mobile has expanded and updated their Bellevue spaces while Sprint’s offices, including the Overland Park campus has contracted.  Similar to competitors AT&T and Verizon, key executives will be expected to relocate to the Bellevue power center.

3.     Suppliers: Mergers always take a toll on suppliers. That is if they sold to two, now they’ll sell to one.  Invariably, that is part of the synergies calculation – suppliers may see reduced revenue because the new company will have better buying scale (on top of Softbank and DT added to the equation). However, since Sprint was cost cutting, there could be some spending bumps down the line.

4.     Infrastructure: T-Mobile has always highlighted the faster than usual of MetroPCS.  That is the decommissioning of their CDMA, repurposing the spectrum and lowering overlapping operational costs.   Indeed, Sprint is still on CDMA and it’s a strategic imperative to move those users (direct subs & wholesale partners) off so they may take advantage of PCS and move the 800 to DISH. 

5.     Distribution: While Sprint has been contracting their distribution, T-Mobile made commitment to expanding its doors.  Where there is overlap (i.e., T-Mobile and Sprint retail within a block or two), those retail shops could be sold to DISH as they will need to have postpaid retail presence beyond its prepaid Boost locations.   

I’m going to go out on a limb and guess the new T-Mobile integration will hit the ground running this week as the plans have already been put in place.  I’d expect some of the areas I touched on above (e.g., headcount/org chart/exit packages) will be announced within a week or week and a half, if not sooner.  

1Q19 America Movil USA Prepaid – Recovering and Shifting

America Movil with over 21.6 million subscribers is the largest US prepaid player in 1Q19, closely followed by T-Mobile (21.2M), AT&T (17.2M), Sprint ([CY 4Q18] 8.9M) and finally Verizon (4.48M). With many prepaid operating brands absorbed throughout the years and the backing of its Mexican-based parent, the company is still a prepaid force but has ceded prepaid leadership to AT&T and T-Mobile.   To put it in perspective, America Movil USA reached its corporate high of over 26 million subscribers in 4Q14.

Similar to Sprint, its bet on lifeline services (SafeLink) has punished its subscriber base count with continued losses.  Partially offsetting this downward pressure has been the shift from non-recurring plans, such as pay as you go, to higher ARPU bearing monthly plans.  Chiefly, Straight Talk (available at Walmart  and ~43% of its overall base) has been its growth engine for many quarters while the other brands have declined. To understand the significance of Straight Talk and SafeLink, the two are highlighted in quarterly earnings reports along with an Other Brands category (~44% of the base).  

For the quarter, there seems to be a recovery of sorts, relative to the big losses in 2017 and 1H18.  With only 89,000 net losses, the company contrasts that to 1Q18's 371,000 losses and 1Q17's 1.3 million. The focus on the higher-ARPU bearing Straight Talk with 175,000 additions has helped its ARPU rise for the quarter to $26, contrasting to 1Q18's $24, 1Q17's $23 and 1Q16's $21.  Another provided metric, churn is now at 3.7% where in previous quarters were north of 4%.

Why it Matters: From the above chart, the truly bad days seem to be behind the company but SafeLink will likely continue to contribute to the losses. Though losses are less for the quarter, the US business unit's EBITDA margins is a measly 6.2% compared to the high 20s to low 40s of other America Movil's business units. Also, rewinding four years, the US business unit's 1Q15's EBITDA margin was 11.7%.  This suggests that it's been a truly competitive prepaid environment and the biggest MVNO is just getting by. 

There have been suggestions that America Movil may be in a position to acquire a spun off Sprint prepaid unit as a possible condition of a T-Mobile/Sprint go-ahead. America Movil management has indicated receptiveness to that as buying companies to increase the US opportunity has always been in the playbook. By no means are they the default winner as there are other parties vying for a parted out Sprint prepaid unit, if the occasion arises. We'll know in June/July?

4Q18 AT&T Prepaid Momentum Stunted but Cricket is OK

After a monster run at huge net additions, the prepaid group somehow fell off a cliff. It's not a pretty sight, is it?  After its Leap Wireless acquisition, the company completed the acquisition in 1Q14, the company began to ramp up to expand the Cricket brand beyond the legacy region footprint.  T-Mobile's MetroPCS had a similar ramp in growth from 1Q15 to 1Q17.  By 2Q17, AT&T prepaid started taking the industry prepaid net add leader.  Therefore, AT&T 4Q18 prepaid numbers were a jaw dropper.

What happened:  Many industry watchers have become accustomed to Cricket as the net addition driving force.  However in the traditional cut-throat holiday selling quarter, promotions abounded.  Detailed in the earnings call Q&A, Chairman Randall Stephenson assured analysts that Cricket still had growth momentum with 240K net adds but the branded prepaid side suffered these losses. He pointed to two factors: 1) Branded prepaid subs were moving to competitors' postpaid and 2) AT&T did not want to counter a loss leading handset promotion (A $250 device was offered at $100).  As a result the prepaid phone net adds only amounted to 13K.  

Why it Matters:  While AT&T has been disciplined about not getting into promotions that hurt margin, it does impact the view that growth and competition is hurting them in the very visible net addition metric. It's likely that the AT&T branded prepaid loss could factor in the gains at T-Mobile, perhaps both pre and postpaid.  Unless the competition can sustain a loss leader strategy and Cricket growth stagnates, AT&T 1Q19 prepaid net additions should climb out of that cliff. Stephenson has noted glowingly in the past about Cricket's ARPU (~$35) being close to postpaid.  Prepaid has been a bright spot over the last two years of growth and revenue contribution, offsetting the declining and handcuffed postpaid side. With more of the same postpaid performance anticipated in '19, prepaid needs to get its mojo back.  

Axios Type Posts Going Forward

When I spent time at my old company, Current Analysis, the value to the customer base on quick analysis was brevity and competitive impact. We wrote (at the time) very short but meaningful opinions and analyses on events (announcements, plan changes) on the competitive landscape.

Fast forward to 2019 and a news website has taken brevity to the extreme with similar goals but less words.  I'll try this format from now on....

   FTW

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.

The Logic of Hans Vestburg's CEO Sucession at Verizon (with an update)

Verizon announced that current CEO Lowell McAdam will be stepping down effective August 1, 2018 (a Wednesday). Hans Vestburg, former Ericsson CEO, who joined the company in April 2017 as CTO, will become CEO and work with McAdam in the transition.

A couple of points when I read the news:

• Surprise - In 18 months, the rapidity of elevating an outsider to the CEO spot seems to be unprecedented at a company that usually promotes from within. I was going to go with John Stratton as he was the logical choice, assuming the internal elevation approach.  Yet this is a new world in which the stakes are high for Verizon to execute on its 5G vision along with its big dollar bet on Oath.  Broader multi-company knowledge and experience is now expected. 
• CEO chops -  Vestburg has global CEO credentials, over 6 years worth at Ericsson.  The Verizon bench also has their pick of former CEOs that have their own narrow expertise - Ronan Dunne (ex-O2 CEO for 9 years and its CFO for 3 years) and Tim Armstrong (ex-AOL CEO for 6 years until Verizon acquire it in 2015).   The graphic below, extracted from Verizon's 2017 10K filing, shows likely candidate pool that the Board of Directors may have been considering.  The officers with outside background have already been integrated into the officer fold.  As an aside, Vestburg's elevation makes sense for Marni Walden's October 2017 departure along with the rumors that she wasn't going to succeed McAdam. 

• Age - Age is likely a consideration criteria in sucession planning as Vestburg is 52.  McAdam took the CEO reins in 2011 at age 57 but had CEO responsibility for the wireless business unit since 2006 at 52 years old.  The point here is that he can hang around for at least 5-8 more years.  
• Technical Background - It's taken for granted that every CEO should have deep business background and experience, but as the telecom and ad company moves into 5G, it should have leadership that understands how the new technology can leverage into successful growth. Vestburg doesn't have McAdam's engineering background yet the lengthy tenure at Ericsson enabled him to slot into the CTO position despite a business degree. 

Vestburg's Challenges

• Understanding Operations - In the video,  Vestburg admits that he needs to delve into the operations and commercial side, the bread and butter wireless and wireline service provider things that bring in over $126B annual revenue. Of course there are the cadre of business unit heads that know their areas who will continue to work their areas.  
• Vision Delivery - 5G is the hot topic that at times is overhyped but yet mutually agreed across the industry as the future innovation and revenue driver. Vestburg, in the old Ericsson role, pushed that vision across the service provider segment.  Now he'll be the focal point to execute and bring in the moolah (technical term) and prove McAdam and the Board of Directors made the right choice.  Oath's potential has been talked up a lot along with its global ambitions. In 1Q18, its revenues were $1.9B, compared to $21.9B in wireless and $7.6B in wireless.
• Ericsson Baggage - Vestburg departed Ericsson with declining revenue trends.  Some of my infrastructure analyst colleagues have already noted with surprised that with such a bad tenure, he'd be able to guide Verizon's future growth.
• Turnover - As with every company's transitioning to a new CEO, there may be turnover in the executive pool.  Marni Walden left. Will there be others.  Moreover, there has been precedence that new executives would elevate or bring in their own people from previous positions.  Will that happen and to what extent?  Now that the CTO and Stratton slot will be vacant, who will slide into those positions?
• UPDATE - No sooner than the digital 'paint' on the Vestberg CEO announcement dry did Verizon announce John Stratton's retirement by the end of the year.  With over 25 years with the company, he's sure to get more than a belt buckle or television (inside Bell System joke). The link for the press announcement (hosted on the Investor Relations site) has the obligatory outgoing exec quote. 

AT&T - Verizon Rate Plan Competition, Playing for Parity

In July, Verizon changed their wireless rate plan portfolio. The media and tech bloggers derided those changes because the new price points were higher than those replaced.  Verizon argued (logically) that in the end, new plan subscribers got more MB/$ spent.  Yes, the math holds true.  I argued back then that while many focused on the lower (consumer) price points, the real threat was to AT&T in the mid and high tiers where high-value customers, SMBs and enterprises shopped.

Fast forward to mid-August as AT&T has announced their own rate changes.  No longer is the portfolio named Mobile Share Value but now Mobile Share Advantage (MSA). The "Advantage" piece speaks to ridding of the overage penalty and providing consumer friendly (albeit punishingly slow) 2G data rates.  Also, expanding the North American for 10 GB subs with unlimited talk/text to Mexico and Canada with local plan capability in Mexico.

The MSA plans to be in effect on August 21st have several important goals:

1. Correct and increase mid-tier competition against Verizon
2. Correct price vulnerability and meet high-tier price parity against Verizon.
3. Increase service ARPU 

Mid-Tier Competition

In the history of rate plan competition, price planners/product managers have at times matched price points, voice minutes or data thresholds.  Every company has their own reasons and their own strategies. With the Mobile Share Advantage, AT&T chose to match price and data at the 16GB level but gave 1 GB more for 25 GB at the $110 price point.  This suggests to me that this may be a high-value customer battleground area.

High-Tier Price Parity

In July, I noted that the Verizon's rate changes threatened AT&T's high-value users  (SMB and enterprise) customers. Historically, AT&T and Verizon usually match each other at these higher tiers with the logic that no one really needs a huge price wars with these (usually) less price insensitive accounts.  Looking at the chart, it's notable how much the pricing has dropped for both these premium carriers.

As a side observation, it doesn't help that Sprint and T-Mobile are actively going after these higher value postpaid accounts.  

Though AT&T's changes for the most part draw level to its largest competitor, Verizon has a 2GB/line promotion applicable to  XL levels and above.  

It is unclear when this 2GB promotion will end, AT&T is still under the competitive gun, especially as the 3Q16 ends and ultra-competitive 4Q16 begins - read iPhone 7 launch.  Whether AT&T will inject a similar promotion remains to be seen but the threat is formidable unless the carrier can change the playing field with an aggressive handset promotion or trade-in values.  

Boost Service ARPU

Lost in the changes in price points is the increase in the per line access fee. What was $15/line/month at plans greater than 15 GB and $25 for plans less than 15GB/line/month, the new access rate is $20.  This is in line with Verizon's.  While I saw the lower $15 as a price differentiation, the new hike falls in line with AT&T (and Verizon's) march to higher profitability per user/per account.  One can also argue that with the mid and high-tier offerings, AT&T is giving away more GB so there needs to be a monetary balance to make up for it.

Asterisk*: For business plans, AT&T has kept the $15/month access line to give it that price differentiation.

Moreover, with service revenue trending downwards thanks to EIP, anything to reverse the decreasing ARPU trends and at the same time increase the average revenue per account (ARPA) will be welcomed by the CFO's office.  As AT&T iPhone 5, 5s and 6 users upgrade to the new iPhone, service reps will invariably push the new MSA plans as a new value with lower pricing, by default fighting any switching thoughts. 

Pricing Strategies

Many may be puzzled why any Verizon and AT&T rate changes are against each other and not Sprint and T-Mobile. It's simple, Verizon and AT&T position themselves as premium carriers and focused on purely profitability.  From a corporate revenue standpoint, there is no need to race to the bottom and upset stable revenue trends.  However, it is exactly this stance that Sprint and T-Mobile with less postpaid base are willing to take lower profitability margins (relative to the big two) to easily take marketshare. T-Mobile's positive porting numbers against Verizon and AT&T quarter over quarter speaks to the big two's profitability handcuffs.  Of course with the introduction of T-Mobile One and Sprint Unlimited Freedom may continue to claw for AT&T and Verizon high data consumers. 

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.

4Q15 US Carrier Wrap Up - Some of what to Look at in '16 - Scotch

In early February,  Dan Meyer from RCR Wireless talk about what happened with results for 4Q15.  Who won in prepaid and postpaid and the details of the U.S. operators AT&T, Sprint, T-Mobile and Verizon Wireless.

We talk a bit about network, handset and price promotion trends and some things to look out for in 2016.  

At the end, we talk briefly with some toe in the water comments about single-malt scotch and hiding it from guests.

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).