Bullet Point Analysis: The AT&T-Leap Buyout

What is it?

AT&T is buying prepaid player Leap Wireless for $15 per share in cash. Under the terms of the agreement, AT&T will acquire all of Leap’s stock and wireless properties, including licenses, network assets, retail stores and approximately 5 million subscribers. AT&T expects the transaction to complete in 6-9 months (1H 2014).

What is in it for Leap?

• For shareholders and management, they can exit the cut throat prepaid business with money. Leap and similar regional prepaid player, MetroPCS, had once enjoyed strong growth until a couple of years ago. National competitors and prepaid MVNOs ate into their marketshare and growth. T-Mobile's acquisition of MetroPCS that closed in May 2013 logically put a brighter spot light on Leap. 
• For Leap operations, the Cricket brand expands its geographical reach beyond Leap's limited regional footprint and can go head-to-head against MetroPCS and can tap into AT&T's distribution resources.
• For the Leap network, it has a clearer LTE path. Operating CDMA (96M POPs) and LTE (21M POPs) in the same limited AWS spectrum bands doesn't work well.   

What is in it for AT&T?

Spectrum:  

• Complementary PCS and AWS bands covering 137M POPs, some of AWS is not in service (41M POPs).
• Proceeds from the Leap 700 A Block spectrum goes into the deal calculus.

Subscribers and Doors: 

• Leap has 5 million prepaid subscribers but the company has been trying to right itself after steady customer losses that began in Q2 2012. AT&T increases its prepaid customer base to roughly 12 million, roughly 11% of the AT&T total subscriber base.
• Leap's distribution channel numbers a little less than 9,000 doors.  
• Commentary: Leap's business needs a turnaround that Leap's management has been trying to accomplish for more than a year. In that time, Leap lost about 900K customers. Leap's distribution also slimmed down from over 11K doors in a bid to focus customer acquisition.  AT&T's own branded prepaid is not growing. The launch of the Aio brand in May allows for the company to enter the prepaid market aggressively without diminishing the AT&T brand. Now that Leap joins the AT&T prepaid fight, the strategy is shaping up to match the segmentation strategy pioneered by Sprint (Boost, Virgin, Assurance) and Tracfone (Tracfone, StraightTalk, Net10, Simple Mobile, PagePlus, and Safelink). T-Mobile also joins in the prepaid segmentation fight with its own GoSmart and MetroPCS).  All this Tier-1 competition and the plethora of MVNOs out there vying for the prepaid share of wallet will make for thin margins.  

Strategic Positioning:

Keeping T-Mobile Away: There are many who say this is a spectrum deal. That is true that additional PCS and AWS spectrum enhances the AT&T network, I argue that a large element is to neutralize a growing T-Mobile threat. Fresh off the May close of MetroPCS, T-Mobile supplemented its AWS spectrum with a $308M deal with US Cellular at the end of June.  

To understand it roughly, rewind back to the ongoing speculation that a then independent MetroPCS and Leap were a perfect fit since both had the same prepaid business models and did not compete against each other for the most part. The results of the 2006 AWS auction (see graphics below) helped fuel this speculation as the AWS  MetroPCS and Leap spectrum fit provided an uncannily perfectly complement. Time has passed and some AWS licenses changed hands. 

           

Graphics from Phonescoop.com

But with the AT&T-T-Mobile merger breakup, T-Mobile received some AWS licenses and in 2012, Leap and T-Mobile traded some licenses. While the T-Mobile-MetroPCS coverage map looks empty in some areas of the country, that is not to say that the company lacks spectrum in those areas. 

As seen in the spectrum holdings graphic, the company does indeed have spectrum nationally and can expand if so desired.  

With the June purchase of Mississippi Valley AWS spectrum from US Cellular (Barat) Wireless) and a future rumored purchase of Leap, the T-Mobile AWS portfolio would be formidable. Aside from T-Mobile, archrival Verizon Wireless' SpectrumCo AWS deal completed in August 2012 and building out this AWS to add LTE network capacity.  

This competitive landscape would put AT&T in an AWS coverage disadvantage relative to T-Mobile and Verizon Wireless. Therefore, AT&T needed to stay in the AWS LTE game and keep T-Mobile from growing a stronger AWS portfolio. For AT&T, AWS will not only to serve to add LTE capacity customers but also tap into future AWS LTE roaming revenue. T-Mobile, AT&T and Verizon Wireless are logical future roaming partners.  

Which companies will feel the most impact?

• For T-Mobile, with Leap as a unit of AT&T, its MetroPCS geographic expansion will be challenged by AT&T's resources.  T-Mobile seemingly has a year or two lead as it is integrating MetroPCS and working on migrating the CDMA base to HSPA+/LTE but the stated goal of 2015.
• Sprint will lose 3G data wholesale revenue from the agreement forged in August 2010 that expires in Dec 2015. But now Sprint (Clearwire's owner) loses another wholesale arrangement that Clearwire announced in March 2012 though nothing really started.  It's clear now that Sprint's prepaid segmentation strategy was the correct in the long run but Aio Wireless and Cricket are going up against Virgin, Boost, Assurance, respectively. Cricket's logical national (or specific target market) expansion may spell trouble. 
• Verizon Wireless now sees a stronger AT&T rival with new found AWS and PCS spectrum from Leap. In the long term, it needs additional spectrum to thwart impending capacity brought on with WCS and Channel 55 (700 from Qualcomm) frequencies. In terms of prepaid, its branded prepaid is holding its own but without any flanker brands, competitors will take almost all the future prepaid growth.
• In infrastructure, AT&T LTE equipment suppliers, Alcatel and Ericsson now have more of an order pipeline than before.

Last Word

• The biggest question in this deal is whether the acquisition will pass regulatory hurdles. The sting of the failure to acquire T-Mobile is still fresh in everyone's minds. Like any major deal, it should have been gamed out by M&A internal and external resources taking into account the regulatory environment before it makes the light of day. 
• If regulatory hurdles are overcome, what conditions will there be? AT&T has proactively said that the Chicago 700 MHz A Block will be sold. (It doesn't like the A block anyway). Will the company need to divest in other markets (planned or unplanned)? 

Analysis: T-Mobile’s "Boldest" Move - JUMP and Simple Choice forFamilies

What is it?

• T-Mobile announced an equipment upgrade program known as  JUMP!™, which enables people to upgrade their phones when they want, up to twice a year as soon as six months from enrollment. The monthly outlay is $10/month with equipment warranty (theft, lost, broken, or when one wants another phone).
• The Simple Choice for Family plan (4 lines of unlimited talk, text and web(500MB) for $100/month) was also announced allowing access to discounted  plans without a credit check. The caveat is that payment must be in advance (prepaid).

• JUMP Details: 
• Enroll in JUMP for $10/month. Have to wait for 6 months until the first 'JUMP' to get a new device. 
• If in 'Good Working Order' (powers on, no screen cracks, no visible water damage), customer can get the next latest and greatest. If customer is financing it (Equipment Installment Plan (EIP)), remainder of payments are waived. Customer can enter a new EIP plan.
• If not in 'Good Working Order,' a deductible will be paid ranging from $20-$170, depending on device,
• Customer can upgrade twice a year. It could be as early as the next day. 

What it means for consumers:

• For T-Mobile consumers who are early adopters and want the latest and greatest, Jump should be very compelling.
• For T-Mobile customers who don't care for upgrading and are price-sensitive, they're not likely to enroll in JUMP as the enrollment tallies to $120 a year.  
• For credit challenged family customers who want access to discounted postpaid rates, this should spur them on.
• The JUMP plan should appeal for early adopters in other competitors. Since T-Mobile is targeting AT&T, it would be logical for T-Mobile to step up some anti-AT&T marketing as it has done so already.

 What it means for T-Mobile:

• JUMP is an interesting anti-churn tool that appeals to a segment of customer who is willing to switch to get the latest and greatest. For this reason, it comports with T-Mobile's public comments stating that 2013 is going to be a year to stabilize.
• JUMP may be an effective switching tool. If T-Mobile can convince potential switchers that the T-Mobile network is just as good as everyone else's that would help customer acquisition.  
• The long term impact of JUMP 'trade-in' devices will help its MetroPCS unit.  These turned in devices will be refurbished and pushed into the MetroPCS portfolio as refurbished. For the MetroPCS customer who normally pays full priced for a phone, access to nearly the latest and greatest smartphone at a lower cost increases service stickiness. As T-Mobile wants to transition MetroPCS customers from their CDMA phones anyway, this move can potentially help accelerate the migration to the LTE/HSPA network and refarming of MetroPCS PCS spectrum. 
• Depending upon the JUMP subscriber size, the $10 monthly fee may be a factor in lifting postpaid ARPU.
• Simple Choice for Family should also help T-Mobile acquire subscribers. The price point is compelling. This plan could draw price sensitive postpaid family subscribers from competitors as well as transition families dealing with individual prepaid plans. How much this will hit Tracfone brands like StraightTalk and Simple Mobile remains to be seen. Of note, Simple Choice is LTE accessible whereas MVNO plans are still 3G/HSPA (okay 4G-ish). 

·          

Which companies will feel the most impact?

• AT&T as the very public target should see the most marketing against its subscribers. Other competitors may experience some leakage from their early adopter community as well, especially those whose ending contracts. 
• T-Mobile warranty companies should be busy depending upon how well JUMP is embraced.
• Handset makers (likely with halo devices) will likely see more volume coming out of T-Mobile. With increased volume, T-Mobile may leverage this to attain more favorable pricing. 

DISH Folds & Some DISH Options

Poker 

As the long multi-hand poker game with Sprint, DISH, Softbank and Clearwire dragged on with DISH upping the ante, forcing Sprint and Softbank to push, DISH folded on both deals in the end.

DISH's game to takeover Sprint ended on June 18, 2013 when they withdrew their offer. The press release language implied that they will devote their resources to win Clearwire. It didn't look bad when the Clearwire board recommended DISH's offer back on June 12. 

But with a higher Sprint offer on June 20, the coup de grace came several days later on June 24 when the Clearwire board reversed its DISH recommendation for Sprint's offer.  

DISH folded on its second poker hand with yesterday's June 26 announcement. Many including me, expected another run, upping the ante, given DISH's playing profile but what did it have to gain? Really - nothing.

DISH's Options

The near term scenario is that DISH needs to get service up and running. Any time you're delayed means lost future revenue opportunity. With its core business slipping, there is urgency to get into the mobile space. Given this line of thought, it needs to bury the hatchet with Sprint and move to spectrum hosting.

A long term scenario is that DISH can wait until an alternate hosting provider comes on line. T-Mobile has been bandied about as that partner.  But why not Verizon Wireless and AT&T? Everyone wants access to new spectrum and if the deal is right, anything is possible. 

Regardless of scenario, DISH and a partner(s) need to seed the mobile ecosystem on DISH's bands. Technically, it may not be a stretch. However, the lead times to quickly  create/productize the chipsets and integrate into production hardware (device and infrastructure) are still an issue. Once it joins the mobile service provider club, DISH can upsell its own customers on mobile broadband (either fixed or mobile) and wholesale its capacity.  

Looking ahead, DISH is looking for another game but it may not be poker. 

The Finish Line is Close for Sprint

No one expected the level of drama and the maneuverings among Sprint, Clearwire, Softbank and DISH. To be sure, the stakes were high for all parties. A poker game analogy is appropriate as this corporate soap opera has seen its share of raised bids and stare downs.

DISH with Charlie Ergen at its helm played the classical disruptor, raising the stakes on its bid on both Sprint and Clearwire. It's logical since the DISH core business is sliding and DISH has no access to any mobile opportunities (revenue).  Though DISH has its own spectrum, it doesn't have the ability to launch service on its own. With Sprint's Network Vision strategy, DISH can ride the Sprint host with lower capital expenditure than if it built a network from scratch. But Sprint has a revenue generating subscriber base and direct sales channels that DISH can tap into if it own Sprint.  However, with a deeper pocketed Softbank raising the ante, DISH needed to fold and focus on a less capital intensive deal - Clearwire.

However, Sprint "pulled a DISH" and raised its bid for Clearwire at the last minute $5/share vs $4.40.  This reversed a Clearwire board recommendation for DISH. Let's face it, money talks and with that, the activist investors were placated. After all, they were looking to maximize any bid anyway. What didn't hurt was Sprint's lawsuit against DISH and Clearwire citing the illegality of the DISH offer.   Sprint is near the finish line to realize 100% ownership of Clearwire, unless DISH "pulls another DISH." 

The real question if the Sprint-Clearwire deal makes it is what are DISH's options to get into the mobile space and monetize its spectrum? Will Sprint and DISH bury the hatchet? In my view, they have to. DISH still needs to make use of its spectrum and Sprint is the logical partner (at this moment) since Network Vision was created for spectrum hosting. Though Sprint said in the past, wholesale revenue wasn't totally baked into the Network Vision model, any wholesale money (a fleeting LightSquared) will help its return on investment. Of course DISH can court T-Mobile, but they're focusing on its own LTE buildout. Moreover, they haven't planned for spectrum hosting. We shall see............. 

T-Mobile Takes PR Advantage of Early Q1 2013 Metrics

T-Mobile is probably the earliest to report Q1 2013 numbers, over a month ahead of the May 8, 2013 Deutsche Telekom formal release date. Only after 4 days since the first quarter closed, they reported some specific subscriber and churn data through their press release.

Here's a full look (2012 and Q1 2013) at the metrics on a table (click on the graphic for a bigger view). 

Why So Early?

T-Mobile needs to show that its strategy is succeeding. A key part of the 2013 goal/strategy is to stabilize the postpaid subscriber base.  By all accounts, Q1 2013 is going well in the ~ 60% range decrease in postpaid losses sequentially and year-over-year.  Though the company is still bleeding postpaid subs, the trend is positive. Q2 will be a crucial quarter as the iPhone goes on sale and the marketing to push AT&T switchers increase.  The trajectory looks good and the question for T-Mobile is which quarter the company crosses a positive net addition.

Wholesale to the Rescue

The pickup in MVNO and machine-to-machine subscribers have been saving the company's bacon for several quarters. Both categories account for 576K net adds.  The irony is that the MVNO partners such as Tracfone's StraightTalk and SimpleMobile are vying for the same price sensitive prepaid base is in the running for.  However this is likely to be a similar prepaid segmentation strategy that Sprint is employing.  When MetroPCS is complete, there will likely be additional rejiggering of the strategy.

Missing Data

We'll all have to wait for the financial numbers to be released in May. Aside from overall revenue and EBITDA margins, ARPU will be somethings that I'm looking for include the direction of CPGA and ARPU for postpaid and prepaid.   

Revisiting T-Mobile USA's 2013 Value Plan Only Move

FierceWireless quoted T-Mobilenews.com's posting on the introduction of handset trade-in options.  While this may be news to some, the game plan had been somewhat laid out back at DT Capital Markets Days in December 2012.  At that conference, CEO John Legere talked about moving to an all Value Plan (vs the "Classic" phone subsidized plans) portfolio in 2013. A crucial element of that plan and subscriber adoption was the device trade-in value proposition.  

Let's recap the postpaid Value Plan.  Essentially, the plan is a less expensive monthly outlay than the traditional Classic plan. In order to get the lower monthly price, the customer either brings their own device (read iPhone) or buys a device from T-Mobile. While these devices could be $300+, T-Mobile has long offered an Equipment Installment Plan or EIP (financing for the credit eligible).  T-Mobile's argues that Value Plans offer upgrading and flexibility.  That is if you upgrade, you don't have to change (extend) your contract.  The company hopes a new trade-in program will provide customers an easy way to take the device's value towards a new device or the service.  

However, trade-in programs aren't new. They've been in the industry for a while and all tier-one carriers have existing programs. 

Even T-Mobile has a current program.   Big box retailers such as Best Buy, Walmart, and RadioShack also have trade-in programs.  So it appears that some companies advertise it more as a means to generate sales and traffic than others.  If a T-Mobile trade-in program already exists, we'll have to see how a new one differs.  Perhaps it may be just greater advertising and customer awareness?

Regardless, the focus of this post is T-Mobile's view on its 2013 strategy to Value plans. At the January Consumer Electronics Show, CEO Legere reinforced its Value plan strategy, separating "the device and rate plan."

  
With Value plans already in existence in the T-Mobile portfolio since September 2011, what's the logic behind getting of the old Classic or subsidized plans.  It comes down to profitability and market positioning.  On the surface, the lower price points (vs competitors) and unlimited proposition should be the main points T-Mobile should be driving home. They differentiate with their yet to be fully launched "Uncarrier" campaign.  The profitability logic was revealed as Legere pushed his case to investors/the financial community back in December.  Here are some highlights cited and other value propositions:

While the standard ARPU and service plan margin seems counter intuitive, the  bottom line calculus in revenue and overall margin has obviously passed the internal business case.  Moreover, churn reduction and postpaid subscriber stability were stated 2013 goals.  Conceptually, the Value plan strategy should deliver this. Yet the company is experimenting and trying to change embedded wireless (postpaid) customer behavior.  I think I am stating the obvious by saying that buying a device at full price is counterculture in the US market where inexpensive devices rule.  A less painful upfront cost has proven appeal.  T-Mobile has an formidable challenge ahead to move its base to the new plans and to attain switchers.  

4Q2012 Prepaid Carrier Trends – Be Warned – It’s A Long One

Now that the Q4 2012 earnings are done, let’s look at the segment that had been driving a lot of the wireless growth in the past few years – prepaid. Rewind back to 2007/2008, Leap and MetroPCS were strongly acquiring subscribers with their unlimited propositions. The subsequent years saw similar flat rate introductions from the likes of Boost, Virgin Mobile, Tracfone’s StraightTalk and NET10. With the pressure from the monthly prepaid plans, Tier 1 carriers Verizon Wireless, AT&T and T-Mobile also joined the mix. The commonality in competition is for the high-value user. The traditional pay-as-you-go (PAYG) user’s contribution is far less. These users range from ‘glove box’ (low use) to moderate users. They also tend to be highly price sensitive and have a higher churn profile. The opposite is true to monthly plan users. These users while also price sensitive are heavier users and are fine with a flat rate model for predictability. They often have a lower churn profile relative to the PAYG user. That’s not to say they’re in the postpaid sub 2% churn territory. But for the prepaid segment, these monthly users are lower churn. 

Smartphones have been appearing in the prepaid segment for the last two years. While the companies want to offer the same capabilities as the postpaid segment, the prepaid model calls for low to no subsidies on devices. Of course companies strive to find low cost providers (e.g., Huawei and ZTE) to fill that niche and to leverage price against existing suppliers (e.g., Samsung, LG, Kyocera, HTC, etc.). The goal of course is to drop the smartphone price so that buyer can perceive that they’re affordable. However, prepaid providers walk a fine line for inexpensive devices because if a device is perceived as almost a throwaway, the likelihood of churn increases. For those reasons, expensive halo devices like a Samsung Galaxy S3 or the Apple iPhone keep the carrier sticky. 

With this as a backdrop, let’s look at how the players fared? Purely on net addition numbers, we can see that the regional unlimited players that ruled the day back in 2007/2008 are in trouble with Leap Wireless in the poorest shape with over 300K in subscriber losses. In Leap’s earnings call they noted that they are de-emphasizing their pay-as-you-go and mobile broadband business. There is logic in this as mobile broadband users eat more bandwidth (leaving less for monthly users) and PAYG are less revenue generating. MetroPCS though with less subscriber loss follows the same loss trend that has plagued Leap for many quarters. The company claims that they’re de-emphasizing CDMA growth but this tactic has resulted in an overall 5% loss in the base. This meshes with the long term strategy anyway once T-Mobile integrates and eventual use the 1900 CDMA to convert to 1900 HSPA+. By contrast, Tracfone’s net additions are by far the most impressive. The company buys wholesale from many carriers and has a large mix of PAYG and a growing base of monthly users. Presumably StraightTalk is doing well for the company as evident in ARPU. Several years ago, Tracfone ARPU was 10. In Q4 2011, it was 16 and in Q4 2012, it is now 18. APRU just doesn’t jump like this by growing a purely PAYG product. 

While Verizon Wireless had a tremendous Q4 in the postpaid side with over 2.1M net adds, the positive prepaid numbers indicate their competitiveness. Despite a down from a year ago and the previous quarter, it speaks to their premium brand messaging and perhaps a new November double data plan promotion. This is pretty decent for a predominately postpaid company. AT&T on the other hand is on a steeper downward slide. In Q3 2012, the company added 77,000 users with those gains erased with the 166K lost in Q4. AT&T is still a postpaid company with prepaid making up around 7% of the total subs. It will be interesting to see which way the direction turns for AT&T in Q1 2013. Another predominately postpaid carrier doing well in prepaid is US Cellular. Though the regional carrier continues to shed postpaid subscribers, the new U Prepaid plans that it has partnered with Alltel may be helping the cause. 

Moving onto the rest of the carriers, Sprint’s prepaid numbers have been down relative to previous quarters because the Assurance brand that had been driving huge subscriber count has been slowed due to FCC’s revamping of the subsidized Lifeline program in 2012. The company has already warned of a 1.2-1.3M subscriber loss possibly in Q2 2013 due to the revamping of rules. Regardless, the company indicated that the Boost and Virgin Mobile brands have contributed to the positive numbers. At the same time, the company is actively trying to migrate older Boost iDEN users off ahead of the iDEN network decommissioning. Finally, T-Mobile’s prepaid business is offsetting continued losses (550K) on the postpaid side. Again the above numbers are branded prepaid. T-Mobile counts MVNO (wholesale) net additions as prepaid as well. Branded prepaid at end of year 2012 represented 17% of the overall T-Mobile base. Looking ahead with the combination of MetroPCS’ prepaid subs, branded prepaid will transform to 45% of T-Mobile’s subscriber count. Given the higher churn profile of prepaid and lower revenue, it’ll looks challenging for future higher revenue contribution. But that’s months away…. Q1 2012 typically continues Q4 sales momentum. We’ll visit that to see what develops.

US 4Q2012 Carrier Results - Google Hangout with RCR Wireless

Dan Meyer, Editor in Chief of RCR Wireless asked me to discuss Q4 2012 carrier results and some thoughts on some future direction.

http://www.rcrwireless.com/article/20130307/carriers/breaking-q4-wireless-carrier-results/

Tier 1 Q4 2012 Smartphone Growth and the iPhone

Now that three Tier 1 carriers have reported their Q4 results, here are some observations and commentary on smartphone growth.  As most industry people know, smartphones are the hot user commodity. Smartphones serve many purposes from a churn reduction tool, to ARPU uplift (offsetting voice revenue decline) to increasing operational efficiency (move data consumption to a more data efficient (capacity and throughput to the LTE network). But the old 3G network also has legs so for now, wholesale (MVNOs & M2M) and prepaid can extend return on old investment there.

iPhones have been a catalyst for increased carrier data revenue. AT&T's past  iPhone exclusivity has allowed it to accumulate a massive customer base that proven to be low-churn and loyal. With the exclusivity gone, other carriers (through Apple's deal-making and carriers' realization that an iPhone is competitive table stakes) also jumped on the iPhone bandwagon.  The notion that iPhone is such a powerful sales acquisition and retention tool has played out again in Q4 2012.

For the big three, AT&T, Sprint, and Verizon Wireless, smartphones sales/activations continue to be on a positive track.  AT&T reported 10.2 million smartphone sales in Q4, while Verizon Wireless came close at 9.8 million, and Sprint posting 6.1 million. These added up to 26.1 million smartphones.  The interesting observation is how many of these smartphones were iPhones.

• AT&T - 8.6 million
• Verizon Wireless - 6.2 million
• Sprint 2.2 million

As a percentage of the overall Q4 smartphone sales, iPhones activations accounted for:

• AT&T - 84%
• Verizon Wireless - 63%
• Sprint - 36%

On the whole among the three Tier 1 carriers, the iPhone accounted for 65% of smartphone activations. 

Impressive stats for sure. With contenders from BlackBerry (BB10 OS), Microsoft (Windows Phone 8) and Android, can the iPhone in the U.S. continue its run?  I submit that this hinges on Apple innovation.  As I've said previously, Apple needs to innovate, as its user interface (UI) is aging with incremental innovation.  Customers have a lofty expectation of radical things for each iPhone (and iPad) model.   Apple needs to deliver in 2013 or the early adopters (and then the mainstream) will move on.   

Substantive Switching Credit

I just caught this switching ad from Sprint. I found it through a Facebook ad.  The promise is to receive $400 credit for switching a family plan with 3-5 lines. It reprises a similar $400 effort reported in August 2012. While switching credits are nothing new, the $400 figure is notably high to entice. 

Sprint Switching Ad 

Sprint isn't the only carrier in the switching game for Q1 2013. US Cellular at the end of January launched a $300 switching promotion.   

What is the motivation?

• Postpaid Penetration - Carriers have long talked about the near saturation of the postpaid marketplace. In this world, organic growth has slowed and the only way to get net additions will be to steal it away from other carriers. 
• Quarterly (Q1) Performance - Both Sprint and US Cellular have been losing customers at a rapid rate.  Sprint's iDEN customer defections have been a thorn in its side for 3+ years.  US Cellular as a regional carrier has not been effectively competing against Tier 1 competitors despite upgrading to LTE and upgrading its device portfolio.
• Families are Low-churn & High ARPU-bearing - The promotion grabs 3-5 subscribers and the carrier locks them in for two years. The promotions specifically push customers into smartphones and data plans. Data is the monetary upsell and the sticky value-prop. 
• Promotion Credit Sunk Marketing Cost - In business, there needs to be promotion to draw interest to your product. Some companies have different tolerances for the cost to acquire a customer.  At the end of the day for Q1, Sprint and US Cellular need to beef up their gross adds.  

BlackBerry Branding - Intuitively Obvious - About Time

BlackBerry is now the corporate moniker for the old Research in Motion.  This may be non-news to the mainstream consumer/user sector as the association has always been with the product name.  To those in the analytical community we've always referred to the company as RIM or RIMM.  It seems like such an intuitively obvious move, a no brainer. But why now? 

The launch of the new BB10 seemed like a perfect timing to positively launch a new company and show execution of new thinking. Good move RIM BlackBerry.  The next move for BlackBerry marketers is to ensure the second 'B' is capitalized and to tell us what the correct marketing convention is for the plural of BlackBerry.

Here's BlackBerry's Chief Marketing Officer going through the logic.

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.

  

2013 Predictions

RCR Wireless graciously asked me to write some 2013 predictions.  I'm not one for looking into a crystal ball or pulling stuff out of hat but logically things in mobile don't just start over night. Rather, I focused on trends in network and wifi.  

Read it here at RCR Wireless: 2013 Trends   

MetroPCS Q4 and 2012 Results - Ouch

MetroPCS released their Q4 2012 and year to date 2012 results ahead of the Q4 earnings call later in the month. What stands out is the surprise subscriber loss over the year. 

With over 93K subs lost in what is supposed to be a hot Q4 holiday selling season,  the results suggest that the prepaid sector is as cut throat and competitive as ever. The result of these losses invariably is a function of its gross additions.  The simple theory goes, if you have a good distribution and acquisition network, you can help offset the subscriber losses and in an optimal scenario, come out ahead.

MetroPCS' gross additions were also down in Q4 and end of year compared to 2011.  Churn is down a small bit at 0.1% or 10 basis points in financial speak. It's a small win.  There are other metrics that can help tell the story of what's going on such as EBITDA/OIBIDA margin, ARPU, CPU and CPGA but we'll have to wait on that.  While this may look bad, one can give MetroPCS the benefit of a sliver of doubt assuming that they could be letting go of low-value or high-risk users for more profitable customers.

Yet the prepaid sector is very competitive with many similar offerings from Tier 1 competitors (Verizon Wireless, T-Mobile, AT&T, and Sprint prepaid brands Boost Mobile and Virgin Mobile) and MVNOs such as Tracfone's Straight Talk and Net10.  Another worry may be any hint of distributor apathy ahead of the mid-2013 T-Mobile-MetroPCS transaction. While T-Mobile intends to retain the MetroPCS brand, MetroPCS better figure out how to reverse subscriber losses before the deal is consummated.

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. 

DISH Has Terrestrial Approval - now what?!

Now that the FCC has approved terrestrial use of DISH's 40 MHz of spectrum (2000-2020 MHz and 2180-2200 MHz), what are its options?

1. Build it out - it's capitally intensive to build out a national network so a wireless carrier partner is necessary.  Why a carrier? It's in their core competency to implement and run networks.  Sprint is in the best position to meet DISH's wireless buildout goal with its Network Vision (spectrum hosting capability) strategy.  Stating the obvious - having a carrier such as Sprint host allows DISH to bring services up quickly and minimize a huge self-built price tag.

2. Sell the spectrum - getting money in the short term is always desirable.  But as the industry has seen, spectrum will always appreciate.  Yet there's been precedence for this. Spectrum Co (cable companies) sold its AWS spectrum to Verizon Wireless. They realized an appreciation in the base price from when they bought it in 2006.  More important aside from the money, cable companies (Cox, Comcast, Bright House and Time Warner) has strategic wireline and wireless possibilities with Verizon/Verizon Wireless.  With this in mind, DISH could cut a sale deal and wholesale at favored rates from the buyer. Presumably, the spectrum buyer will be a wireless carrier. Sprint would make the most sense.

BUT........
 

Don't forget the devices that will run on the DISH spectrum. Device and chip makers haven't exactly created product yet to meet this need. There is a ramp up time to incorporate it into the product portfolios. It doesn't happen overnight - look at the time in which Sprint/Clearwire announced TD-LTE 2.5 GHz support to when devices will have that band and technology incorporated.  This is a factor in both the above scenarios.

Let's see what DISH does......... 

Why Sprint + DISH Makes Sense

Today's Bloomberg report  suggesting a possible deal where Sprint hosts DISH's spectrum is logical. While DISH has held this spectrum for some time, they have yet to throw services on it. DISH needs a mobile component as all their fixed line rivals (e.g., AT&T, Verizon and Cable Cos) have or will have mobile capability.  The media and industry speculation with Google in mid-November has yet to materialize.

Keeping Up with Competitors

From a fixed line view, these competitors are pushing for subscribers being able to access content in any device (i.e., smartphones, tablets, PCs, TVs, cars?). Of course the service provider will love to upsell an alternate access medium to customers. While DISH is a capable satellite provider, it has little experience in the terrestrial side. A national buildout of their MSS spectrum would be capital intensive and outside of their core competency. 

Enter Sprint

Sprint's big bet in their 2010 Network Vision strategy that hosting spectrum would be an element of its wholesale strategy. There was much promise as then cable company (SpectrumCo)  partners had a near national AWS footprint and Clearwire needed a platform to expand to new markets. So far, only the nearly defunct LightSquared was the only shortlived spectrum hosting deal. Therefore, any spectrum holder who needed to bring up service is fair wholesale game.  With the Softbank cash infusion,  Sprint has publicly stated that it has the flexibility to do more things.  Aggressively courting DISH and hosting MSS spectrum should be a no-brainer despite any previous tension on MSS spectrum interference with with Sprint PCS operation.

Possibilities

It's an inevitability that MSS will run LTE. If MSS bands were to increase Sprint's LTE capability beyond their 5X5 channel implementation, a wider LTE band helps Sprint LTE capacity allowing Sprint's Unlimited data proposition to extend. Speed is another factor in which channels can be aggregated to provide a fatter LTE pipe.  

A DISH deal allows for a long term alternative (and a lever) to being locked in with Clearwire's TD-LTE. At a minimum, a DISH+Sprint PCS/MSS LTE pipe complements  any data offload.