TC2's David Rohde on Telecom
By David Rohde Posted November 14, 2014
Score this one for Verizon vs. AT&T. Every carrier that counts was faced with a quick decision on Wednesday. They were all scheduled to have a senior executive speak at a Wells Fargo telecom and media investors’ conference in New York. That scheduling was set long before a bit of a bombshell in the industry on Monday, when President Obama weighed in with unusual specificity on the current debate over “net neutrality.”
I’m not talking about AT&T and Verizon’s policy response on net neutrality – they both disagree vehemently (and more or less equally) with Obama’s position. And they’ve both made it plain that they will go to court if the FCC adopts something like what Obama is talking about.
Instead I’m talking about the way each decided to throw its weight around in the prominent conference that was due to occur 48 hours later. One carrier decided it was time for a quid pro quo to demonstrate, not just assert, their position on net neutrality (an issue that has generated 4 million comments to the FCC).
That would be AT&T. CEO Randall Stephenson declared that AT&T will have to suspend its currently planned fiber build-outs while the position that Obama supports – let’s call it “Title II Lite” – is even being considered. “We can’t go out and invest that kind of money deploying fiber to 100 cities not knowing under what rules those investments will be governed,” Stephenson said.
Offered much the same bait, Verizon’s CFO Fran Shammo demurred. First, he made a very brief positive pitch for the other net neutrality approach – let’s call it “Section 706” – which to be clear would probably be a less stringent approach to the contentious “fast lanes” issue. But then he refused to let current capital expenditures be held hostage.
“You’ll see consistency continue,” said Shammo. “If you’re not consistent with your spend and you don’t get the right leases and you don’t get the positioning to actually build identification and capacity, you’re going to run into a problem. You can’t stop and start that because it puts you pretty far behind.”
Thud. At this point I’ve lost count of the number of places where AT&T’s Stephenson is being rung up for being the one to introduce blackmail into a policy debate at a time when users critically need more on-net, end-to-end bandwidth no matter what’s going on in Washington. And as opposed to a great deal of Internet chatter and even comedy routines on “net neutrality” for most of this year, the opprobrium for AT&T isn’t really partisan and limited to those who hold what is now Obama’s position (which appears to not quite be the FCC chairman’s position).
My favorite takedown from somebody who’s no kind of net neutrality activist comes from Rob Powell at Telecom Ramblings, who yesterday compared Stephenson to the “Soup Nazi” from Seinfeld. “In this case it’s ‘No fiber for you!’ to those of [AT&T’s] customers who might have been finally getting some soon,” wrote Powell, impishly adding: “Not that it was all that widespread to begin with.”
Look, here’s the problem. Last week I noted that the carriers who are now succeeding in the market are putting capital expenditures at the top of their announcements rather than the bottom and are bragging about capex growth rather than pleading for credit for constraining it. (While capital expenditures are indeed investments and are not GAAP expenses like salaries, rent, and so on, every dollar spent is still a reduction in the “free cash flow” that carriers were desperate to keep positive when the industry was still hiving off players to bankruptcy.) There’s a basic realization that the network job is never finished, both because of ever-increasing user demand for bandwidth – a point our UK managing director Mark Sheard illustrated on the wireless side last week – and because building entrances are now table stakes for competitive as well as incumbent carriers.
When Stephenson raised capex as a political bargaining chip on Monday, it reminded me of AT&T’s mistake in 2011 when it made a promise to hire 5,000 new workers if the government would let it acquire T-Mobile. In that case the promise rang false because by 2011 people realized that wireless was already one of the great growth industries of the country and a major carrier hardly needed a merger as a “reason” to hire a lot of new people.
In this case cutting off new fiber-to-the-premise also has a hollower ring than it would have three years ago. Direct access to multimegabit bandwidth is nowhere near universal, of course, but cable companies are actively competing for households’ business and let’s face it, most people in our enterprise world now hold a great deal of bandwidth in their own hands. In both cases AT&T seems to be taking the same public policy PR arrow out of its quiver one time too many.
Of course I may be letting off Verizon too easy here. The full comparison between what Stephenson and Shammo said has some important nuances. Shammo did say that Verizon continues to rebalance its total capex, so even if it remains steady year-to-year, wireline spending will have fallen in 2014 even as wireless network investment will have risen an equivalent amount. Stephenson made his comment, which primarily deals with residential buildouts, after AT&T had already projected an absolute decline in its total company capex for 2015.
AT&T’s moves also have something of a war-gaming relationship to the activities, real or projected, of Google Fiber. And what’s the deal specifically with net neutrality, including the real meaning of the alternative Section 706 and “Title II Lite” approaches? That’s being bird-dogged on a daily basis by the folks in LB3’s regulatory practice, who can dive with you into the enterprise implications beyond the public noise.
But how all these statements this week exploded into the public arena, nuance or not, counts big-time. We’re no longer in a period like five years ago, in the wake of the financial crisis of 2008, where conserving on the network impresses anyone. Any carrier that pulls back can expect someone else to march up behind them. Waving around network threats in public policy debates is not free of real-world, marketplace consequences, as AT&T is now finding out.
By David Rohde Posted November 7, 2014
My heart melted this morning when the Zayo Group issued its quarterly earnings and wasted no time getting to the nuts and bolts. Or nitty-gritty, or brick and mortar, choose your metaphor.
Already in the fourth sentence of the announcement, we were into network investments and on-net building counts. “Capital expenditures were $115.3 million, which included adding 387 route-miles and 530 buildings to the network, as compared to capital expenditures of $94.9 million for the previous quarter,” Zayo reported.
Wait, where are the CEO quotes? Pie-in-the-sky project names? Callouts to the company employees – excuse me, “team members” – for their “hard work”? Excuses for the reported net loss under GAAP accounting (of which there was one, as all of Zayo’s stock buyers in its recent IPO had to expect as a high-growth carrier)?
By the way, that GAAP loss? It was in the third sentence of the press release. Not its absolute number ($110 million, clearly stated in the table in the middle, not the end of the release) but the fact that the loss had increased $37 million from the previous quarter.
Don’t people know how to spin anymore in the telecom industry? What’s with all the truth-telling and enterprise relevance? I’ll tell you what I think is going on.
One is that past blather and hiding-the-football hasn’t worked out too well for legions of carriers that got their venture capital or private equity but saw their projected enterprise sales evaporate.
The other is that the wireline industry is becoming more exposed and specialized with better-defined and well-understood success factors (such as end-to-end visibility if not full ownership of the underlying facilities). For everybody except the four companies with national wireless networks – one of which has no wireline business and one of which is likely to give it up – there’s no 40%+ margins with tens of millions of contract subscribers toward which to tilt the business model.
Zayo is a company that you may or may not have dealt with, although my bet is that if your company is in the financial services vertical they’re on your radar screen (even if via one of their past acquisitions, such as AboveNet). And there is some diversity to their business model, including a fair bit of pure dark fiber, that requires a deeper dive into their numbers and products to understand their relevance to you and your geographical and industry-specific needs.
But I think this is another example of the phenomenon that led to Level 3’s acquisition of TW Telecom and the close focus that everyone is paying to it. Especially as dedicated access is starting to pull away from the venerable T-1 model and corporate locations of all types are requiring much more, such phenomena as on-net building counts, special construction project management, and pride rather than shame in increased capital expenditures budgets are coming to the forefront.
I look forward to more earnings reports like this. It’s almost becoming table stakes to participating in the enterprise telecommunications market from here going forward.
By Mark Sheard Posted November 6, 2014
The following is a guest post by Mark Sheard, Managing Director of TC2 UK.
Now that 4G is becoming widespread, are you ready for 5G? If that seems far-fetched, keep in mind the amount of money that your enterprise spends on mobile broadband despite the fantastic efficiencies in bits-per-second that 4G has in theory brought. Technology is going to enable ever faster mobile data speeds but also increasingly data- and bandwidth-hungry applications.
The end of this cycle is a long, long way off. What this means for you as a technology or procurement team responsible for wireless services is getting set for Groundhog Day. Just as in the classic Bill Murray film, you’ll find yourself placed in the same place again and again.
This will entail a repeated cycle of checking and ensuring that you are getting the right level of data at the right price. If you think you have finally secured a great deal that accommodates all your data needs, and gives you the appropriate data allowances and speed of service at the lowest cost, almost as soon as you have thought it, things have changed.
According to an October 17 FCC Notice of Inquiry on the use of radio spectrum: “There is as yet no consensus definition of 5G [the successor to LTE and 4G for wireless services], but some believe it should accommodate an eventual 1000-fold increase in traffic demand.” If you think selling radio spectrum and realizing 5G is some way off, Samsung last month reported “speeds of 7.5Gbps while stationary on a 5G network as well as 1.2Gbps while in a vehicle travelling at more than 100km per hour,” according to ZDNet. The same article states 5G commercial deployment as at least 5 years away. That doesn’t feel too far away – only the duration of your next two wireless deals?
Even without 5G, there are lots of startling statistics illustrating the fantastic growth in data consumption for mobile devices. Ericsson, one of mobile technology’s pioneers, reported this fascinating comparison in its June 2014 Ericsson Mobility Report: “Mobile data traffic in Q1 2014 exceeded the total mobile data traffic in [all of] 2011.” Ericsson also said there was a “65% growth in data traffic between Q1 2013 and Q1 2014” and there will be a “10x growth in mobile data traffic between 2013 and 2019.”
Continually increasing network speeds are going to trigger continually increasing demand. Or is it the other way around? Either way, it will be a “cat and mouse” game matching supplier products and commercial offerings with user demand and your telecom budget. Within the bounds of balancing return on investment for the resource expended versus savings made and/or increased capability gained, you need to quickly plan for the next procurement cycle to ensure that you do not find yourself paying over the odds for less than everyone else is getting!
Be under no illusion, if you want cost-effective wireless services, you will need to invest time and effort in reviewing, analyzing and re-negotiating your wireless deals on a regular basis. You will need to avoid committing to contracts that are too long. And you will need to ensure that you are tuned into what is available in the market and can confirm that this is reasonably close to what you secure in your negotiations.
If you start from the wrong place, the inevitable drift away from the optimal over your contract term as a result of the mobile data growth phenomena might leave you severely out of pocket.
By David Rohde Posted November 5, 2014
A historic problem in telecom is getting carrier CEOs to stop pandering to stock market analysts so much that they forget about actual customers’ needs.
It looks like Level 3 CEO Jeff Storey now has something of the opposite problem. He spent part of a quarterly earnings call this morning fending off these so-called “analysts” who, in my view, kept encouraging him to do the wrong thing by customers.
I personally found the whole thing funny. And I was gratified that Storey pushed back at them in a way that past industry executives have failed to.
At play is a fundamental misunderstanding by some portion of Wall Street of what Level 3’s acquisition of TW Telecom is all about. Ordinarily when two carriers (or two makers of any perceived similar thing) merge, they promote a pile of “synergies.” Supposedly since both companies provide “telecommunications” to people and companies, they can axe a bunch of redundant expenses that go well beyond pure administrative functions like HR.
And don’t get me wrong, Level 3 is indeed promising Wall Street some synergies out of the TW Telecom acquisition.
But a number of these analysts clearly want more. It wasn’t good enough that Level 3, which not long ago was practically a basket case and whose earnings reports were riddled with charge-offs and all kinds of asterisk-y funny business, today reported a real, honest-to-goodness third-quarter profit of $85 million, or 36 cents a share. As soon as Storey and CFO Sunit Patel opened the call to questions, the analysts went for the old panaceas of product and network migrations and carve-ups of the poor acquired company’s business model.
One analyst immediately wanted to know what the timetable was for taking TWT’s network offerings and “kind of rolling that to your products.” Storey responded that TWT’s bandwidth-on-demand, Ethernet and cloud connection offerings are “excellent” and then politely but firmly said, “One of the ways we are thinking about this transaction is – the benefit is – as of today they ARE our products. We have them available for every one of our customers.” Meaning Level 3’s own customers.
The next analyst demanded to know how long it would take to “realize” synergies based on presumed underlying network redundancies. Storey pushed back on the idea that speed and dollars saved are the primary considerations. “The gating factor is making sure we are doing this in concert with our customers,” he said. “There is an impact when we move them from one to another making sure that we sequence the migration, so that we are not continually hitting customers over and over as we migrate.”
Here’s the disconnect. Even from an investor’s, not customer’s, standpoint, this merger is not about wiping out a competitor. That was proven when a question came up about whether TWT itself had had a sales slowdown during the merger closing period (as typically happens to companies in the process of being acquired). The Level 3 executives responded that if anything, TWT sales sped up (my guess because a lot of sizable companies hadn’t really heard of TWT before the Level 3 acquisition was announced). This transaction is very largely about what TWT actually has and is worth keeping, particularly its 22,000 on-net building entrances that were triple what Level 3 had on its own.
Besides that, part of the reason Storey is in there is because of past Level 3 merger-integration messes before he ran things. The “learnings” of Level 3’s past foul-ups have featured heavily in their statements both before and after they announced this latest acquisition.
I don’t want to spread any naivete about what’s going to happen in the real world. Level 3 has promised some synergies because they have to. They may not have near-term debt maturity bombs anymore, but they do hold a great deal of debt on their books and must maintain a technical range of a certain ratio of operating cash flow income (that crazy “EBITDA” metric that always pops up in telecom) to total debt to meet the ongoing terms of their creditors. Anytime they do an acquisition, whether it’s Global Crossing or TWT or anyone else, the “synergies” figure is used to boost the projected operating income to accommodate the new debt and keep that ratio at essentially the same legal level.
And Storey did say that with internally competing services such as Level 3’s existing Cloud Connect Solutions ecosystem, there will ultimately be some product shifts and – obviously – certain network transport notifications.
But I was happy that he noted that while Level 3 tended to add 500 building entrances a year, TWT tended to add 2,000 and that larger pace must be accommodated. CFO Patel said that since greater granularity means each new building is closer to the last one, the per-building cost should be less. That’s something I’m a little wary of, especially if they haven’t considered in-building remediation that often comes into play with Ethernet access.
But job 1 today for them was getting the Wall Street analysts out of their typical merger mindset. This is obviously a process we are going to be watching very closely. The first post-merger statements could have gone in a very wrong direction, and thank goodness they didn’t. So far, so good.
By David Rohde Posted November 4, 2014
Last Friday I said I was scared for Sprint’s upcoming earnings report given how many tablets Verizon had sold, how many smartphone subscribers T-Mobile had added, and how much more stuff (and ad dollars) AT&T is pouring into its cherished $160 family-plan price point.
Sure enough, Sprint’s earnings report yesterday was a mess. Postpaid subscribers? Down 336,000. Churn? 2.2% of customers leaving per quarter (in an era when 1% or less is standard). Money? A net loss of $765 million, and earnings guidance for the next year slashed.
Stock price? The market sent it down 16.5% today. It’s less than half of what it was some months ago when enough people thought Sprint would be allowed to buy T-Mobile (even though that wasn’t the consensus opinion) to solve its problems that way. I’ll bet your company’s stock price isn’t half of what it was last spring.
Let’s cut to the chase for enterprises here. As a consultant to business users, I’m not an advocate for carrier earnings. Sometimes the issue with bird-dogging a carrier’s earnings is to make sure they avoid bankruptcy, which isn’t the case here (at least I don’t think so). More often the issue is funding network investment, which is a mix between a decent level of earnings and an optimal appropriation of those earnings to capital expenditures. Increasingly frequently it’s a question of comparative earnings among business lines, which can tilt a company’s culture for or against historic competitive patterns, as we’re seeing with Verizon and potentially AT&T.
But none of those are the consideration with Sprint now. It’s much simpler. We’re talking about Sprint’s response to its inability to keep wireless customers and make money. And that response tends to be the same before bad results and more of the same afterwards: cut costs.
There’s not much at that company any more that isn’t focused on getting consumer wireless price points and transitions away from handset equipment subsidies down to a point where it can match other carriers’ offerings, typified by T-Mobile. Sprint announced an additional layoff of 2,000 people with its earnings report – striking for a company that already has fallen below T-Mobile’s employment level.
And in a major concession, CEO Marcelo Claure was forced to specifically admit today that Sprint is considering selling its wireline business. (Although that was more a matter of analysts finally asking the right follow-up question, as we already knew from Claure’s reasonably clearly stated review of non-core business lines that wireline was being shopped to other carriers.)
The problem is that cost cuts, while nice and abstract to Wall Street, represent real people, support, expertise, and institutional history going out the door at a time when T-Mobile is taking admittedly baby steps to understand the enterprise market better and the wireline enterprise market that Sprint has all but abandoned is welcoming bulked-up entities like “the new” Level 3.
I’ll give some credit here to Bloomberg News Service, ordinarily a 30,000-foot wire service with obvious analyst quotes, for explaining that Sprint can’t just cost-cut, store-close and network-starve its way to victory. Even on the consumer side it needs a distinguishing mark such as a superior network or a genuine marketing breakthough.
There’s also the issue of SoftBank’s staying power with Sprint. It’s an uncomfortable fact that a giant foreign conglomerate that buys a U.S. company could also sell it and take its losses. Bloomberg accurately notes that SoftBank may start to focus on other deals elsewhere in the world now that CEO Masayoshi Son has to realize that his template for turning No. 3 national wireless carriers into successful market disruptors isn’t working in the big and diverse U.S. telecommunications landscape.
Whether before or after SoftBank came on the scene, Sprint’s inability to emerge as the go-to competitive carrier for large enterprises on either the wireline or wireless side is a serious barrier that’s growing higher to hurdle. If that’s to happen, just working the numbers on the carrier’s cost base isn’t going to do it. And if there’s some other weapon that Sprint has in its arsenal to turn this around, it had better show it soon.
By David Rohde Posted November 3, 2014
Jeff Storey wants to talk to you. In fact, he should thank me for passing along this 4½-minute video for you to watch.
Jeff is the CEO of Level 3 and he posted the video over the weekend to be ready for this morning. It’s a new era starting today for the company that was once mired in a telecom financial meltdown and the collapse of wholesale carrier-to-carrier margins.
Level 3 now owns the customers and network built by tw telecom – the below-the-radar, nose-to-the-grindstone, facilities-based CLEC with the cute-as-a-button, all-lower-case name that I’ve decided to render “correctly” just one time now that I don’t have to mention their name again (a subject of good-natured bantering between them and me).
The acquisition, completed last Friday evening, dramatically balloons Level 3’s on-net building entrances to 30,000 and counting – by far the largest granularity of last-mile footprint ever achieved by a U.S. alternative wireline carrier. Adding to Level 3’s good news: Tomorrow after the close of trading on Wall Street, Level 3 (trading symbol LVLT) joins the S&P 500.
That’s quite a turnaround for a stock that once hugged the $1-a-share flatline that symbolized tech and telecom busts. (Don’t be overawed by its current stock price in the 40s, as most of the apparent multiplication is a mirage created by a “reverse stock split.” Still, the stock value on a dollar-equivalent basis has doubled in the past two years.)
Usually with telecom carriers and their promotional videos (and PDFs, PowerPoints, etc.), I would somewhat laugh at the statement at 2:20 that “since we’re the company that put the fiber in the ground that’s moving and protecting your business’s critical information, we know it’s secure … and we can anticipate potential issues and solve for them before they ever become problems.”
Anyone who’s ever had a supposed customer-aware, ostensibly facilities-based alternative carrier point fingers at the ILEC and say “but it’s in the local network” knows the problem. It always sounded good for Level 3 to brag about thousands of miles of national (and since Global Crossing, international) route-miles when that’s the easy part.
But note how Level 3 makes explicit the change right at 3:00. Now that it can brag of “deep metro reach that includes tens of thousands of buildings in the last mile,” this kind of claim gains more credibility. And that’s pretty much why I’m passing this along.
Also note all the telecom buzzwords that don’t appear in the video: spectrum, migration, joint venture, ARPU, EBITDA, IPO, or Project This-or-That. Level 3 is entirely focused on corporate-grade wireline networks, because that’s what they got. And those bond maturities that threatened to kill them off – ironically, right here in the fourth quarter of 2014 was exactly when they once had billions to retire or die – well, thanks to years of 0% interest rates and institutional investor demand for much more, those maturities have almost all been refinanced to 2019 and beyond.
Now here are Level 3’s challenges to make this all meaningful:
It can’t just fall in love with its internal statistics showing that “enterprise” is now 60% of its business and heading higher while the problems in carrier-to-carrier are falling off. In financial reports “enterprise” too often is a synonym for “any business.” It could get to 80% but if they’re all mom-and-pops, the business model won’t sustain itself.
It can’t delude itself that 30,000 building entrances is an open door to walk in and win every enterprise’s business. It’s still a small fraction of commercial buildings nationwide (something that should be obvious). The significance of the figure is how close this brings Level 3’s on-net network to every potentially connected building in the network compared to other carriers. Especially, I might add, compared to AT&T and Verizon in each other’s ILEC territories (at least not counting prospective fixed wireless options).
It has to work quickly to price out services, especially Ethernet access, based on this adjacency of buildings and reasonable calculations of how much and how long it takes to make additional entrances. Level 3 also can’t forget to address related matters such as in-building remediation.
It has to be straightforward about special construction timing and costs, which are bound to be key. And it has to play ball in procurements about who pays and what kind of financial benefits are available to the customer to offset any of their costs.
It has to work all parts of the enterprise wireline procurement market, not just cool stuff like SIP Trunking. If Level 3 wants to take the place that’s obviously been vacated by Sprint in the enterprise networking market as traditionally defined – mission-critical transport and network monitoring over a wired WAN – it has to compete like AT&T and Verizon on the full gamut of services.
It has to reward top customers with best-practice terms and conditions from the enterprise viewpoint. Nothing kills off a potential award to a non-incumbent carrier late in the procurement process more than this.
It has to maintain the quality of its workforce. This is the wrong time for experienced account managers, sales engineers and others, who may have worked for TWT, Sprint, or anyone else, to be seen walking. To be blunt, enterprises are open to carriers that know what they’re doing but are quick to shut the door on those who don’t.
I’m glad Level 3 is excited, I truly am. Nothing would be better than to include Level 3 as a top-tier, not secondary, competitor in discussions with enterprise telecom professionals the near future. Let the new brand of competition begin. The opportunity is waiting for you, Jeff, and everyone at “the new” Level 3.
By David Rohde Posted October 31, 2014
Sprint’s third quarter earnings report is coming up next Monday, and frankly I’m a little scared for them.
Really the issue here is how much mid-market consumer momentum T-Mobile continues to drive and what could possibly be left over for its rejected suitor back in Overland Park. (Okay, T-Mobile didn’t reject Sprint, the government did by refusing to officiate at the wedding. But do you think T-Mobile’s John Legere missed a beat? After all he started using the #SprintLikeHell hashtag while they were dating.)
During the third quarter T-Mobile added a record 1.4 million postpaid subscribers. Remember, that’s net of any people who left them. Not only that, but T-Mobile now projects a total gain for 2014 of 4.3 million to 4.7 million postpaid subscribers.
At the low end of the consumer market, prepaid customers were also up over 400,000 nationally for the quarter. Granted, that market is several degrees of separation from enterprise concerns. But there’s something of a share-of-mind issue here. In telecom, the IT consumerization phenomenon begins with wireless plans and handsets, and T-Mobile is on pace to gain 10 million total customers over the course of a year and a half. All this time Sprint has stood in place and its brand value as measured by marketing scores and surveys has cratered.
Now over to the enterprise. The issue we discuss a lot among our professional team – tested daily against our continuous experience in the arena – is what kind of performance either Sprint or T-Mobile can actually put up in serving the corporate market. As a starting assumption, it’s fair to assert that Sprint is enterprise-relevant and T-Mobile has been at the margins. After all, T-Mobile has never been a wireline company, and that deprives it of core relationships for services that are historically thought of as mission-critical.
Usually T-Mobile comes into play in an RFP for one of two reasons. Either there’s already some T-Mobile subscriber base in the company, or company managers feel that they need to test whether T-Mobile’s consumer disruption practices have any kind of carryover to corporate deals.
Most often in these situations T-Mobile either maintains its position but with no large increase in the portion of the enterprise’s wireless business, or it falters during the process in ways roughly analogous to the old model of CLECs in wireline telecom. What a newbie corporate carrier in any given market tends to think is hot stuff is often simply table stakes in the corporate market. After all, a cutesy offer to purportedly eliminate or offset early termination fees is something that enterprises already largely expect via waiver pools and other mechanisms, whether a supplier calls itself an “Uncarrier” or not.
But now look at Sprint’s challenge. Its rip-and-replace 4G changeout, difficult enough as it was, also came at a time of changing expectations for coverage and network performance. During this period it no longer became feasible to accept coverage holes, dropped connections, and subpar broadband throughput just because the connection was “wireless.” What’s irritating to people in the consumer market is deadly in the business market, especially for network and telecom managers with appropriate ears-to-the-ground to their user base from senior executives on down.
And think about it: Sprint ain’t much of a wireline carrier either anymore, with its entire remaining wireline business almost certainly being informally shopped around, given directives from new CEO Marcelo Claure installed by SoftBank. Its own sensitivity to corporate-grade business terms and conditions now can be slipshod and there tends to be no great clamor from end-user bases to keep them based on brand value, perceived performance or “coolness.”
Finally, our global experience at TC2 introduces another factor: in the U.K. and elsewhere it’s not unknown for a consumer-grade wireless carrier, once it’s made a splash in the mass market, to make the leap over to the enterprise once it gets some learning under its belt.
No one’s ready to call the enterprise wireless market a duopoly yet, and in every discrete enterprise RFP situation we can advise good reasons that one or another carrier may be a particularly good bid participant vs. Verizon and AT&T. But for the nearly $22 billion that SoftBank originally sunk into its Sprint acquisition and the billions more it’s taking to make a go of it, it has to watch out whether T-Mobile could in some ways supplant it. The incredible and ongoing change in pure “mojo” that has seen T-Mobile power up against what everyone still calls the No. 3, Sprint, is just the framework for discussion of real, tangible shifts. It’s a fascinating story to continue to watch. Lord knows we’re on it.
By David Rohde Posted October 27, 2014
Here’s a tidbit from third-quarter carrier earnings that kind of startles everyone who sees it: While AT&T sold 434,000 tablets with their plans during the quarter, Verizon sold 1.1 million tablets. What’s that all about?
At both carriers, tablet growth exceeded smartphone growth in toting up net new postpaid subscribers. So that clearly left AT&T behind in growth, but much further on tablets than smartphones.
Certainly both carriers posted robust profits – $3.7 billion for Verizon, $3.0 billion for AT&T. But it’s a little disorienting for telecom veterans to see Verizon now outpace AT&T at all, no matter how well both of them are doing.
And while I don’t want to make too much of this because Wall Street expectations games can be misleading, it’s a fact that AT&T’s stock went down after earnings while Verizon’s held its own. Those tablet numbers were very much in the discussion. Once upon a time you could say that smartphone users were power users, but now that’s far too much of a generalization. It’s tablet users who are presumed to be high-spenders who are relatively impervious to wireless bill shock. And for all the noise that T-Mobile has made this year, it’s obvious that the “Uncarrier’s” greatest impact is in the middle ranges of the market.
While I’m laying this out from the perspective of the broad mass market, another news story late last week starts to bring it closer to home for enterprises. The FCC has let the industry know that it’s delaying its so-called “incentive auction” of 600 MHz spectrum being repurposed from UHF TV from 2015 to 2016. The rules for this auction are complicated enough whenever it happens. But the basic idea is that it’s meant to give Sprint and T-Mobile in particular the ability to get more low-frequency, high-propagation spectrum that they need to end the outdated excuse that they’re not reachable in smaller markets with broadband coverage.
Court challenges of the rules by the broadcasters whose spectrum is being given up – or who are being given purported “incentives” to move elsewhere – forced the FCC to push back the date. The concern is that the delay causes the wireless market to start locking in the relative positions of the players with little outlet to break out of their molds.
Certainly Sprint is trying to break out of its mold by playing in T-Mobile’s “value” territory. But at least there was a perceived hipness to T-Mobile’s breakout campaigns that has netted them 2 million or more new subscribers. Meanwhile AT&T continues to pump out ads that emphasize their offer details. Not that there’s anything wrong with that, but notice that Verizon in a lot of its marketing is actually moving away from telecom-plan specifics and basically insinuating that Verizon (and the devices they sell with their plans) are part of your upscale lifestyle.
Just look at many of the ads on this page and you’ll see. Of course many of those “users” (i.e., actors) are using tablets and do not seem to be overly worried about the size of their bill at the end of the month.
You probably see where this is going for enterprises: Verizon is already letting its “wireless culture” with its barely disguised disdain for price competition take over the company – either because of the heavy debt load that they think they have to offset with the highest-margin products, or because they think that other carriers can’t catch up to them. Those fissures are now starting to show up in earnings reports.
It’s another reminder to check out what we’ve observed here about the changing patterns in the path of competitive wireless and wireline RFPs. These very successful RFPs still have to navigate the new and disorienting ways that one company vs. another may start out responding.
Meanwhile, watch for more news about when the FCC can get some new spectrum out on the auction block. Heaven knows demand for spectrum isn’t drying up soon, and any more delays could freeze the U.S. carriers into the positions they seem to be assuming for a longer time than otherwise.