We noted in the Blog of September 19^th. that AT&T has begun to explore possible spectrum sales to other operators to gain approval of its acquisition of T-Mobile USA. Two operators were mentioned as AT&T’s first targets – Leap Wireless and MetroPCS.

Is it possible that AT&T could satisfy the Department of Justice (DoJ) by divesting spectrum to just these two companies? To answer this we looked at whether MetroPCS and Leap have current presence or operations in the right target ‘divestiture markets’ to expand cost effectively by adding spectrum and subscribers from AT&T. 

The amended DoJ complaint of September 16^th 2011 states that the “…97 CMAs, identified in Appendix B, effectively represent….area(s)  in which the (merger with T-Mobile US) likely would substantially lessen competition for mobile wireless telecommunications services… each constitutes a relevant geographic market under Section 7 of the Clayton Act, 15 U.S.C. § 18.”

The 97 CMAs identified are those where the Herfindahl-Hirschman Index (HHI) is increased by more than 200 points by the AT&T T-Mobile Deal. HHI is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers. For example, for a market consisting of four firms with shares of 30, 30, 20, and 20 percent, the HHI is 2,600 – Calculated as follows: 30² + 30² + 20² + 20² = 2,600.

Only three CMAs in the Top 100 are not identified by DoJ as an HHI ‘problem’ - Grand Rapids and Flint, MI and Shreveport, LA. Many on the DoJ list however are in the 200+ to 400 HHI increase range that could potentially be diminished significantly by the sale of Spectrum to the third or fourth largest player in each market. 

To see what role MetroPCS and Leap could play we then conducted an analysis of these 97 ‘problem’ Cellular Market Areas (CMAs). In AT&T’s April 21^st.2011 filing it listed in Appendices B and C the competitors in all the cities where it operates. The chart below shows that in the 97 CMAs listed by DoJ either Leap or Metro PCS has a presence in all except two - Honolulu, HI and Johnson City-Kingsport-Bristol, TN-VA.

MetroPCS and Leap Wireless presence in the 97 problem CMAs

MetroPCS and Leap are present together in a few CMA’s which might create some competitive bidding in: Philadelphia, PA, Buffalo, Rochester, Syracuse and Albany-Schenectady-Troy NY, Toledo, OH-MI, Lansing-East Lansing and the Upper Peninsula MI, as well as Las Vegas, NV and Tacoma, WA

DoJ’s amended complaint also noted that in “more than half of the (97) CMAs…. AT&T and T-Mobile together would have a greater than 40 percent share. In at least 15 of the CMAs, including major metropolitan markets such as Dallas, Houston, Oklahoma City, Birmingham, Honolulu, and Seattle, the combined firm would have a greater than 50 percent share - i.e., more customers than all the other firms combined.” These are clearly the markets where DoJ is most concerned that the merged entity should have a lower share.

In the 15 markets shown in the chart below the DoJ Post-Merger share estimate is over 50%.

MetroPCS and Leap Presence in 14 of 15 ‘Problem’ markets

Either MetroPCS or Leap is in each of the 14 markets. The only exception is Honolulu, HI where neither is currently present.

AT&T needs to sell significant spectrum, and could potentially accomplish most of the required divestitures with sales to MetroPCS and Leap alone. Provided these two operators can raise sufficient financing – potentially even guaranteed by AT&T - this could catapult these two operators to National Status overnight.

AT&T and T-Mobile’s latest subscriber market shares – as well as those for Sprint Nextel, Verizon Wireless, MetroPCS and Leap Wireless - can be seen at ‘Wireless Operator Performance Benchmarking Q2 2011’.

At CTIA in San Francisco last week, away from the fanfare around LTE rollouts and the next dozen tablet devices (ok, I exaggerate a little), Sprint had an announcement which will have significantly higher impact on mobile broadband adoption and revenues: Sprint ID. 

Sprint ID promises to up the ante on personalization and ease current feature phone users into the smart phone ranks.

Sprint ID offers instant personalization along key themes/packs where the operator has done the heavy lifting of identifying and group related applications of interest to different persona from wallpaper to ringtones to apps. While the one click marketing line is not quite matched by reality given pesky little things like accepting terms and conditions etc, Sprint ID is a significant breakthrough in my opinion as:

• it broadens the market appeal of Smart phones to current feature phones users with a simple to understand offer in a range of device price points including the critical $49 and $99 levels.
• it tackles one of the biggest weakness of all app stores: discoverability of content and simple personalization.

Three handsets were featured at launch of Sprint ID: Sanyo Zio™, Samsung Transform™, LG Optimus S™. These three devices cover key price points in the Sprint portfolio and provide customers with a range of form factors, industrial design and brand to meet their tastes. Interesting to note that both LG and Sanyo retain the right to put their own packs on their handsets as well. This is a big win for LG as its Optimus S™ will be available for under $50 with contract giving the vendor a much needed boost in the smartphone space. Samsung meanwhile continues to shine at Sprint occupying the lucrative $149 spot with its Transform™. All three devices of course require a Sprint Everything Data plan.

However, for me the more significant impact is that operators and oems are finally realizing that customers don’t buy phones or services or apps… what they really want are positive experiences

… be that socially connected, sports, education, health and fitness, fashion etc. This is something that our User Experience team has been evangelizing for the last 7+ years. Whether its 80k apps on Android or 250k on Apple store or 10K on RIM, one common experience has been exasperation at the huge waste of time, energy and emotions in finding ANYTHING!!! Which happens first, eyes glazing over or fingers cramping with so much scrolling? Either way the net result is often a disappointing experience which the early smart phone coolaid drinkers have learned to live with.

Newbies to the smart phone arena, will certainly have less tolerance and spend less time to personalize their device and enable applications. Sprint ID is well tailored to the next wave who are taking tentative steps into the smart phone space

 

David Kerr

dkerr@strategyanalytics.com

September 23, 2010

While there has understandably been a lot of attention given to consumer apps post iPhone and the plethora of application stores that have emerged, business mobility and enterprise mobility offer huge potential from horizontal to vertical applications and from smartphones to iPads and tablets to superphones.

In both NA and W. Europe, business customers account for under 30% of users but are the dominant streams of both revenue and profits for operators. On the device side, premium priced models from RIM, Nokia, and Microsoft Mobile licensees as well as the iPhone have long been key drivers of profits in a market where low single digit margins are the norm.  The explosion of smartphone choices has led to the battle ground moving beyond the corner office, to other executive and now increasingly the midlevel manager.

With a new range of devices competing for space in the corporate market, the issue of corporate versus individual liable has become an increasing priority for IT decision makers. Add on the complexity of managing an expanding list of OS (Android, iPhone, Windows Mobile, Symbian, Palm, MeeGo, Bada from Samsung) and the growing importance of mobile portable devices with access behind the firewall and one can already feel a corporate migraine forming…. And that’s before we even discuss device management, mobility policy, device retirement etc. etc.

I am looking forward to CTIA Fall (San Francisco October 5-7) and in particular to the Enterprise Mobility Boot Camp moderated by Philippe Winthrop of the Enterprise Mobility Foundation. The boot camp spread over two days will address many of the issue listed above with our own Andy Brown featured in an analyst roundtable on October 6^th.  I look forward to meeting you there. Don’t hesitate to contact Philippe for passes to this the deep dive enterprise mobility event.

David Kerr

David Kerr
Snr. VP - Global Wireless Practice
Tel: +1 617 614 0720
Mob: +1 262 271 8974

August 11^th 2010 Doing the FCC’s job? On Monday August 9^th. Verizon and Google issued a joint ‘suggested policy framework for lawmakers’ which reads as if it had come from the FCC, leading to an appropriate response from FCC commissioner Michael J. Copps that it is “time to reassert (FCC’s) authority”. The framework endorses all the good ‘motherhood’ concepts - openness for legal content, nondiscrimination that does not block or degrade the Internet, and transparency for both wireline and wireless. And it addresses some of the traffic and network management concerns raised in my blog of May 27^th . But the sting is in the tail. The fifth and sixth points posted in the expository blog carve out two major markets. The ‘Carve Out’.Two key markets are carved out for minimal FCC oversight and therefore would not be subject to many ‘net neutrality’ and access requirements. First area is ‘differentiated online services’ that integrate application services with bandwidth – “healthcare monitoring, the smart grid’ etc. i.e. vertical markets where performance and security must be guaranteed. The proposed Verizon and Google approach allows each application to be ‘nailed-up’ to a specific network - rather than the Virtual Private Networks VPNs) with Service Level Agreements(SLAs) that operate today. This could lead to significant innovation – if only it were not based on exclusive bi-lateral transport and applications vendor deals. Haven’t we been here before? Didn’t this lead to the original Enhanced vs. Basic Services split of Computer Enquiry II.  And it recreates the comparatively unsuccessful ‘Walled Garden’ approach to applications. Second ‘carve out’ is wireless broadband which is claimed to have “unique technical and operational characteristics” and to be “more competitive and changing rapidly”, so “in recognition of the still-nascent nature of the wireless broadband marketplace” Verizon and Google recommend against applying any of the “wireline principles” except transparency. Broadband is Broadband is Broadband….Although wireless has historically had special treatment, mobile broadband is rapidly reaching parity with wireline speeds and quality. Over the next two years applications will operate seamlessly across wireless and wireline networks and many users may not even be aware which network they are on. To users Broadband is Broadband. All applications require an appropriate class of service at a competitive price. Special value added networks and mobile broadband cannot and should not be carved out from the general area of FCC broadband service oversight. Reactions and Furor on both sides of the ‘pond’ In the US, Wall Street Journal welcomes this ‘Traffic Plan’ and TIA notes that the “Verizon and Google…rightly addressed important issues such as the need for network management welcoming it as a “step in the right direction … and a possible solution to the uncertainty created by the Comcast decision.” But bloggers and the New York Times Opinion page started discussing carrier/search engine business alliances and making jokes about ‘VerGoogle’ that have now prompted a strong tweet denial from Google “We've not had any convos with VZN about paying for carriage of our traffic. We remain committed to an open internet.” Wired magazine however, describes the ‘differentiated online services network’ as a “left-field proposal to anticipate an entirely new information highway for ‘fast lanes’” and believes that “Google and Verizon have proposed creating a second, paid-access-only internet” “over an unspecified global network”. Could that be Verizon’s new Packet Optical Transport Platform (P-OTP) network? Across the pond reactions are still evolving. Financial Times subtly points out that “industry insiders on Capitol Hill and at the FCC are questioning Google’s motives for an apparent about-face on its position as one of the most powerful advocates of net neutrality.” Others reflect the stronger view that the EU is taking on Net neutrality.with one blogger warning that “An obvious outcome … is that when Google is dragged backwards through an antitrust investigation by the EC or DoJ, it will find no favours from civil society after this betrayal…..Good luck, Google - you thought China was sticky in terms of political support, you'll find that was a storm in a delicate teacup.”

Yesterday in Paris, Orange unveiled its new five-year strategic plan, Conquests 2015. The plan covers four strategic priorities:

    The conquest of employee pride – to re-build its reputation as an employer;
    The conquest of networks – covering fibre-optic build in France, LTE deployments, the monetization of mobile data traffic (read: no unlimited data plans) and green networks;
    The conquest of customers – delivering a superior customer experience and helping customers navigate through their connected/digital lives;
    The conquest of international development – targeting 2x growth in revenues from emerging markets, with total customers growing from today’s 200m to 300m by 2015.

We published a report profiling the world’s 20 largest mobile operators last week, providing a SWOT and overview of strategic directions. We knew a new Orange vision was on the way, but there are only so many events that can postpone a report’s publication. It is with relief that I can say that, in terms of the key elements of this new strategic plan, enough had been discussed in the past to allow us to predict this quite accurately.

In this report, we looked at two key differentiators for operator performance: footprint (scale) and unification (both in the sense of integrated/converged networks and the provision of integrated services). The more profitable global mobile operators have strengths in these areas and it is good to see they form the basis of Orange’s new strategy.

Orange is very much committed to improving the value of its footprint, both in terms of growing its business in Africa and the Middle East (it is suggesting roughly three-quarters of its emerging market revenue growth could come from M&A here), but also in terms of its mature market footprint, where further consolidation (after the Orange / T-Mobile UK deal) can be expected.

In terms of unification, the next-gen network upgrades are a key building block there, as well as layering in services in areas such as health, education and payments. One of the more interesting statements in this strategy launch was that “Orange must become a multimedia coach for its customers by working alongside them to make their digital life easier”, with Orange’s CEO Stéphane Richard adding that Orange “are trying to be activists for an open world”. That trusted partner role has taken over from the own-branded services/content role as a priority for telcos and it is encouraging that Orange is focusing on its key strengths there.

 

 

 

The inevitable movement to tiered pricing which started with Verizon Wireless acknowledging its plans to do so for LTE and has been accelerated with the much anticipated data plan announcement by AT&T this week.  So, what next?

• Will we see significant priced based competition for mobile data among the top US operators?
• Will we see significant movement in share of adds for AT&T as iPhone wannabees are tempted by a plan of only $15?
• What impact will lower data plans for smartphones have on AT&T’s Quick Messaging Devices and Verizon Wireless equivalent?
• How long before we see family data plans and shared usage across multiple devices?

The move by AT&T is a smart play to extend the smartphone momentum as the low hanging fruit of Apple aficionados, multimedia techies and style seekers willing to pay top dollar has been significantly penetrated.

There is no doubt that the iPhone remains the coolest device on the marketplace and the end to end user experience remains easily the best in class. So, reducing the TCO to attract the next 20% of customers to a paid data plans while educating customers about data usage levels and managing the traffic risk is very smart business in my opinion.

The lower price points will help AT&T maintain its current leading share of smartphone users and may be attractive to casual social networkers

• Although the 50 photos allowance is not exactly generous! For casual messenger, and social network status checking and moderate email the new DataPlus plan is quite attractive overall and will likely attract a portion of customers who would otherwise opt for a Quick Messaging Device from AT&T or a competitive offering from Verizon Wireless.

I do expect to see some modest price competition among the big operators

• with T-Mobile most likely to drive prices lower given their need for scale and to protect their predominantly youth centric customer base. but also expect an increasingly strong Verizon Wireless handset line up to compete strongly.

The impact on Quick Messaging Devices is in my opinion likely to be modest

• as a traditional qwerty remains overwhelmingly the input of choice for heavy messengers in the US although there is definitely room for lowering the $10 mandatory data plan on featurephones

Family data plans and data plans which allow access across multiple devices are in the pipeline

• but will probably not make an appearance until 2012+ as part of LTE offerings.

From a device vendor perspective, the move to lower priced iPhone plans is likely to put further pressure on vendors like LG who have yet to make a credible offer in this space as well as RIM who will find more competition in the consumer space.

The lower pricing on data plans will be music to the ears of ambitious new entrants like Huawei, ZTE who plan to bring mass market priced devices to the US & Europe. The lower TCO of smartphones as a result of downward pressure on service prices boost their addressable market.

Throttle or Choke.‘Net Neutrality’ proponents argue that there should be no restrictions by service providers on any type of end-user access to content, equipment or modes of communication but in April a U.S. Court of Appeals ruled that the FCC had exceeded its authority when it told Comcast not to ‘throttle’ BitTorrent’s peer-to-peer video exchange and related applications - even though BitTorrent was ‘choking’ performance for other Comcast users. FCC is now proposing additional regulation and Congress is getting in on the act. Lurking behind the partisan rhetoric of ‘Net neutrality’ are serious issues. It is time to deal with them. Issue 1. Harm to the Network. Ironically Comcast was trying to protect its customers from ‘harm to the network’ as the Communications Act requires. Many service providers - including many mobile operators - are struggling to manage the disproportionate traffic demands of a few heavy duty users whose peer-to-peer or high bandwidth applications slow down performance for everyone else. Solution: Some equitable form of network management is not only reasonable but essential for the broadband networks to function. Issue 2. Service Quality at a Fair Price. Insistence by ‘Net Neutrality’ advocates that everyone get the same access with the same ‘class of service’ leads rapidly to a lowest common denominator for all. When video ‘bandwidth hogs’ block more time sensitive or more valuable, low bandwidth applications there is a good case for throughput guarantees. Solution: In both fixed and mobile broadband markets, tiered classes of service for different user applications with different bandwidth requirements and different priorities at different prices will enable operators to balance broadband traffic demand with new capacity expansion. Issue 3. Exclusive Walled Gardens. The owners of broadband access have been tempted recently to consider exclusive deals with preferred application and content providers – like Google and YouTube. Often there are only one or two access providers, so small new or innovative vendors are concerned they will be relegated to a lower class of service. This is not just a US issue. In April European Union telecoms commissioner Neelie Kroes suggested that “users should be able to access and distribute the content, services and applications they want”…”Nor should telecommunications providers be allowed to block services provided by direct competitors.” Solution: Toll highway operators should not choose the customers’ automobiles. Nor should the automobile companies pay the user tolls in advance for the fastest highways. A primary reason for communications regulation is to prevent access providers from extending their power to control access to limit content choice or overcharge for services. Networks need a clear and neutral boundary between transport and applications so that choices are separate and made by end users. Let’s deal with the real challenges to delivering broadband for all - instead of firing political rhetoric at one another

 

May you live in interesting times as the old Chinese proverb goes. Well in the information, communication and entertainment industry we certainly do. Some very interesting questions face our industry whether we look at:

• the outcome of much delayed Indian 3G auction or
• the battlegrounds around HSPA+ and LTE or
• the surging Android ecosystem vs. weakening Symbian or
• the upside potential for WebOS under it new owners
• the potential disruption caused by mobile cloud phones and device

Every major technology advancement has lead to a massive disruption in the handset and infrastructure vendor community.

• In 3G, Motorola’s slim myopia led to its near ruin and has provided huge growth for Samsung and a foothold in international markets for LG and SEMC.
• On the infrastructure side 3G was expertly grasped by Huawei and ZTE leading to a new wave of M & A and a new world order which counts Nortel as a victim and seriously challenges ALU.

So how will the migration to 4G change the playing field?

• Who will benefit most on the operator/service provider side?
• Will Cloud Phones be disruptive in LTE?
• Will operators find a path to realign the traffic/revenue mix with mobile broadband devices?

I would welcome your thoughts on these key questions. Also don’t forget to join our client webinar on Thursday May 27.

 

David

The bids in Germany’s current spectrum auctions are starting to add up. With a range of spectrum on the table (800MHz, 1800MHz, 2GHz and 2.6GHz), it is the digital dividend 800MHz spectrum that is dominating proceedings – at the end of round 94 the bids totalled €1.9 billion, with nearly 90% of this bid on the 800MHz spectrum. Although there is still some way to go, the auction is already pricing the 800MHz spectrum at more than 30x higher than the 2.6GHz spectrum. The need for denser LTE networks in higher frequency bands will come, but for now 800MHz is much more valuable as it is the most cost effective for delivery of next generation coverage. However, in this instance the government isn’t leaving that to chance as it strives to close the broadband coverage gap in rural areas. Winning bidders have to cover smaller towns before they can move on to larger cities. That is a nice touch by the government. The next few years of spectrum auctions in Europe are unlikely to raise the kind of sums seen in the 2.1GHz 3G auctions of 1999-2001. So getting some public good (other than money for the public purse) out of the auctions makes sense. Building in licence rules to make sure 800MHz spectrum really is used to close the digital divide is logical as 3G/4G mobile broadband adoption soars. So if you live in a rural community that has yet to be touched by DSL/cable and are fed up waiting for a decent 3G mobile broadband signal, the sale of 800MHz spectrum for mobile services and they way coverage is being prioritized in the legislation is good news (provided you can wait a little longer for the spectrum to be cleared of analogue TV). But for the rest of the population in Germany at least, this is probably all very dull. There are only four bidders in this auction (the four existing mobile operators), so it will do nothing for competition and probably nothing for pricing either. Many operators we speak to have a similar view to TeliaSonera and will position LTE as a premium mobile broadband product as they try to pull back from what has often been quite intensive price competition in this fledgling sector.

Returning from CTIA in Las Vegas last week and with only 2 days before going off on vacation to Florida, I found myself reflecting that two of the most interesting meetings I had at the show were with mobile operators.

During CTIA I spent some time with AT&T emerging devices and T-Mobile M2M teams and was impressed with how both these units had managed to cut (or at least untie) the cord to the mother ship and avoid having innovation stifled by the Borg up at Corporate.

• AT&T’s efforts to encourage a broad range of new applications and devices has definitely paid dividends with Mr. Lurie and his team adding an impressive 1M users in Q409 as a result of new device categories (mostly PND and EBR).
• T-Mobile revealed a somewhat unheralded pedigree in M2M.

Partnership is the order of the day.

AT&T highlighted partner applications ranging from location enabled pet collars (Apisphere) to glow cap bottles to aid compliance with medication schedules (Vitality) to a very cool new tablet from Openpeak which is very different to the announced but apparently supply side challenged iPad.  Verizon Wireless and Sprint are of course also praying at the alter of open development but perhaps with less public presence.

When I think of enterprise mobility, AT&T and Verizon Wireless are top of mind but T-Mobile has in fact quietly been developing strong competency in the M2M space over the last 7-8 years.

T-Mobile offers four different SIM form factors to suit specific applications and have enjoyed triple digit growth for the last four years. T-Mobile US has quietly activated “hundreds” of different device types on its network with only a handful of devices being rejected or pulled due to network unfriendly characteristics. These devices span Telematics, Connected Energy, Telemedicine and several other applications.

So what is the common DNA of two very different operators that has allowed them to innovate and focus on new opportunities? Separation and operational autonomy to facilitate and open funnel approach to partners and speed of execution not normally associated with US carriers.

In the case of AT&T, the Emerging Devices group was chartered with developing a new space and freed from the legacy of voice & data consumer tariffs and prepaid/postpaid categories which just don’t cut it in the new connected reality where users will have multiple devices connected but used in very different ways. Mr. Lurie and his team have been able to streamline device certification and experiment across the spectrum of business models for new connected applications.

For T-Mobile, speed of certification (days not months) and the independence of being a self-contained unit (own engineers, own sales although linked to broader enterprise group) reporting to Finance & Strategy have allowed them to pursue their “easiest to do business with” approach to the M2M markets.

So, the takeaway? Innovation is alive and well at US operators but separation from the collective corporate mind is essential.

David Kerr