Company / division: Verizon
Verizon today announced its Q1 2017 results, and they completely explained the company’s unexpected and rapid reintroduction of unlimited wireless plans in the quarter. Before it reintroduced those plans, it was on a trajectory for by far the worst postpaid phone losses it’s ever seen, and even with the little bit of growth it saw after the launch, it still had its worst quarter ever by some margin. Tablets also shrank for the first time ever, which in turn led to the company’s first-ever postpaid net losses in a quarter. Churn was up, average revenue per account was down… this was a terrible quarter for Verizon, only salvaged partly by the unlimited launch. Q2 and the rest of the year should be quite a bit better, but it’s clear that Verizon has been suffering recently, most likely at the hands of both T-Mobile and Sprint, which has explicitly targeted it in its advertising. Outside the wireless business, things weren’t that much better – wireline revenues were fairly flat, while margins improved a little. But there’s really no growth driver in the business at the moment, as essentially every part of the business is flat or declining, though the whole thing is still highly profitable.
Comcast Introduces Its Mobile Service (Apr 6, 2017)
Comcast today finally unveiled the wireless service it’s been working on for years off the back of a long-standing agreement to use the Verizon Wireless network as the underlying carrier. It should be a compelling offering for at least some customers, especially the premium 25% or so of its base to whom Comcast will offer preferential pricing. However, the unlimited offering caps out at 20GB per month before throttling kicks in, whereas the traditional carriers’ throttling kicks in at higher points and only in times of congestion, making Comcast’s unlimited in name only. WiFi is a major selling point from Comcast’s perspective, but I’m very skeptical that it’ll be a big part of users’ experience, given how few hotspots Comcast actually has in places where people spend time out of residential neighborhoods, and the fact that WiFi is often now slower rather than faster than LTE. Comcast is going to keep costs down by selling online and in its existing stores and marketing through existing channels, as well as keeping bad debt expense down by marketing to existing customers who pay their bills on time and offering only auto-billing on credit cards. Comcast will likely sell this service to up to 10% of its base in the next couple of years, which will be a nice boost to its revenues and profits, but will make only a tiny dent in the overall US wireless market – 10% penetration of its broadband base would be just 2.5 million customers, which is less than the number of new customers the big four carriers added last quarter alone.
EFF withdraws Verizon spyware claims – CNET (Mar 31, 2017)
This is an example of the hysteria we’re all being subjected to around the recent overturning of privacy rules regarding ISPs by the US Congress, and the dangerous places it can lead. The EFF, a consumer rights group particularly concerned with privacy, first wrote and then essentially entirely withdrew a post hyperventilating about a new app Verizon is testing on one obscure smartphone, once it gave Verizon a chance to respond and it provided an entirely reasonable response. In and of itself, this story isn’t that important, but it is symptomatic of a lot of the overblown rhetoric we’ve seen in the past week about carriers selling browser histories. The reality is that, because the new rules never actually went into effect, this week’s congressional action changed absolutely nothing from the status quo. And carriers no more have any intention of literally selling anyone’s browser history than Google or anyone else does – what they may do is use your browsing history to target advertising or their own products, just as Google, Facebook, and many other entities already do. Reasonable people can disagree on whether that’s a good thing or not, but it’s a fact of life for all of us already if we use these services. To pretend that what’s happened this week is the beginning of what EFF calls the privacy apocalypse is a total disservice to everyone involved, a form of crying wolf which is likely to make it much harder to get real attention onto real issues in the future.
It feels like we’re starting to reach something of a tipping point with pay TV providers readying stripped-down streaming versions of their services, with DISH and DirecTV/AT&T already in the market, and Comcast and now Verizon said to be prepping their own versions. It sounds like Verizon’s is going to be much like what we’ve seen so far, in other words a poor substitute for traditional pay TV and most likely something focused on a subset of mostly cable channels for a much smaller monthly fee. What I’m still far more interested in is one of these services that actually offers a more classic channel lineup including broadcast networks but uses the far lower cost of delivery to price it more aggressively. For now, these services are of limited utility for those looking to move to more modern interfaces but keep many of the channels they’re used to.
CTIA, which is the industry association that represents the largest US wireless carriers, is arguing before the FCC that it shouldn’t be subjected to new rules on sharing data it collects on its users. The carriers have argued that Google and other online service providers aren’t subject to the same rules (those companies are regulated primarily by the FTC rather than the FCC) and so for consistency’s sake the carriers should be treated the same way. This is really about a technical definition of the word “sensitive” – clearly the kind of data being talked about here is indeed enormously sensitive, but the real question is how disclosure of that data is regulated. This matters because, for example, AT&T as a fiber broadband carrier in certain parts of the country has offered a service discount for customers who consent to tracking of their web browsing history and so on, something which it argues Google does all the time without explicitly asking for users’ permission to do. What the carriers are arguing here is that it should be allowed to continue to do this kind of thing without having to ask users to opt in first. The carriers look likely to win given the current hands-off policy stance of the FCC, which means more erosion of user privacy for users, but the proper approach would be for the FTC and FCC to work together to craft a set of consistent rules that would apply to all players that get access to similar data, rather than each regulating in a vacuum.
via Ars Technica
US Charges Russian FSB Officers and Their Criminal Conspirators for Hacking Yahoo and Millions of Email Accounts (Mar 15, 2017)
The stories that broke immediately before this press conference and announcement from the US DoJ suggested only that Russian nationals were involved, but the formal announcement makes clear that these were Russian agents and not just citizen hackers. That’s a good reminder that state-sponsored attacks are among the biggest things all online service companies have to worry about in our day and age, whether the state behind the hacking is Russia, China, North Korea, or some other country. Yes, ordinary hackers will still try and occasionally succeed in breaching these systems, but state sponsorship can put massively more resourced behind a hack like this and often have more success. That, in turn, raises the bar for companies vulnerable to this kind of hacking in terms of their security defenses, but should also make users think about what information they’re entrusting to these systems.
1 million NYC homes can’t get Verizon FiOS, so the city just sued Verizon – Ars Technica (Mar 14, 2017)
This is a long-running dispute between Verizon and the city of New York over whether or not Verizon has lived up to a 2008 agreement that required it to “pass” all the households in NYC by 2014. Verizon says it has done so, because the definition of passing a building is to run fiber close enough that it could be hooked up to homes if building owners give permission, while the city is arguing that passing means actually hooking up the homes. The disconnect here is that most of New York is made up of apartment buildings where landlords and not tenants get to determine whether or not a telco or cable company can run fiber into the building to connect individual apartments. In many cases, landlords have existing exclusive agreements with another provider or simply don’t want the disruption of a new fiber build, so they resist. Verizon says it can’t be held responsible for not providing fiber in those situations and has asked the city to help persuade landlords to open up their buildings. The reality is likely somewhere in the middle – yes, Verizon has struggled to get landlords to agree to Fios installations, but it probably also hasn’t tried as hard as it might and likely also has some other buildings where it could hook up service but hasn’t. This is the flip side of the AT&T story I covered the other day – either cities don’t require any specific commitment to connect households and then there are complaints about favoring wealthier neighborhoods, or they do extract those commitments and then end up fighting over whether they’ve been met.
via Ars Technica
After escaping net neutrality probe, Verizon expands data cap exemptions – Ars Technica (Mar 11, 2017)
Given the new administration’s openness to zero rating and its stated intentions to pare back net neutrality regulations, it shouldn’t be at all surprising that Verizon is now exempting its Fios video traffic from data caps on Verizon Wireless smartphones. AT&T has used zero rating of its various TV services as a hook for customers for some time now, and although Verizon has done the same with its Go90 service, that has tiny user numbers and likely had very little impact on customer acquisition. Zero rating Fios creates a much bigger incentive – it has 4.7 million TV subscribers, of whom perhaps a third might be Verizon Wireless customers already. Video really feels like the big battleground in wireless at this point, with AT&T and Verizon now favoring their own video services, while T-Mobile uses its BingeOn program to zero rate all video. Sprint is the only provider without a meaningful equivalent at this point, and instead focuses on its overall unlimited data approach.
via Ars Technica
The reintroduction of unlimited plans by AT&T and Verizon in February makes this one of the least predictable periods in the recent history of the US wireless industry. The presence of unlimited plans at Sprint and T-Mobile and their absence at the two larger carriers has been a defining characteristic of the market for so long that the rapid turnaround is likely to lead to quite a bit of change in competitive dynamics and growth rates. Here’s the first evidence of that in the form of comments from Sprint’s CFO at an investor conference that churn will be stable rather than down this quarter as originally anticipated. T-Mobile hasn’t really commented yet, but has been introducing a set of promotions throughout the second half of the quarter in an attempt to keep its own growth going at previously expected rates. The impact in Q1 will actually be a little muted because the changes didn’t kick in until halfway through the quarter – it’s in Q2 and the rest of the year where we’ll see the biggest impact, though the exact scale and nature of that impact is still up in the air.
5G Schedule Moves Up to 2019 – PCMag (Feb 27, 2017)
As I expected, 5G seems to have been a big theme at MWC this year, with lots more marketing type announcements but also some actual products being announced, albeit ones which should technically be described as pre-5G. The headline here is a bit funny, because of course it’s in these companies’ interests to suggest 5G is more imminent than previously thought, but it’s not up to them how quickly the technology gets deployed – that’s entirely up to the carriers, and I’m still very skeptical that we’ll see 5G available to more than a handful of locations before 2020 in the US (or probably anywhere else). And of course the idea that Qualcomm’s 5G modem would premiere in an iPhone seems laughable – Apple has been deliberately slow to adopt both previous wireless generations (3G and 4G), because the early trade-offs between performance and battery life make early entry unappealing. I don’t see that changing with 5G. But as a previous piece suggested, 2017 is going to be the year of pre-5G commercial trials, which is an important step along the path to eventual mainstream rollout and adoption.
Though the headline doesn’t do it, the article itself makes appropriate use of quotation marks around “5G” – there is no official standard for 5G yet, so everything being rolled out or trialled in the meantime is pre-5G based on companies’ anticipation of what the standards will say. We’re very much in the marketing phase of 5G at this point – for the reasons just stated, no-one can actually roll out 5G yet, and everything that is being rolled out is very much in the trial stages rather than production rollout, but that’s not stopping companies like Verizon from issuing lots of press releases about it as a way of establishing perceived leadership in this space. As with previous generations of mobile technology, there are multiple phases that need to happen before real people start seeing real benefits in real numbers: the standards have to be finalized, network equipment vendors need to release standards-based equipment, carriers have to deploy that equipment into their networks at scale, and most importantly end user or customer premise devices need to begin incorporating the technology. We’re years away from mass deployment still. The good news is that LTE has tons of runway left ahead of it in terms of increased speeds; the bad news is that we’ll all get so bombarded with 5G marketing in the interim that many people won’t recognize it when it actually arrives.
There was some reporting around this last week, though with several different figures for the discount on the original deal price, so I decided to wait until the new agreement was official to comment on it. The $350 million discount is not actually all that significant, which likely reflects the fact that security breaches like this don’t end up having all that much long-term impact on customer satisfaction or usage. It’s interesting that the two companies will split the cost of any future fallout other than SEC and shareholder investigations and lawsuits – I would have thought Yahoo would have picked up the tab for all costs relating to the breaches, but I guess it must have balked at that. Ironically, now the big question once again becomes whether Verizon can actually craft something compelling out of these various bits of yesteryear’s Internet. Verizon is said to be aiming to go head to head with Google and Facebook, which is a real stretch when it comes to well-targeted advertising, and I’m still very skeptical that these assets combined can ever be more than a second tier player in the online advertising market.
Verizon joins the unlimited wireless data party – USA Today (Feb 13, 2017)
The challenge for the two largest US wireless carriers has been to strike an appropriate balance between responding to the price-based competition from the smaller carriers and preserving revenue per user and margins in their massive existing bases of customers. On the one hand, failing to respond aggressively enough to competitive moves risked customer losses, and on the other responding too aggressively risked reducing revenue per user and margins for the base. On the whole, AT&T and Verizon have chosen to be more conservative, largely preserving prices while tinkering at the edges with temporary promotions and in AT&T’s case using its prepaid brand Cricket to compete more aggressively on price. But that conservatism has come at a cost – AT&T has seen postpaid phone net losses for two years now, and Verizon’s phone net adds have also dropped considerably below past levels, though their margins are better than ever. This move today by Verizon suggests that it’s finally reached a point where it doesn’t feel it can hold off any longer on unlimited plans and intends to compete more aggressively. That will likely be good for subscriber numbers, but potentially bad for margins as it caps revenue per user upside from a data plan perspective. I’m not yet convinced that AT&T needs to follow suit with broad-based unlimited data plans – I think they’re happy to keep their all you can eat plans limited to DirecTV customers, at least for now.
via USA Today
T-Mobile likes OpenSignal, Speedtest.net, and other network testing services and apps which rely largely on reporting from users’ devices, as opposed to the industry’s traditional reliance on professional testing services like RootMetrics. And the reasons are obvious: T-Mobile consistently puts in a much better showing in these reports than it does on the ones used by the rest of the industry. On the basis of this OpenSignal report, it looks like T-Mobile is basically tied with Verizon for the network available in most places and at the highest speeds nationally. That totally flies in the face of the reporting done by the professionals (see this RootMetrics report for H1 2016), and also goes against official coverage numbers from the other carriers.T-Mobile reasonably make the claim that the OpenSignal results are from real people actually using its networks throughout the country, not from testers only going to certain places, but self-selecting surveys of any kind are always unreliable. The reality is that T-Mobile has caught up a ton over the last few years with the two big carriers, but it’s still behind in coverage and quality, and you’ll see far more people complaining about their T-Mobile coverage than AT&T and Verizon customers do. Perception also lags reality – T-Mobile still has a reputation for poor coverage and quality even as the true gap with the big guys narrows.
I continue to be really skeptical on this deal or anything like it – the only way it could be approved is if Verizon or Charter sold or spun off their operations where the two companies compete, and even then I’m not sure there’s appetite for another mega merger between broadband and TV providers. I see the rationale – the TV business in particular is all about scale, and AT&T and Comcast tower over the rest of the market (even the new Charter has almost 6 million fewer TV subs than Comcast, and over 8m fewer than AT&T-DirecTV). Combining Verizon and Charter’s subs would approach Comcast’s scale in video, while adding wireless, which Comcast is about to add through a partnership with Verizon. But there would be massive challenges here – combining incompatible technologies for delivering voice and data services to homes, along with the cultures of a telco and cableco. And of course regulators would be likely to be very skeptical at the outset (though this administration will certainly view it more favorably than the last). I’m just not convinced this is the right way for Verizon or Charter to go, and there’s no sign that Charter is even interested.
Verizon puts a brave spin on its results in its headline, but there’s a lot of detail beneath the headline which isn’t quite so positive. Having started the transition to device installment plans in wireless later than its peers, it’s still seeing declining service revenues and now expects to see that trend continue into 2018 rather than 2017 as previously forecast. Its postpaid phone net adds continue to be well down over last year’s Q4 results, and adds over 2016 as a whole were pretty anemic. Tablets are another drag on the company’s overall results as it continues to see customers who bought cheap tablets two years ago turn off their service as they exit their contractual lockups. On the wireline side, penetration of Fios TV continues to fall each quarter, while Fios broadband penetration holds up a little better. Verizon continues to be the largest carrier in the US, and a very profitable one, but as smaller competitors become more aggressive on price, there are questions about whether Verizon can maintain its margins and grow at the same time – recent evidence suggests that’ll be tough.
Verizon’s Go90 has never seemed like the right answer to the question of what a mobile carrier should do to make money from video (the right answer might either be launching a fully fledged video service a la DirecTV Now, or simply enabling all other video services a la BingeOn). These layoffs seem like validation of that sentiment, as it looks like Verizon is doing a bit of a reset on its Go90 efforts, putting former Vessel people in charge instead of the 155-strong team it’s had in San Jose for some time now, most of whom came from the Intel OnCue acquisition. Go90 has always been an odd mishmash of stuff, mostly freely available elsewhere with a few freemium elements focused on millennial-oriented content, but has never felt like a serious video play, and I still don’t expect it to turn into any kind of meaningful business for Verizon unless there’s a big pivot to a new strategy for the service.