T-Mobile Caps Roaming Benefit in Canada and Mexico (Oct 13, 2017)
The way T-Mobile has always explained its Un-Carrier moves to me is that, while some other promotions may be temporary, these are all permanent. But it looks like we’re seeing the first counter-example of that, with a change to the way the company’s roaming plan works in Canada and Mexico for unlimited data customers. Until recently, the company had offered unlimited roaming in those two countries to those customers, but now the company is capping usage at 5GB in those two countries before booting users onto the same free throttled data roaming it offers in many other countries. What’s happening here is that T-Mobile is encountering the same problem as every other unlimited offering from any telecoms operator ever: some small number of users will always go over the reasonable use the company projects, and ruin it for everyone. This is why pretty much all “unlimited” plans come with caps and throttling thresholds in reality, and it’s why it’s generally a bad idea to offer any truly unlimited service without some terms and conditions or caps, whatever the marketing benefits might be.
With all the renewed talk of a Sprint-T-Mobile merger in recent months, one big assumption has been that the Trump administration would view it much more favorably than the Obama administration did, and that it wouldn’t therefore be shot down this time as it was last time. However, Bloomberg reports today that the staff lawyers at the Department of Justice are mostly the same as under the previous administration, even if the leadership and presidency has changed in the interim, and that the lawyers themselves are likely to reach much the same conclusion today as then. In other words, if the deal is to be approved by the DoJ, it will likely happen over the objections and recommendations of the staff rather than with their support. That’s certainly not a deal-killer – SoftBank Chairman Masa Son has cozied up to the Trump administration on issues like job creation, and would presumably curry some favor on that basis. But this does make it more challenging for the deal to go through than many might have assumed. Last time around, the deal was called off before it even formally went through regulatory approval on the basis that it wouldn’t succeed, so I would guess that Son and others would be feeling out the regulatory authorities quietly behind the scenes again this time around to ensure smoother passage.
AT&T has pre-announced some figures for its third quarter results in an SEC filing, including nearly 300,000 DirecTV Now streaming subscriber additions in the quarter, but around 90k traditional pay TV losses. Assuming that latter number is reported on the same basis as in the past and therefore excludes the DirecTV Now customers, it would represent a significant improvement, as the company lost over 300k subs in Q3 2016, and over 200k subs in Q2 this year. But losses are losses, and although the company through hurricanes into the mix as a driver, it’s clear that the underlying drivers that caused previous declines are still big factors too, and those include competition (and have in the past included the challenge AT&T faces of not being able to provide broadband-TV bundles in big chunks of the US).
Two wireless items in the filing are also worth noting. Firstly, the company said it saw 900k fewer postpaid phone upgrades in the quarter, a continuation of a long-standing trend at AT&T of lower upgrades over time, which has seen it fall to by far the lowest upgrade rates among the big four US carriers. Secondly, it’s breaking out certain prepaid IoT connections – notably those associated with connected cars – in its reporting for the first time, and it sounds like it has just over half a million of those as of the end of the quarter. That’s a tiny fraction of its overall connected car connections, which stood at a cumulative 13 million connections as of the end of Q2, the vast majority of which are low-revenue telematics connections sold to car manufacturers rather than directly to end users.
This feels more like a confirmation of how I think many of us were already thinking about Microsoft’s approach to Windows 10 Mobile, but we do now have official confirmation now from one of the erstwhile champions of Windows Phone and Microsoft’s smartphone hardware that the platform is essentially dead in terms of future development. Yes, there are companies that have deployed devices on the platform, and Microsoft will support them, but that’s about it. Notably, Joe Belfiore, an exec in the Windows team and for quite some time the face of Windows on mobile devices, says he’s now using an Android device. This outcome has seemed inevitable for a long time now, and Microsoft arguably took far too long to make it official, giving a small number of fans false hope that the platform would somehow live on. The actual number of users must be absolutely tiny at this point, while Microsoft’s main focus in mobile for the last several years has been making or acquiring really good apps that could run on iOS and Android, albeit without an obvious strategy for monetizing most of them.
via Windows Central
Bloomberg reports that Comcast has over 200,000 subscribers for its Xfinity Mobile service, which launched earlier this year. At the time of the launch, I said that, “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.” In other words, even with what I’d consider pretty decent take-up, Comcast wasn’t likely to make a dent in the market. So far, it would appear it’s added around 1% of the addressable base to the service, which is a decent start, but again tiny in the broader context of the market. More notable, in some ways, is the fact that the service has mostly attracted customers to its non-traditional per-gigabyte pricing model rather than the more traditional tiered bucket model, suggesting both that customers find that appealing and that Comcast might make some decent margins even at relatively small scale.
I said in commenting on last week’s Reuters story about Sprint and T-Mobile merging that the one element that didn’t ring true was SoftBank ending up with 40-50% of the combined entity, and Bloomberg is now reporting that majority owner SoftBank is willing to accept something close to its current market price for Sprint, leaving it with closer to 30%, which feels much more in line with what I would have expected. It’s not a great exit for SoftBank, which bought 72% of Sprint for $7.65 a share in July 2013, while shares are trading at $7.83 at the time I’m writing this, having dropped 8% during the day so far, presumably on the back of this news about valuations. However, the stock had traded as low as $2.66 early last year, so SoftBank is at least poised to get about what it paid for Sprint in return for a decent minority share in what could be a much more promising company once the integration goes ahead. Sprint’s valuation, of course, has been bid up significantly over the past year partly off the back of its own improving business but in large part also because a deal with T-Mobile has seemed more likely since last fall’s US presidential election. Its price rose from around six dollars to over nine in the period immediately following that election, so the drop today is likely a reflection of the fact that expectations for a premium are dissipating.
Reuters reports that Sprint and T-Mobile are nearing agreement on key terms of a merger deal, and suggests that due diligence and other steps would need to come before announcement of a merger agreement in October. This is a follow-up to an earlier report this week that the two companies were in serious discussions, and fleshes out one or two details, though at least one seems off. The report suggests SoftBank’s stake might be as high as 40-50% after the merger, which seems much too high given the relative value of Sprint and T-Mobile and SoftBank’s stake in the former. Sprint’s Nextel merger had disastrous results in large part because the Nextel portion was valued much too highly in a touted “merger of equals” and the company spent the next several years slashing costs fiercely in a bid to justify the price with synergies, something which led to its terrible network performance and decline in the years afterwards. So neither Sprint nor T-Mobile should want to make that mistake again. With SoftBank driving the deal, I would expect it to make concessions and end up with a much smaller stake at the end of the day. But big synergies could indeed follow as the companies merge, and their combined scale would drive much more competitive network and advertising spend, retail presence, and other big benefits in their competition with the two big carriers.
Moto X4 Brings Android One to the US and Google’s Project Fi (Sep 20, 2017)
I noted a couple of weeks back with the launch of Xiaomi’s first Android One device that the project appeared to have morphed from a low-tier emerging markets play to one focused more on the mid market, and today’s news reinforces that perception. Motorola is launching its Moto X4 device into the US market as part of the Android One project, and this $400 phone will be available on Google’s own Project Fi service as an alternative to the Nexus and Pixel phones it’s offered until now. (The Nexus phones Google has offered are, by the way, currently showing as out of stock on the Project Fi site, suggesting they’re likely to get phased out with the launch of new Pixel devices in a couple of weeks.) The Android One version isn’t the only one Motorola offers – as I noted when it was announced, the main version actually comes with Alexa baked in, something the Google version certainly won’t do. All of this is indicative of Motorola’s falling leverage with carriers, and its need to do deals with other market players to parcel up its phones in different ways to find attractive niches.
T-Mobile has announced that it’s raising the monthly usage threshold for de-prioritization during times of congestion from 32GB to 50 GB. By way of background, this threshold comes into play when customers have exceeded that amount of data consumed in a given month and then try to use the T-Mobile network in a congested area, at which point their access to the network gets prioritized below that of other users who haven’t likewise exceeded the threshold. T-Mobile had previously said that only around 3% of its customers used over the 32GB threshold, and now says just 1% of its customers use 50GB or more in a month, and of course not all of those will actually end up using the network at a congested time and place. As such, like unlimited plans in general, this announcement is solely about peace of mind for the vast majority of customers, rather than something that’s actually going to impact them in any meaningful way. It does put T-Mobile’s threshold well above those of the other carriers, so this is a useful marketing point that will cost the company essentially nothing. More broadly, of course, T-Mobile continues to have far fewer customers than either of its two larger rivals, which means it has excess capacity on its network which makes offering free and discounted services much more economically viable than it is for AT&T and Verizon, which tend to have to be more conservative in their offers.
CNBC reports that T-Mobile and Sprint are in active discussions about a stock-for-stock merger, with Deutsche Telekom likely to end up the majority owner and SoftBank a significant minority shareholder. This has always seemed the likeliest merger to come out of the recent resumption of deal talks after the end the 600MHz spectrum auction and its associated quiet period came to an end, but it’s felt like the sticking point was T-Mobile’s unwillingness to be bought out by Sprint/SoftBank. A stock-for-stock deal with Deutsche Telekom and T-Mobile ultimately calling most of the shots is likely a lot more palatable, especially for TMO CEO John Legere, who’s arguably been enormously successful running the company over the last few years and would understandably be reluctant to cede control to the Sprint side. It sounds like the two sides are still some way from a deal, and of course even if it’s finalized it will take months to go through regulatory approvals, a period that would likely see Sprint lower its investment and manage for cash flow and profitability, something that’s likely to lessen competition in the US market even before a deal closes. Following such a deal, the combined entity would at least theoretically be in a much more competitive position given its combined scale, though many of the synergies would take some time to flow through.
Google Officially Launches Tez Mobile Payments App in India (Sep 18, 2017)
I debated whether to make this its own item today given that I covered the leak of most of the details last week, but I feel like it’s worth it to cover a couple of details that I didn’t cover the first time around, when I largely focused on the broader issue of localization in markets like India. One of the most important aspects is integration with UPI, which is the Indian government’s mobile payments technology and is unique to the country. Almost any mobile payments service in India that didn’t feature integration with it would likely be dead in the water, while UPI itself has significantly boosted interest and uptake around mobile wallets in the country (and banking in general). Secondly, Google is using Tez to test some new ideas around payments including one based on sound called Audio QR, which borrows a little from the QR-based payments that are common in China but requires less specialized software and hardware. I wouldn’t be surprised if that technology in particular made its way into Google’s existing mature-market payment services too eventually.
Variety has a quick run-down of some new data from App Annie about the usage of various mobile video apps in the twelve months to July 2017, and it shows YouTube to be dominant in that category, with 80% of total time spent for the top 10 apps. Also notable is that YouTube grossed more than Hulu on the strength of its YouTube Red subscription service, suggesting that it may be doing better than widely perceived, though that may also reflect YouTube’s role as a more mobile-centric platform while many users may pay for their Hulu subscriptions through a computer or TV box. Also worth noting is that over half the top ten video apps come from non-traditional TV brands – only HBO, Starz, CBS, and Showtime hit the top ten, while the rest are all digital-native brands. Also notable is the fact that all of those traditional TV apps have pursued the same successful strategy of opening up their entire libraries for digital rather than trying to create a digital service that’s complementary to traditional TV – that’s the winning strategy in this space, and Disney should take note as it readies an ESPN direct to consumer service for early next year.