An Ignoble Experiment

> Wi-Fi Evolution and its role in the future of wireless - Wednesday, April 3rd, 1pm ET / 10am PT

U.S. wireless operators will be flocking to New Orleans in a couple of weeks to attend the annual Competitive Carriers Expo, which takes place April 17-19 at the New Orleans Marriot. I expect such hot-button topics as incentive auctions, data roaming and IP transition will likely be debated at the conference.

According to CCA President and CEO Steve Berry, attendance for the show is likely to surpass last year's event, which broke past attendance records. Although Berry declined to provide specific attendance numbers, he said that registrations are tracking above last year's figures and added that the exhibit hall is sold out. He also noted that international attendance is growing with groups such as Enterprise Ireland exhibiting for the first time at the show.

Berry noted that attendees at the conference will likely be hearing a lot about the upcoming incentive auctions. In 2014, the FCC plans to hold incentive auctions for TV broadcast spectrum in the 600 MHz band. Berry noted that the incentive auctions will be very complicated, but smaller operators are hopeful that this spectrum will be affordable and desirable.

Sprint Nextel (NYSE:S) CEO and President Dan Hesse will kick off the show with a keynote address April 18. Hesse and his company have been in the spotlight lately as Japanese carrier Softbank attempts to acquire 70 percent of Sprint in a deal valued at $20.1 billion. Concurrently, Sprint wants to acquire the approximately 50 percent of Clearwire (NASDAQ:CLWR) it does not already own in a deal valued at $2.2 billion. The companies have said they expect the deals to close by mid-year. It's uncertain whether Hesse will be able to elaborate much on this, but I'm sure attendees will be interested to hear his perspective on the industry.

Berry also noted that CCA's pre-conference day, April 17, will include a program from FirstNet, the First Responder Network Authority, which is creating a blueprint for a nationwide 700 MHz broadband network for public safety. Berry noted that smaller operators are very interested in being a part of this effort and can look to this event to help them understand how to get involved in the program.

The pre-conference day will also feature a breakfast panel, "Strategies for Today's Wireless Landscape," that will be hosted by FierceWireless in partnership with the CCA. I'll be moderating the panel, which will look at how new competitors such as MVNOs, CLECs and over-the-top providers are impacting the core business of wireless carriers. I'll be joined by panelists Lon France of Republic Wireless, Linda Martin of Immix Wireless, Slayton Stewart of Carolina West Wireless, Don Stroberg of Clearwire, and Eric Woody of Union Wireless. To register for this breakfast, click here. --Sue

Read more about: Sprint, Clearwire
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Today's Top News

1. T-Mobile reverses branded customers losses, posts 3,000 net additions in Q1

By Phil Goldstein

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2. Verizon's McAdam leaves door open to dropping wireless contracts

In preliminary subscriber figures for the first quarter of 2013, T-Mobile USA managed to reverse its "branded customer" losses, recording a net gain of 3,000 branded customers during the period. The figure is notable considering T-Mobile reported a loss of 349,000 branded customers in the previous quarter and the loss of 262,000 branded customers in the year-ago quarter.

Click here for a look at this chart from T-Mobile.

Branded customers include both prepaid and postpaid customers who pay for service under the T-Mobile brand. At the end of the first quarter, T-Mobile counted a total of 6 million branded prepaid customers and 20 million branded postpaid customers.

Although the results offered a bright light for a carrier that has reported significant losses during the past year, not everything was rosy. T-Mobile lost 199,000 branded postpaid customers during the quarter--postpaid customers typically are the most valuable for a wireless carrier. However, the figure represented an improvement from the loss of 515,000 branded postpaid customers T-Mobile reported in the previous quarter and the 510,000 it lost during the year-ago quarter.

Overall, T-Mobile reported a gain of 579,000 customers in its first quarter, an improvement from the 61,000 it gained in the fourth quarter and the 187,000 it gained in the same quarter a year ago. T-Mobile's overall net addition of 579,000 customers in the first quarter includes both branded prepaid and postpaid numbers as well as the 200,000 M2M customers and the 376,000 MVNO customers T-Mobile added during the first quarter. T-Mobile specifically pointed to strength in its MVNO business; the carrier's MVNO customer base grew 21 percent year-over-year.

T-Mobile ended the first quarter with 34 million total customers, putting the carrier behind Sprint Nextel (NYSE:S), AT&T Mobility (NYSE:T) and Verizon Wireless (NYSE:VZ) in terms of overall subscribers.

Additionally, T-Mobile reported that its branded postpaid churn declined to 1.9 percent, down from 2.5 percent in the fourth quarter and year-ago quarter--and its best branded postpaid churn results in four years.

T-Mobile will not report full first quarter earnings until May 8. Further, the results will not reflect the carrier's new "Un-carrier" strategy, which it announced late last month.

"These results display positive momentum and the first positive branded growth in four years," T-Mobile CEO John Legere said in a statement. "We have made material progress in stabilizing our branded business in Q1, which provides a solid foundation to build on with the new Un-carrier customer offers we launched last week across America. I believe the best is yet to come!"

What is to come for T-Mobile, however, remains uncertain. The carrier has launched LTE in seven markets and will start selling Apple's (NASDAQ:AAPL) iPhone on April 12, the same day that MetroPCS (NYSE:PCS) shareholders will vote on whether to approve a merger with T-Mobile. Investor advisory firms and MetroPCS shareholders have come out against the deal in recent weeks and it is unclear how shareholders will ultimately vote. The deal is seen as crucial to T-Mobile's long-term network strategy since acquiring MetroPCS' spectrum will allow T-Mobile to deploy a 2X20 MHz LTE network in 90 percent of the top 25 U.S. markets.

As part of T-Mobile's "Un-carrier strategy," Legere has said the company is going to eliminate the prepaid/postpaid distinctions by just going with a no-contract offering without device subsidies. Customers can either buy their smartphone outright for the full cost of the device or they can make a down payment and then pay for the remainder of the cost of the device in monthly installments. Additionally, customers can bring unlocked devices to T-Mobile.

For more:
- see this release
- see this T-Mobile report (PDF)

Read more about: T-Mobile USA, subscriber growth
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By Phil Goldstein

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3. Samsung to open 1,400 mini-stores within Best Buys, challenging Apple

Verizon Communications (NYSE:VZ) CEO Lowell McAdam said Verizon Wireless could easily drop wireless contracts in the wake of T-Mobile USA's decision to do so--if consumers start asking for it. His comments reiterate what other top industry executives have said: That they will be watching to see how the market reacts to T-Mobile's new model and will respond accordingly.

"I'm happy when I see something different tried," McAdam said on the sidelines of an event to raise awareness for Verizon's "Powerful Answers" initiative, according to CNET. "We can react quickly to consumers' shifting needs."

As part of T-Mobile's "Un-carrier strategy," T-Mobile CEO John Legere has said the company is going to eliminate the prepaid/postpaid distinctions by just going with a no-contract offering without device subsidies. Customers can either buy their smartphone outright for the full cost of the device or they can make a down payment and then pay for the remainder of the cost of the device in monthly installments. Additionally, customers can bring unlocked devices to T-Mobile. However, T-Mobile is still offering traditional contracts through national retailers like Walmart and Best Buy.

Since T-Mobile first announced in December its plans to shift, executives from other carriers have said they are open to T-Mobile's model. "We have thought about it and we are going to take a kind of a wait-and-see approach," Sprint Nextel (NYSE:S) CEO Dan Hesse said during the company's fourth-quarter earnings conference call, according to a Seeking Alpha transcript. "We are going to watch what happens in the market, how customers respond to it and we evaluate options and alternatives going forward." Hesse said right now most customers seem comfortable with buying a subsidized device in exchange for a two-year contract. But he said that "as the industry evolves, we'll evolve with it."

Additionally, AT&T (NYSE:T) CEO Randall Stephenson said in January he liked the approach T-Mobile is taking, and said he would watch the development with interest.

Most of the Tier 1 carriers have long used the subsidy model because it allows them to lock customers into two-year contracts, which deliver reliable--and usually higher--streams of monthly revenue during the length of the contract. In exchange for that, they subsidize the cost of smartphones, with many high-end smartphones costing $200 or so for consumers.

Carriers, however, pay a price for subsiding smartphones, especially Apple's (NASDAQ:AAPL) iPhone. When customers upgrade to smartphones en masse, as they tend to do during the holiday shopping season in the fourth quarter, carriers' margins drop. Over the past several years the Tier 1 carriers have made changes to their upgrade policies and fees to mitigate that cost.

For more:
- see this CNET article

Related Articles:
Verizon, AT&T, Sprint shrug at T-Mobile's new no-contract plans
T-Mobile kills wireless contracts, will launch iPhone 5 on April 12
T-Mobile undercuts AT&T, Verizon with new Value plans, starting at $50/month
Sprint CFO: Ditching handset subsidies needs to make economic sense
AT&T's Stephenson indicates interest in handset financing
Virgin Mobile, C Spire testing handset financing programs

Read more about: AT&T Mobility, T-Mobile USA
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By Phil Goldstein

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4. Deutsche Telekom: We won't change T-Mobile/MetroPCS merger terms

Samsung Electronics is throwing down the gauntlet to Apple (NASDAQ:AAPL) and every other electronics and smartphone maker by partnering with Best Buy to open 1,400 "Samsung Experience Shops" within Best Buy locations nationwide. The store-within-a-store concept will allow Samsung to highlight its wares and demonstrate how its smartphone, tablets, TVs, laptops, cameras and other connected devices interact.

Samsung said that by early May, 900 Best Buy and Best Buy Mobile stores will feature the new Samsung mini-stores, with the remainder launching by early summer. Samsung and Best Buy have been testing the concept in six stores thus far.

The only other companies with the product portfolios to launch such a concept are probably Apple, LG Electronics and Sony, but Samsung is now the world's largest handset and smartphone maker and is flexing its muscles. Best Buy employees will be trained to educate consumers on Samsung devices, and Samsung will hire its own staff to demonstrate how its new flagship Galaxy S4 smartphone can transfer content between Samsung devices, for example.

"This effort is the last of a three-legged stool, from products to marketing and now retail," Ketrina Dunagan, vice president of retail marketing for Samsung Mobile's U.S. unit, told Bloomberg.

Indeed, the retail expansion dovetails with a ramping up of Samsung's marketing budget. After being outspent by Apple in 2011, Samsung spent $401 million last year advertising its phones in the United States, outpacing Apple's $333 million, according to data from ad research and consulting firm Kantar Media and cited in the Wall Street Journal.

The placement inside Best Buy is another way for Samsung to extend the presence of its brand. "70 percent of the U.S. population is within 10 miles of a Best Buy," Dunagan noted to The Verge.

For Best Buy, the alignment with Samsung gives it a chance to hitch its star to the world's most popular global smartphone maker at a time when the company will be making a major marketing push for the Galaxy S4. Best Buy has struggled in recent years in the face of intensifying competition from the likes of Walmart as well as online alternatives like Amazon. However, for the quarter ended Feb. 2, Best Buy reported its first same-store sales gain in more than a year and trimmed its loss to $409 million, compared with a loss of $1.82 billion in the year-ago period, according to the Journal.

"This is part of our Renew Blue transformation strategy--working closely with vendor partners to innovate and drive value, while also updating our stores to focus on growing and profitable categories," Shawn Score, head of U.S. Retail for Best Buy, said in a statement. "Our promise to our customers is simple: We're committed to providing the best value, service and selection. Our partnership with Samsung on the Samsung Experience Shop is another way we're delivering on that promise."

For Apple, the Samsung mini-stores mean that Apple has another front to compete against Samsung. Apple has around 400 bricks-and-mortar retail stores around the world, according to the New York Times. Apple also has mini-stores inside Best Buy locations and deals with retailers like Walmart and Target to display its iPhones and iPads.

Samsung's expansion could spell even greater trouble for smaller smartphone rivals, especially HTC. HTC's One smartphone will go on sale later this month through AT&T Mobility (NYSE:T), Sprint Nextel (NYSE:S) and T-Mobile USA and at Best Buy, but the marketing push Samsung is making will likely dwarf HTC's efforts. HTC has said it will increase its digital marketing budget by 250 percent this year compared with 2012, and will increase its traditional media marketing spending by 100 percent.

Samsung is paying Best Buy for the right to have its products placed so prominently in Best Buy stores, but Samsung declined to say how much. Dunagan told The Verge that Samsung would rather partner with a retailer than build its own standalone stores. "We felt that this partnership was the quickest way to address consumer needs," she said.

For more:
- see this release
- see this AllThingsD article
- see this NYT article
- see this WSJ article (sub. req.)
- see this The Verge article
- see this Bloomberg article

Related Articles:
Apple launches site to tout iPhone as Samsung unleashes Galaxy S4
Samsung unveils Galaxy S4, draws support from AT&T, Verizon, Sprint and T-Mobile
Apple's Schiller goes on defensive, blasts Android ahead of Galaxy S IV launch
Best Buy Connect disconnects from doing business
Best Buy CEO resigned amid probe into 'personal conduct'

Read more about: HTC, mobile retailing
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By Phil Goldstein

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5. Clearwire shareholder Crest offers $240M to block Sprint deal

Deutsche Telekom denied a Reuters report that said the company is considering changing the terms of T-Mobile USA's proposed merger with flat-rate player MetroPCS (NYSE:PCS), whose shareholders will vote on the deal April 12.

"We are not considering changing the terms of the proposed merger," DT spokesman Philipp Kornstaedt told FierceWireless.

The report, citing two unnamed sources, said DT is thinking about sweetening the deal to help get approval from MetroPCS shareholders. T-Mobile's parent company had not yet made a final decision on the new terms, the report said. In theory, the terms of the deal could be amended prior to the vote.

Last week the deal came under renewed pressure after two investor advisory firms--Institutional Shareholder Services and Glass, Lewis & Co--came out against the deal. One other advisory firm, Egan-Jones Proxy Services, said it was in favor of the transaction. The deal has received all the necessary approvals from federal regulators.

MetroPCS has been feuding with two of its shareholders, Paulson & Co. and P. Schoenfeld Asset Management LP, known as PSAM, which have argued that the deal is poorly structured and that MetroPCS shareholders are better off rejecting it. MetroPCS has argued repeatedly that the shareholders are distorting the terms of the deal, that no other bidder has emerged since last fall and that MetroPCS shareholders will benefit from being part of the combined company with a stronger spectrum position.

Under the terms of the transaction, MetroPCS will engage in a reverse-merger with T-Mobile and parent Deutsche Telekom will own 74 percent the combined company, which will be public. MetroPCS will also declare a 1-for-2 reverse stock split and pay $1.5 billion in cash to its shareholders. Metro's minority shareholders are concerned about the debt load the new company will take on and want MetroPCS to retain a greater share of the combined entity than 26 percent.

Financial analysts believe DT will need to sweeten its offer to get MetroPCS shareholders to go along. The new entity will take $15 billion of debt from Deutsche Telekom, and analysts at New Street Research LLP think DT may have to cut the debt load by $6 billion, while Nomura Holdings believes MetroPCS shareholders want a larger stake.

"The ISS report was the final straw," New Street analyst Jonathan Chaplin told Bloomberg, arguing that it pushed the likelihood that the deal will not be approved by shareholders "from unlikely to highly unlikely."

PSAM spokeswoman Catherine Jones declined to comment to Bloomberg on whether DT could change the deal terms to make it more favorable.

For more:
- see this Reuters article
- see this separate Reuters article
- see this Bloomberg article

Related Articles:
T-Mobile/MetroPCS merger gets thumbs-down from influential proxy adviser
T-Mobile's Legere confident MetroPCS shareholders will approve merger
MetroPCS: We have no other buyer but T-Mobile
MetroPCS shareholder slams company, Linquist over T-Mobile deal
FCC approves T-Mobile/MetroPCS merger

Read more about: Metropcs, rumors
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By Phil Goldstein

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