An Ignoble Experiment

2. Analysts: BlackBerry's U.S. Z10 sales off to a weak start

Verizon Wireless (NYSE:VZ) announced it will no longer allow customers to upgrade their handset at a subsidized price before the end of their 24-month contract. Previously, the carrier allowed some subscribers to upgrade their phones at a subsidized price after 20 months.

The action is likely an attempt by Verizon to improve its margins. The carrier, like most other wireless operators, offers phones at far below their actual value, and ties customers into a two-year service contract in order to recoup the cost of that phone subsidy. Those subsidies can cut into wireless carriers' profits.

Verizon said it will begin implementing the change in its upgrade policy on customers whose contracts expire in January 2014. Verizon pointed out that customers "may purchase a new phone at the full retail price at any time prior to the end of their contract."

Verizon also said that customers with "New Every Two" credits have until Monday to use those credits. Verizon ended its New Every Two handset upgrade program in January 2011.

Finally, Verizon said that customers can continue to share an upgrade with another person on an account "as long as that customer is purchasing another device in the same category." Verizon said a basic phone or a smartphone upgrade can be used to purchase another mobile phone, but customers can't transfer that upgrade opportunity to "non-phone devices" like a mobile hotspot or tablet.

This isn't the first time Verizon has tweaked its policies to protect its margins. The carrier last year began charging a $30 upgrade fee for existing customers purchasing new mobile equipment at a subsidized price with a two-year contract.

And it appears Verizon's actions are working: The carrier has said it expects its wireless EBITDA margin to rebound from a dip last year of 46.6 percent to around 49 to 50 percent this year.

Further, Verizon isn't alone in boosting its margins by tightening its upgrade policies. As Americans continue to snap up expensive smartphones, most of the nation's other major carriers have restricted their handset upgrade policies to boost margins. For example, AT&T Mobility (NYSE:T) late last year said its wireless EBITDA service margin increased to 45 percent from 41.1 percent in the year-ago quarter due to changes the carrier made to its handset upgrade policy, as well as higher upgrade fees and altered pricing for mobile data.

For more:
- see this Verizon post
- see this PhoneScoop article
- see this MobileBurn article

Read more about: Verizon Wireless
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This week's sponsor is ID Analytics.

By Phil Goldstein

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3. Investors begin rallying around T-Mobile/MetroPCS merger

BlackBerry's (NASDAQ:BBRY) shares tumbled nearly 8 percent Thursday, the most in two weeks, as financial analysts questioned the strength of early sales of the Z10, the company's flagship smartphone running its new BlackBerry 10 platform.

The BlackBerry Z10 is one of four smartphones promoted on T-Mobile's homepage.

In the United States, AT&T Mobility (NYSE:T) started selling the device on March 22 for $199.99 with a two-year contract, the same price as Verizon Wireless (NYSE:VZ), which started selling the Z10 March 28. T-Mobile USA also started selling the Z10 in late March, and currently offers the phone for $99 under its new no-contract model.

However, the phone hasn't received much marketing support from any of the carriers. Indeed, it is difficult to find on the homepage of AT&T and Verizon.

"The U.S. launch of the Z10 started poorly and weakened significantly as the days passed," Joseph Fersedi, an analyst at ITG Investment Research, wrote in a research note Thursday, citing information from independent dealers.

"(The) recent optimism surrounding the ability of the new BlackBerry 10 products to get BlackBerry back to long-term profitability will ultimately prove unwarranted," Pacific Crest analyst James Faucette wrote in a research note. "We see a combination of market maturity, more aggressive pricing from competitors and smaller resources than those of competing ecosystems frustrating the comeback attempt."

A BlackBerry spokeswoman did not immediately respond to a request for comment. However, BlackBerry did issue a statement after one analyst, Detwiler Fenton's Jeff Johnston, claimed that "in several cases, returns [of the Z10] are now exceeding sales."

"BlackBerry wishes to respond to media coverage today regarding speculation that there have been abnormally high levels of returns of BlackBerry Z10 devices," the company said. "This is absolutely false. Our data shows that return rates for BlackBerry Z10 devices both in the U.S. and on a global basis are in line with or better than our expectations and are consistent with return rates for other premium smartphones in the market today."

Indeed, according to Reuters, BlackBerry plans to ask securities regulators in Canada and the United States to probe the report.

BlackBerry reported that in its fiscal fourth quarter, which ran until March 2, it sold 1 million units of its new flagship touchscreen Z10 smartphone, the first to run its BlackBerry 10 platform. The Z10 first went on sale Jan. 31 in the United Kingdom and sales have since expanded to more than 60 carriers across 40 countries, including Canada and in Europe and Asia.

However, so far it does not appear that BlackBerry's marketing message is sinking in, at least in the United States. MKM Partners conducted a survey during the past three weeks across 1,500 U.S. consumers, asking, "Are you aware that BlackBerry 10 was launched in Canada and Europe in late January 2013?" According to Barron's, 82.6 percent said "no."

"We are running a global rollout here, with BlackBerry 10, so we see strong carrier support, you know, collateral marketing activities with carriers all over the place," BlackBerry CEO Thorsten Heins said on the company's fiscal fourth quarter earnings conference call, according to a Seeking Alpha transcript. "And it varies from promotion to promotion, so there's not just one size fits all kind of an approach. We are still in early days in the U.S. We just launched with AT&T, now Verizon and T-Mobile are coming on board. We see strong marketing support from them.

BlackBerry CMO Frank Boulben told FierceWireless in late March that the company is confident in the support it will receive in terms of marketing at the retail sales level from U.S. carriers. BlackBerry's own TV commercials for the Z10 started airing in late March and Boulben said commercials from carriers would be coming in the next few weeks. "You need a very comprehensive training effort and I'm pleased to report we've done our most comprehensive training program ever with the U.S. carriers," Boulben said.

BlackBerry is also doing something aggressive in its "real-time marketing campaign." According to Forbes, BlackBerry has been working with advertising agency BBDO and several digital agencies from within Publicis group like Razorfish on a campaign to "take over" consumers' PC desktops and iPhone and Android screens to showcase specific features of BB10.

For more:
- see this WSJ article (sub. req.)
- see this Bloomberg article
- see this Reuters article
- see this separate Reuters article
- see this Barron's article
- see this CNET article

Related Articles:
BlackBerry 7 to power new devices targeting emerging markets
BlackBerry sells 1M Z10s, but loses 3M subscribers
Report: Brightstar is mystery buyer of 1M BlackBerry 10 phones
BlackBerry Z10 sales get off to slow start at AT&T, but more U.S. carrier support coming
BlackBerry 10 lands in U.S. as AT&T begins selling Z10
BlackBerry wins order for 1M phones, touts new security features for Android, iOS

Read more about: Smartphones, BlackBerry Z10
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By Mike Dano

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4. T-Mobile launches iPhone assault with installment plan, trade-ins and ad blitz

Following Deutsche Telekom's improved offer for MetroPCS (NYSE:PCS) shareholders earlier this week, investors in the regional, flat-rate carrier are beginning to voice their support for the combination of T-Mobile USA and MetroPCS. Specifically, MetroPCS's largest shareholder, Paulson & Co., said it now supports the transaction.

"While Paulson needs to review the revised proxy statement before making a final decision, Paulson intends to vote for the merger as restructured," said Paulson & Co., which owns 9.9 percent of Metro shares, according to Bloomberg.

P. Schoenfeld Asset Management, the other major Metro investor that opposed the original transaction, said it is reviewing DT's new offer.

DT Wednesday issued its "best and final offer" that slashes the amount of debt the combined company will hold by $3.8 billion. DT also said it will lower the interest rate it plans to charge on the loan by half a percentage point. The new offer would cut the loans to $11.2 billion, from $15 billion. The revised offer addresses many of the concerns that MetroPCS shareholders had about the deal--specifically that the combined company would take on too much debt.

A MetroPCS shareholder vote on the transaction was scheduled for today but has been delayed until April 24 to allow voters to evaluate DT's new offer. Federal regulators have already approved the deal, and the last remaining obstacle to the closing of the transaction is approval by MetroPCS shareholders.

Now that the merger of T-Mobile and MetroPCS appears a virtual certainty, industry observers are beginning to consider what the future of a combined T-Mobile and MetroPCS looks like. In arguing for the transaction, T-Mobile has said that it will take MetroPCS' prepaid brand and offerings nationwide. T-Mobile has also said it will use MetroPCS' spectrum to improve its burgeoning LTE network, which is currently live in seven markets. T-Mobile plans to expand its LTE network to 200 million POPs by the end of this year, and with MetroPCS' spectrum T-Mobile has promised to deliver 2X20 MHz LTE services in 90 percent of the top 25 U.S. markets.

"Now that T-Mobile settled its issues with MetroPCS shareholders it can focus squarely on tomorrow's iPhone launch and more broadly on marketing its Un-carrier strategy," wrote BTIG analyst Walter Piecyk. "Network investments, cheap phones and discount rate plans are a good start but T-Mobile needs to get the message out and that will require a pick-up in marketing."

Indeed, T-Mobile today started selling the iPhone 5, and is pushing the gadget with a major marketing campaign (click here for that story).

Piecyk said BTIG expects T-Mobile to grow gross additions by 25 percent in the second quarter to 1 million, which he said would represent a slight sequential increase in a quarter that typically is down sequentially.

In preliminary subscriber figures for the first quarter of 2013, T-Mobile managed to reverse its "branded customer" losses, recording a net gain of 3,000 branded customers during the period.

For more:
- see this BTIG post (reg. req.)
- see this Wall Street Journal article (sub. req.)
- see this Bloomberg article
- see this MarketWatch article

Read more about: Metropcs
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By Sue Marek

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5. Nvidia's Tegra mobile business to stay flat this year

The wait is finally over. T-Mobile USA will begin offering Apple's (NASDAQ:AAPL) LTE-capable iPhone 5 for the first time today, making it the last of the four major U.S. carriers to add the iconic device in its portfolio. To push the news, T-Mobile is launching an aggressive campaign to attract customers that includes offering shoppers an installment plan to purchase the phone and letting existing iPhone customers trade in their devices for the T-Mobile model.

Click here to watch T-Mobile's iPhone 5 commercial.

Early response to T-Mobile's deal appears promising. According to BTIG analyst Walt Piecyk, a T-Mobile USA store in New York City had a line of customers outside waiting to purchase the device.

Customers with good credit can buy the iPhone 5 from T-Mobile for $100 down and 24 monthly payments of $20. This is a departure from the traditional wireless phone model in which operators subsidize the cost of the phone in exchange for a two-year contract.

In addition, T-Mobile is letting existing iPhone users to switch to T-Mobile's network. For those customers who bring in their existing iPhones, T-Mobile said it would eliminate the $99 fee for its iPhone 5. And, depending on the trade-in value of the customer's iPhone, T-Mobile said it would also issue up to $120 in credit that customers could apply to their monthly service bill, device payments or the purchase of accessories or another device.

The company also has launched an aggressive advertising campaign that promotes the company's new image as the "uncarrier." TV and radio advertisements tout T-Mobile's iPhone 5 launch. According to TMoNews, the company has purchased airtime on radio stations in Orlando, Fla.; Seattle; Philadelphia; Denver; Dallas; New York City; and more.

T-Mobile also appears to be running an aggressive ad campaign on YouTube, noted BTIG's Piecyk. Based on published reports, T-Mobile's YouTube ad campaign could cost as much as $400,000 a day, Piecyk said.

T-Mobile has said its version of the iPhone 5 will support its LTE and HSPA bands, which means that Apple has designed a unique version of the phone for T-Mobile's network. However, the carrier's iPhone 4S and 4 will not carry the same configuration, and as a result those devices will only be available in "select" markets and channels.

T-Mobile's LTE network in now live in seven markets on its 1700 MHz AWS spectrum, including Baltimore; Houston; Kansas City; Las Vegas; Phoenix; San Jose, Calif.; and Washington, D.C. T-Mobile CEO John Legere has said that New York City will be online with LTE by early summer. The carrier plans to cover 100 million POPs with LTE by mid-2013 and 200 million by year-end. Legere has also said that when T-Mobile merges with MetroPCS (NYSE:PCS), T-Mobile will be able to deploy 2X20 MHz LTE in 90 percent of the top 25 U.S. markets.

For more:
- see this Bloomberg article
- see this T-Mobile ad
- see this BTIG post (reg. req.)
- see this T-Mobile radio campaign

Read more about: installment plan
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By Mike Dano

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