An Ignoble Experiment

2. Sprint teams with C Spire on LTE roaming

Verizon Wireless (NYSE:VZ) reported a record-high profit margin in the first quarter of 2013 as it continued to benefit from its Share Everything shared data plans, which were introduced last June. The carrier said that its average revenue per account grew steadily, as it has in the past several quarters. Verizon said that 30 percent of its retail postpaid customers are now on its shared data plans.

Click here for key slides from Verizon's first quarter earnings presentation.

"The standout metric for the quarter was wireless margin strength on lower upgrades," wrote Jonathan Chaplin of New Street Research. "We had been disappointed by a higher than expected upgrade rate in 4Q12, which unwound this quarter."

The nation's largest wireless carrier said it added 720,000 net retail customers in the first quarter, including 677,000 retail postpaid net connections and 43,000 retail prepaid additions. These additions exclude acquisitions and adjustments. Verizon noted that in 2012 its net additions for retail postpaid connections increased sequentially each quarter, and that it "expects a similar pattern of accelerating customer growth in 2013."

In the first quarter of 2012, Verizon had 734,000 retail net customer additions, which included 501,000 retail postpaid net customer additions.

At the end of the first quarter of 2013, the company had 98.9 million retail connections, a 6.4 percent increase year-over-year, including 93.2 million retail postpaid connections and 5.7 million retail prepaid customers.

On the company's earnings conference call, Verizon Communications CFO Fran Shammo said the company is not seeing resistance from customers in terms of adoption of its Share Everything plans, and that adoption is actually ahead of expectations.

"Verizon is firing on all cylinders. In an increasingly saturated market, the company is accelerating subscriber, revenue and profit growth," noted Roger Entner, founder of Recon Analytics and a FierceWireless contributor. "The Share Everything plan is being received enthusiastically by consumers. FiOS continues to make inroads in the internet and video markets taking away share from the cable companies."

Interestingly, Shammo confirmed to Reuters that Verizon made a bid to acquire some of Clearwire's (NASDAQ:CLWR) spectrum. Shammo did not confirm the size of the company's bid, but he said if Verizon did not succeed in buying the spectrum, he would not be interested in leasing spectrum from Clearwire. The Wall Street Journal reported earlier this week that Verizon made an unsolicited offer to Clearwire to purchase Clearwire's spectrum license leases in major markets for up to $1.5 billion.

Here's a breakdown of Verizon's key quarterly metrics:

Financials: The carrier said total wireless revenue was $19.5 billion in first-quarter, up 6.8 percent year-over-year. Verizon said service revenue in the quarter clocked in a $16.7 billion, up 8.6 percent from the year-ago period. Retail service revenue also grew 8.6 percent from the year-ago quarter, to $16.2 billion.

ARPA: Verizon no longer reports average revenue per user (ARPU) but instead now is reporting average revenue per account (ARPA). The company made the change to account for its Share Everything plans, which let customers add multiple devices to one account. Verizon's retail postpaid ARPA increased 6.9 percent over the first quarter of 2012, to $150.27 per month. The carrier's ARPA was $146.80 per month in the fourth quarter of 2012 and $145.42 per month in the third quarter of 2012. Shammo said Verizon now counts 34.9 million retail postpaid accounts for an average of 2.67 connections per account, up 5.1 percent year-over-year.

Margins: Verizon said its wireless operating income margin was 32.9 percent and segment EBITDA margin on service revenues was 50.4 percent, setting record-highs. That was a sharp bounce back from the fourth quarter of 2012, when Verizon reported a wireless operating income margin of 24 percent and wireless EBITDA margin of 41.4 percent. The figures are also up from the first quarter of 2012, when the carrier posted a 28.6 percent operating income margin and a 46.3 percent wireless EBITDA margin.

Smartphones: Verizon activated 7.2 million smartphones in the quarter, 68 percent of which were LTE smartphones. The company activated 4 million Apple (NASDAQ:AAPL) iPhones in the period, half of which were the LTE-capable iPhone 5. Shammo said 28 percent of the smartphone activations were customers who were new to Verizon, higher than the range of 22 to 24 percent Verizon saw in the first half of 2012. At the end of the first quarter, smartphones accounted for more than 61 percent of the Verizon's retail postpaid customer phone base, up from 58 percent at the end of the fourth quarter of 2012.

Last week Verizon said that, effective Sept. 1, 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. Shammo said Verizon expects subsidies to drop over time as competition in the smartphone market increases and as Verizon begins taking the CDMA chipsets out of some its smartphones as it moves to Voice over LTE service, which it will commercially launch in early 2014.

LTE: The carrier had 5.9 million total LTE device activations in the quarter. The company also noted that 54 percent of its total data traffic now rides on its LTE network. Verizon said its LTE network now covers 287 million POPs, by far the largest in the United States, covering more than 95 percent of Verizon's current 3G network footprint. The carrier expects to cover its 3G footprint with LTE by the end of the second quarter. The company will turn on its AWS spectrum later this year to add extra LTE capacity, Shammo said.

Churn: Verizon's retail postpaid churn was 1.01 percent in the first quarter, up from 0.96 percent in the year-ago period. Total retail churn was 1.30 percent, up from 1.24 percent year-over-year.

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

Special Report: Wireless in the first quarter of 2013

Read more about: data share, Verizon Wireless, margins, LTE
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By Sue Marek

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3. Nokia's N. American sales drop, but Elop hints at new 'hero' Lumia for U.S.

NEW ORLEANS--Sprint Nextel (NYSE:S) is working with regional operator C Spire Wireless to enable LTE roaming across multiple spectrum bands. Speaking at the Competitive Carriers Association conference here, Sprint CEO Dan Hesse said that his company wants to be the preferred roaming partner for smaller operators in the United States and is working with C Spire, Qualcomm (NASDAQ:QCOM) and others to make that happen.

Specifically, Hesse said that Sprint is working on a solution that will allow LTE roaming across 850 MHz, 1900 MHz and 700 MHz spectrum. Sprint and C Spire have already completed intercarrier roaming tests. "We are working closely on a technical solution for intercarrier 4G roaming between our network and others," Hesse said.

C Spire Wireless launched its LTE service last September in Mississippi using gear from Alcatel-Lucent (NASDAQ: ALU). The company launched the network in 1700 MHz AWS spectrum and 1900 MHz PCS spectrum, and not its Band Class 12 700 MHz spectrum it had initially planned to use. The company said it didn't deploy in the 700 MHz spectrum because it lacked devices.

Roaming is a critical issue for smaller operators. Many are hesitant to deploy LTE in their spectrum holdings because they are uncertain about roaming arrangements with larger operators. Earlier this week, Carolina West Wireless CEO Slayton Stewart said that although his company has spectrum in various bands, including 850 MHz, 700 MHz, AWS and 1900 MHz, it is struggling to decide which band to use for LTE. "We have plenty of spectrum and that almost confuses it," he said. "We are not sure what direction to go because we don't know how it impacts the device ecosystem … We have gone through the RFPs and we know the price of LTE. It's cheaper to build LTE than maintain 3G," Stewart said.

In February, Qualcomm unveiled a new chipset solution that it argues will help device makers worldwide overcome issues related LTE spectrum fragmentation by providing them with a multimode LTE design. The new solution, dubbed the RF360 Front End Solution, is actually a whole family of chips designed to mitigate LTE band fragmentation while improving RF performance and helping device makers develop multiband, multimode mobile devices supporting all seven cellular modes, including FDD-LTE, TD-LTE, WCDMA, EV-DO, CDMA 1x, TD-SCDMA and GSM/EDGE.

During his talk at the CCA show Hesse also said that Sprint is expanding its LTE coverage to 21 new markets, including Los Angeles, Charlotte, N.C., and Memphis, Tenn. The company now offers LTE in 88 markets nationwide.

Special Report: CCA Global Expo Conference: Complete coverage

Read more about: Sprint Nextel, C Spire Wireless
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By Phil Goldstein

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Special Report: Wireless in the first quarter of 2013

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Nokia (NYSE:NOK) reported a year-over-year and sequential drop in device sales in North America, but CEO Stephen Elop also hinted that the company will soon bring a "hero" Lumia Windows Phone smartphone to a top U.S. carrier, likely Verizon Wireless (NYSE:VZ).

While Nokia managed to narrow its net loss for the quarter thanks to cost cutting, rising Lumia smartphone sales and strong results from its Nokia Siemens Networks joint venture, the company also posted its smallest quarterly revenue in 13 years as its overall mobile phone shipments plunged.

Overall, Nokia's net loss in the period shrank to $355.3 million, down from a loss of around $1.2 billion in the first quarter of 2012. Analysts had expected Nokia to report a loss of $567 million, according to the Wall Street Journal. Nokia's net cash increased to $5.87 billion from $5.74 billion at the end of December.

Nokia's improved finances are largely a result of its cost cuts, spearheaded by the 10,000 job cuts Nokia announced in June 2012. At the end of the first quarter, Nokia said its devices and services unit and common corporate units had around 31,600 employees, down nearly 15,500 employees, or 33 percent, from the first quarter of 2011, and down nearly 1,600 jobs compared with the third quarter of 2012.

Despite the improved bottom line, Nokia's sales slumped in the first quarter to $7.64 billion, down 20 percent from $9.6 billion in the year-ago period. Analysts had expected sales of $8.5 billion, according to the average of estimates compiled by Bloomberg.

Nokia's total mobile phone shipments (including low-end feature phones and high-end smartphones) fell to 61.9 million, down 25 percent from 82.7 million in the first quarter of 2012. The company's shipments fell in every region around the world.

However, Nokia reported rising Lumia shipments--Nokia is banking much of its future on smartphones running Microsoft's Windows Phone operating system. During the first quarter Nokia shipped 6.1 million smartphones, of which 5.6 million were Lumia phones (500,000 were Symbian units). The 5.6 million Lumia shipments is a quarterly record for Nokia, up from 2 million in the year-ago period and 4.4 million in the fourth quarter of 2012. Nokia said in the first quarter of 2013, approximately two-thirds of its Lumia volumes were Windows Phone 8-based products. The company also sold 5 million of its Asha touchscreen phones.

"People are responding positively to the Lumia portfolio," Elop said in a statement. "On the other hand, our mobile phones business faces a difficult competitive environment, and we are taking tactical actions and bringing new innovation to market to address our challenges."

In North America, Nokia shipped 400,000 units, down from 600,000 in the year-ago period and 700,000 in the fourth quarter. The phones were likely all Lumia phones running Microsoft's (NASDAQ:MSFT) Windows Phone platform.

And it appears Nokia is working to counter declining sales in the United States. According to The Verge, Elop said on the company's earnings conference call that "later this quarter a new Lumia device is anticipated to have hero status with a leading U.S. carrier." Rumors have indicated that Verizon will soon launch the Lumia 928, a high-end device similar in many respects to the Lumia 920 AT&T Mobility (NYSE:T) launched late last year.

Verizon launched the mid-range Lumia 820 in the fourth quarter but did not accord it special status in its device lineup. Getting heavy promotion from Verizon would likely help not only Nokia but the wider Windows Phone ecosystem, which has struggled to gain traction with consumers, especially in the U.S. market. According to The Verge, Microsoft will team with Verizon to help market the product.

Elop said this new Lumia will "mark the beginning of a season of new product introductions." According to the Financial Times, which cited unnamed sources, Nokia will release a number of flagship products this year, including its first "phablet." Nokia declined to comment on the report.

Phablets (a portmanteau of "phone" and "tablet") typically have screen sizes of 5 inches or larger, and have generated significant traction in the market. Some analysts have said that Nokia is struggling in part because it does not offer a phone with a supersized screen. Nokia is also expected to bring its PureView imaging capabilities to the Lumia line this year.

For more:
- see this release
- see this WSJ article (sub. req.)
- see this Reuters article
- see this Bloomberg article
- see this The Verge article
- see this FT article (sub. req.)
- see this separate The Verge article

Read more about: Handsets, Lumia 928
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4. Nokia Siemens closer to becoming an 'independent entity'

By Tammy Parker

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5. Dish's proposed acquisition of Sprint evokes questions, concerns from industry

Nokia Siemens Networks' strong first-quarter 2013 results appear to place it firmly on the path toward becoming independent of parent companies Nokia (NYSE:NOK) and Siemens.

NSN achieved underlying profitability for the fourth consecutive quarter and positive cash flow for the sixth consecutive quarter. The vendor reported an operating profit of $4 billion for the most recently ended quarter vs. an operating loss in 2012's first quarter of $1.31 billion. non-IFRS operating profit of $255.87 million, an improvement over the prior-year period's non-IFRS operating loss of $190.59 million.

"External market share data continues to reinforce that NSN has become one of the top vendors in LTE, which is where we believe the attractive growth and margin will be in the coming years. Furthermore, during Q1, NSN successfully placed an €800 million ($1.03 billion) bond with no recourse to its parents, solidifying its liquidity profile and demonstrating progress toward becoming a more independent entity," Stephen Elop, CEO of Nokia, told financial analysts during the Finnish vendor's quarterly earnings conference call.

The NSN partnership agreement between Nokia and Siemens officially expired this month. Both parent companies have agreed to continue running their joint venture, while Siemens seeks a suitable exit. Analysts have suggested Nokia could ultimately sell its interest in NSN, find a new partner or initiate an initial public offering for the infrastructure business.

"The handset vendor is more likely to wait for NSN to continue to build market value before offloading its stake to a third party or spinning it off in an IPO. Nokia is unlikely to purchase Siemens' share as Nokia is embroiled in a massive restructuring of its own, said Michael Soper, research analyst, at Technology Business Research.

He added the most likely scenario would entail Siemens selling its stake to a third-party vendor, "although Alcatel-Lucent (NASDAQ:ALU), Ericsson (NASDAQ:ERIC) and Huawei can all likely be excluded as possible suitors." Soper said it is likely an IT-focused vendor that wants to increase its prominence in the telecom infrastructure space would be interested in Siemens' NSN stake.

"We will continue to look at NSN in a prudent and pragmatic way with the aim of maximizing value for our shareholders," said Timo Ihamuotila, Nokia CFO, whoe noted NSN is now "self-funding in all aspects of its operations."

In response to a question regarding NSN's future operating prospects, Ihamuotila acknowledged that some major NSN projects in Asia are wrapping up. "Simultaneously, NSN has improved its position in North America, which is a growing market, and we feel that is an opportunity for NSN."

The vendor is one of T-Mobile USA's primary vendors for its $4 billion network modernization program. It is also provided radio access network (RAN) and mobile management entity (MME) equipment in 11 markets for U.S. Cellular's (NYSE:USM) second wave of LTE launches, which occurred in late 2012.

NSN's mix of large customers is more diverse than it was 12 months ago. "As their success with LTE with multiple large customers expands, the manageability of the revenue level and the risk of a single customer drying up is reduced," said Elop.

NSN continues to restructure its business with a focus on profitability. At the end of 2013's first quarter, the vendor counted some 56,700 employees, a reduction of 11,900 compared to the year-ago quarter.

The company is facing higher restructuring charges, however. NSN now expects cumulative restructuring-related cash outflows of $1.83 billion before the year's end. This is $130.54 million more than were previously estimated. By the end of the quarter, NSN had expensed some $1.04 billion related to restructuring.

NSN continues being a shining star for struggling Nokia. During 2013's first three months, Nokia Group's net cash position improved by $156.57 million sequentially, with NSN contributing some $274.07 million, showing how important the infrastructure business has become to Nokia's survival.

NSN benefited from a robust gross margin, which was 34 percent, and reported a non-IFRS operating margin of 7 percent. Increased non-IFRS gross margin in the first quarter 2013 was primarily due to a higher gross margin in mobile broadband and global services, as well as a higher proportion of mobile broadband within the total sales mix.

NSN's net sales decreased 30 percent sequentially to $3.65 billion, reflecting industry seasonality. A year-on–year decrease of 4.8 percent in net sales during the first quarter of 2013 was primarily due to divestments of businesses inconsistent with NSN's strategic focus as well as the exiting of certain customer contracts. Excluding these two factors, NSN's net sales in the quarter declined by about 1 percent as lower net sales of global services were almost entirely offset by higher net sales in mobile broadband. At constant currency, NSN's net sales would have decreased 4 percent year-on-year.

NSN suffered lower net sales in Europe and Latin America, which both generated lower net sales in mobile broadband. North America, however, drove higher revenues for NSN, which enjoyed regional growth in both mobile broadband and global services net sales.

During 2013's initial quarter, global services represented 51 percent of NSN's net sales, down from 52 percent a year earlier. The year-on-year decline in global services was primarily due to lower net sales in professional services and care.

Mobile broadband generated 44 percent of NSN's net sales during the recently ended quarter, up from 41 percent in the year-ago quarter. The increase in mobile broadband was primarily due to higher LTE net sales, partially offset by lower WCDMA and voice and IP transformation net sales.

For more:
- see this Nokia release
- see this CNN article
- see this Bloomberg article
- see this Reuters article
- see this Wall Street Journal article (sub. req.)

Read more about: Nokia, profit
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By Sue Marek

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