An Ignoble Experiment

2. Google promises Motorola phone advancements, trumpets Google Glass

Dish Network (NASDAQ: DISH) asked the FCC to pause its review of Japanese operator SoftBank's proposed acquisition of 70 percent of Sprint Nextel (NYSE:S) while Sprint's board considers Dish's own counterbid for Sprint. Dish said its offer for Sprint "is better for the American consumer, better for Sprint's shareholders, and better for U.S. national security than the SoftBank proposal."

Dish's comments are likely a reference to concerns about foreign ownership of domestic telecommunications companies as well as specific concerns that Sprint could use equipment from Chinese vendors ZTE and Huawei in its network. Indeed, Sprint and SoftBank recently promised lawmakers that Sprint will not use gear from Chinese vendor Huawei in its network, according to Rep. Mike Rogers (R-Mich.), the chairman of the House Permanent Select Committee on Intelligence. His comments came after the Wall Street Journal reported that the U.S. government wants to be able to review Sprint's network equipment purchases as a condition of SoftBank's proposed $20.1 billion purchase of 70 percent of Sprint.

Huawei and ZTE were singled out in a federal report advising against the purchase of the companies' equipment due to concerns over Chinese spying, accusations the companies have repeatedly and vehemently denied.

In a filing with the FCC, Dish said that its own proposal for Sprint, made public on Monday, "introduces substantial uncertainty about the fate of the SoftBank proposal." In the filing, Dish argued that its offer includes "an estimated $37 billion in net present value synergies and growth opportunities that cannot be matched through acquisition by a foreign carrier with little existing in-market infrastructure."

An unnamed SoftBank executive told Bloomberg that currently SoftBank does not plan to increase its offer to Sprint. Instead, the company will focus on its existing plans for Sprint, but has not ruled out future action, the executive said. SoftBank declined to comment, according to Bloomberg.

Meanwhile, the Journal reported that, according to unnamed sources, Sprint has established a special committee on its board to evaluate Dish's offer. Such special committees are common when a company receives an acquisition offer.

Sprint spokesman Scott Sloat declined to comment on the Journal report or Dish's filing. The FCC declined to comment, according to Bloomberg.

Under Dish's proposed offer, Sprint shareholders would receive $7 a share, consisting of $4.76 in cash and stock representing about 32 percent of the combined company, vs. 30 percent under the SoftBank deal, according to Dish. That equates to $17.3 billion cash and $8.2 billion stock, according to Bloomberg. Dish said the total offer represents a 13 percent premium on the SoftBank deal, which Sprint and SoftBank announced in October.

Sprint is a much larger company than Dish, with $35.3 billion in revenue last year, compared with $14.3 billion for Dish, making the deal a heavy lift financially. According to the Journal, which cited information from CapitallQ, the combined company would have more than $36 billion in debt, even before adding in the $9 billion Dish indicated it would borrow to get the deal done.

Also complicating the matter is that Sprint is in the process of acquiring Clearwire (NASDAQ:CLWR), which Dish has also made an unsolicited counterbid for. Dish has said that its offer to Sprint is not contingent on Clearwire accepting Sprint's offer, yet Dish executives made clear this week that Clearwire's 2.5 GHz spectrum will be a key part of the total combined company.

Investment analysts remain divided over whether Dish's offer is better for Sprint. Canaccord Genuity analyst Greg Miller said Sprint is likely going to wait to see what SoftBank does in response to Dish's offer.

"We see little reason for Sprint to offer an opinion on that matter in the near term; rather we expect silence from all parties until everyone understands what SoftBank's next move could be," he wrote in a research note. "Absent a counter bid, it remains unclear to us if Sprint will push the SoftBank proposal to a shareholder vote or even the Clearwire bid to such a vote when a higher competing offer is out there. The only option that might seem to draw a higher SoftBank bid would be for the Sprint board to deem the Dish bid superior."

Additionally, some of Sprint's bondholders are clashing with some Sprint investors that have praised Dish's offer. The bondholders argue that a combined Dish/Sprint would hold too much debt.

"The proposed transaction with Dish leaves the combined entity with potentially too much leverage for a company with investment-grade competitors," George Goudelias, a money manager at Seix Investment Advisors, which oversees $28 billion and owns Sprint debt, told Bloomberg. "As a high-yield investor in Sprint, you want the deeper pockets of SoftBank, which can keep the company liquid."

For more:
- see this FCC filing
- see this Reuters article
- see this Bloomberg article
- see this second Bloomberg article
- see this WSJ article (sub. req.)
- see Barron's article
- see this separate WSJ article (sub. req.)
- see this third Bloomberg article

Related Articles:
Dish's proposed acquisition of Sprint evokes questions, concerns from industry
Major Sprint investors rally around Dish's bid
Dish makes $25.5B offer to buy Sprint, countering Softbank
Entner: How Sprint-Dish would affect Sprint shareholders, customers, competitors and the regulators
Dish amasses $10B cash pile as questions swirl over its plans
Sprint won't use Huawei gear, says lawmaker

Read more about: DISH Network, Sprint
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By Mike Dano

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3. Growth in overall wireless network traffic slows by 60%, PwC survey finds

Google (NASDAQ:GOOG) CEO Larry Page again hinted at the company's upcoming Motorola phone products, noting the gadgets likely will feature improved battery life and tougher screens.

"In today's multiscreen world, the opportunities are endless," Page said during Google's first quarter earnings conference call. "Think of all your devices. Battery life is a challenge for most people. You shouldn't need to carry a charger in order to make it through the day. When you spill a drink on your tablet, the screen shouldn't die. When you drop your phone, it shouldn't shatter. There's a real potential to create new and better experiences, experiences that are much faster and more intuitive. Having seen some of Motorola's upcoming products myself, I'm really excited about the potential there."

Page's comments are an expansion of previous statements he and other Google executives have made in recent months. For example, Motorola has "a new set of products which I have seen and they are phenomenal," Google Executive Chairman Eric Schmidt said recently at the AllThingsD's D: Dive Into Mobile conference. "Think of it as phones+."

And Jim Wicks, Motorola's design chief, recently told PC Magazine the new generation of Motorola phones will launch in the second half of 2013, and will feature phones that break away from the trend of ever-bigger screens. Motorola is reportedly working on a so-called "X-Phone," an advanced Android device.

As for Google's Motorola business, the division reported an operating loss of $271 million on revenues of $1.02 billion in the first quarter of 2013. Google did not disclose shipment numbers for Motorola Mobility. In the fourth quarter, the company commanded a 1.2 percent share of the global cell phone market on shipments of 5.3 million units, according to ABI Research.

During Google's first-quarter conference call, Page also commented on Google's exploratory efforts with Google Fiber, Google Glass and the company's tests of self-driving cars. Broadly, Page said that Google is pursuing "revolutionary change." He pointed to the company's Google Glass product specifically: "I get chills when I use products of the future, and I get that using Glass."

Also: "Obviously Glass runs on Android," Page said, according to Cnet.

"We are still only at 1 percent of what's possible," Page said. "We are only getting started."

During the question-and-answer portion of the earnings call, Page and other Google executives addressed a variety of topics and concerns.

On whether Android is suffering from fragmentation, Page said that he had recently tested a number of different Android phones from a number of different suppliers. "The experiences are a bit different … But I find it a pretty great overall experience and there's a lot of innovation, and the platform is moving quickly," Page said. "And that's how we designed it. In a negative sense that's fragmentation and in a positive sense that's innovation and flexibility."

Page was also asked to comment on Facebook's Home product, which runs on Android and aims to replace many of the core functions of Android such as messaging and voice calling. Said Page: "At Google, we're really focused on creating great Android experiences within the strong ecosystem we have. It's really great to see developers really focused on and building for Android."

Google executives were also questioned about the progress of Google's mobile advertising business. The company in February released an overhauled version of its AdWords advertising platform, which company executives said allows advertisers to more easily direct advertisements to both desktop computers and mobile devices. Google's Nikesh Arora said Google has so far moved 1.5 million advertising campaigns onto the new, "enhanced" platform, and he said the company expects to move all of its advertising campaigns to the new AdWords platform by the end of the current quarter.

Finally, the company was also asked about its Google Fiber project, which Google this week expanded to Austin, Texas, and Provo, Utah. Page said the company sees improving consumers' Internet speeds as a way to encourage users to get online and potentially access Google's services. Google CFO Patrick Pichette said the speeds provided by Google Fiber will allow users to access YouTube videos instantly, instead of waiting for up to three seconds using the speeds provided by incumbent wired Internet providers. Google executives said the company will continue to pursue its Fiber business but declined to provide specifics.

Overall, Google reported total revenue of $14 billion and a net income of $3.35 billion. According to reports, Wall Street had expected slightly more revenues and profits. Google's shares were up around 2 percent immediately after the release of the company's first quarter earnings results, to around $783 per share in after-hours trading.

For more:
- see this Google release
- see this Cnet article

Special Report: Wireless in the first quarter of 2013

Read more about: Larry Page, Google
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By Mike Dano

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4. TracFone's Q1: 839K net adds, rising revenues and increasing ARPU

According to a new survey of all of the major North American wireless carriers, smartphones remain incredibly popular among subscribers, who are consuming an average of 694 MB per month in postpaid data. At the same time, voice calling continues to decline from around 720 minutes per month among postpaid users in 2010 to 673 minutes last year. But perhaps the most interesting finding from the PwC survey is that wireless carriers are seeing a dramatic 60 percent slowdown in the growth of traffic on their wireless networks.

Click here for charts from PwC's survey.

"While it is too early to tell if this slowdown is an indication of a maturing industry and a reduction in subscriber demands, it offers some potential relief to rapidly escalating network capital requirements and deployment challenges," PwC wrote in its new "Real time. The growing demand for data," report. The firm found that overall network traffic growth slowed from a 138 percent increase between June 30, 2011, and June 30, 2010, to just a 76 percent increase between June 30, 2011, and June 30, 2012.

The new PwC survey, which is conducted every year, collected information through Dec. 31, 2011, as well as "certain" information available as of June 30, 2012. It includes responses from virtually every major North American wireless carrier including Verizon Wireless (NYSE:VZ), AT&T Mobility (NYSE:T), Sprint Nextel (NYSE:S) and T-Mobile USA.

"The maturing mobile industry is at an inflection point with price and value conscious subscribers consuming more data services requiring continuous and significant network investments from operators," said Pierre-Alain Sur, PwC's global communications industry leader, in summarizing the findings from the report. "Carriers need to find the right balance of finding innovative ways to retain and attract subscribers, creating shareholder value, while investing significantly in their networks. As a result, many are turning to new growth areas such as multidevice data plans, machine-to-machine (M2M) subscriptions and greater customization of service plans for new revenue sources."

As for the growth in smartphones, PwC's report shows that smartphones comprised 60 percent of sales to postpaid customers in fiscal 2011, up from 41 percent in the previous year. And the number of total postpaid subscribers using a smartphone increased to 56 percent as of June 30, 2012, compared with 39 percent as of June 30, 2011.

Aside from smartphones, tablets also continue to generate sales for carriers. PwC found the average number of tablet connections among each of the nine carriers in the firm's survey rose to 1 million as of June 30, 2012, up from 700,000 as of June 30, 2011.

The firm also said those subscribers are consuming increasing amounts of data. PwC's report showed the average postpaid customer using 694 MB per month as of June 30, 2012, up from 548 MB as of June 30, 2011. Not surprisingly, mobile broadband customers (those with cellular-capable laptops or USB modems) chewed through far more data than smartphone users, consuming an average of 4,961 MBs per month as of June 30, 2012, from 3,698 MBs per month as of June 30, 2011. Data usage among prepaid customers (including those with smartphones, mobile broadband devices, tablets and other gadgets) also rose from 275 MBs per month as of June 30, 2011, to 454 MBs as of June 30, 2012.

Finally, PwC pointed to the importance of M2M as a growth driver for wireless carriers. The firm found that seven of the thirteen carriers surveyed offered M2M services as of June 30, 2012, and those carriers reported connections that averaged 5.8 million as of June 30, 2012.

For more:
- see the release
- see this report (PDF)

Read more about: Verizon Wireless, tablets
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By Phil Goldstein

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5. HTC One launches via AT&T, Sprint, as smartphone maker charts comeback

América Móvil's U.S. TracFone unit reported stronger subscriber growth and gains in average revenue per user in the first quarter. Though the parent company did not mention it, TracFone's Straight Talk launched support for Apple's (NASDAQ:AAPL) iPhone in January, which likely helped boost its first quarter numbers.

TracFone added 839,000 subscribers in the first quarter, América Móvil said, higher than the 369,000 net subscriber additions in the first quarter of 2012 and even higher than the 753,000 customers it added in the fourth quarter, which is traditionally the strongest for carriers. TracFone, by far the largest U.S. MVNO, uses Verizon Wireless (NYSE:VZ), AT&T Mobility (NYSE:T), Sprint Nextel (NYSE:S) and T-Mobile USA's networks. The company ended the first quarter with 23.2 million customers, 15.4 percent higher than it had a year ago.

TracFone also saw its revenue shoot up 39.8 percent to $1.51 billion in the first quarter. The company's revenue included service revenue of $1.28 billion and equipment revenue of $230 million, which were 32.3 percent and 104.5 percent higher than in the year-ago period, respectively.

In January TracFone's prepaid Straight Talk brand starting selling Apple's iPhone, including the LTE-capable iPhone 5, coupled with unlimited talking, texting and data starting at $45 per month--significantly cheaper than what other carriers charge. Although neither company has confirmed the relationship, Verizon likely provides service to Straight Talk's iPhones. Straight Talk also supports existing GSM iPhones that users port to the service. The 16 GB iPhone 5 for Straight Talk sells for the full price of $650, while the 16 GB iPhone 4S goes for $550 and the 8 GB iPhone 5 goes for $450.

TracFone has said it does not limit Straight Talk subscribers' data usage at a specific threshold; instead, it evaluates customers' data intake on a case-by-case basis and will throttle the speeds of those users who the company deems to be consuming too much data.

Perhaps as a result of more customers signing up for rate plans that included data, TracFone's ARPU increased to $19 in the quarter from $16 in the year-ago period. The company said churn fell to 3.7 percent from 3.9 percent in the first quarter of 2012.

TracFone also operates the Net10 and SafeLink Wireless brands. SafeLink is a band that uses the federal government's Lifeline program. Last year the FCC instituted new rules that required carriers that received Lifeline funds certify that their Lifeline subscribers were eligible for the program, an effort to streamline the program and reduce waste. As a result, according to a report earlier this year in the Wall Street Journal, 41 percent of the roughly 6 million subscribers in the Lifeline program "either couldn't demonstrate their eligibility or didn't respond to requests for certification."

For more:
- see this release (PDF)
- see this Bloomberg article
- see this Dow Jones Newswires article
- see this Reuters article

Related Articles:
TracFone's Straight Talk denies 1.5 GB monthly data limit
Lifeline lives: TracFone, Sprint and other recipients win Senate vote to continue program
Virgin Mobile forced to shed 1.6M Lifeline subs due to FCC overhaul
TracFone defends its FCC Lifeline pilot program to expand mobile broadband access
Straight Talk iPhone: No specific data cap, personal hotspot not supported
TracFone adds 753,000 subs in Q4 amid Lifeline changes

Read more about: iPhone, America Movil
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By Phil Goldstein

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