An Ignoble Experiment

2. Apple's profit dips, but 31.2M iPhone sales beat expectations

AT&T Mobility (NYSE:T) added 551,000 net postpaid customers in the second quarter, a substantial improvement from the year-ago period and the first quarter. The carrier also highlighted momentum behind its Mobile Share shared data plans, which are available to new and existing customers.

The company indicated in June that it would add around 500,000 postpaid subscribers, so it beat its forecast by a small margin. However, as AT&T also signaled in June, its margins took a hit thanks in part to higher smartphone and tablet sales, and the subsidy costs AT&T pays to give customers cheaper devices when they sign up for two-year contracts.

AT&T added 320,000 net postpaid customers in the second quarter of 2012 and 296,000 in the first quarter of 2013, so the 551,000 figure is a notable upsurge. The additions marked the best second-quarter postpaid adds AT&T has had in four years. However, the bulk of them, 398,000 or 72.2 percent, came from postpaid tablet sales, mainly from session-based tablets moving over to postpaid accounts.

The carrier also said its LTE network now covers around 225 million POPs. The company expects to cover 270 million POPs by year-end and substantially complete its LTE deployment by next summer. AT&T said more than 90 percent of its mobile data traffic runs over its enhanced backhaul. (Rival Verizon Wireless (NYSE:VZ) covers around 301 million POPs with LTE.)

Earlier this month AT&T said it will acquire no-contract wireless carrier Leap Wireless (NASDAQ:LEAP) for $1.2 billion, or $15 per share. AT&T expects the deal to close in six to nine months. However, it is still subject to review by the FCC and the Department of Justice.

During the company's earnings conference call, AT&T Mobility CEO Ralph de la Vega said that "the rationale behind the Leap transaction is basically to accelerate our entry into the prepaid segment much more so than we would have been able to by ourselves." He said after the transaction closes, AT&T expects to keep Leap's Cricket brand and distribution.

Here's a breakdown of AT&T's key quarterly metrics:

Subscribers: AT&T added a total of 632,000 subscribers in the quarter, which included 11,000 net prepaid additions and 70,000 connected device/reseller additions. That's up from the 291,000 total subscriber additions in the carrier's first quarter of 2013, but down significantly from the 1.3 million total net wireless customer additions AT&T had in the year-ago quarter. Carriers have been struggling to add new customers of late, especially postpaid subscribers, and much of the focus of the industry has been on carriers' ability to steal subscribers from each other.

Verizon added 941,000 retail postpaid net connections in the second quarter, and 97,000 prepaid retail connections, for a total of 1.038 million total retail additions.

Financials: AT&T said total wireless revenues for the quarter, which includes equipment sales, were up 5.7 percent year-over-year to $17.3 billion. Wireless service revenues increased 4.1 percent from the year-ago period to $15.4 billion. Wireless data revenues increased 19.8 percent from the year-ago quarter to $5.4 billion.

AT&T's wireless EBITDA service margin stood at 42.4 percent, down from 43.2 percent in the first quarter and down from 45.8 percent in the year-ago period. AT&T's second-quarter wireless operating income margin was 27.1 percent, compared to 31 percent in the year-ago quarter.

Mobile Share: AT&T said it now has more than 4.3 million Mobile Share accounts serving 13 million subscribers, up from 3.3 million accounts and 10 million subscribers at the end of the first quarter. The carrier said more than a quarter of accounts on Mobile Share are choosing 10 GB or higher plans, and that more than 15 percent of its Mobile Share subscribers are switching over from unlimited data plans.

Smartphones: AT&T said it sold 6.8 million smartphones in the period, its best figure ever. That number is more than the 6 million it sold in the first quarter of 2013 and far higher than the 5.1 million it sold in the year-ago period. The carrier said it sold more Apple (NASDAQ:AAPL) iPhones in the quarter than it sold in the year-ago quarter (3.7 million), but AT&T declined to provide precise iPhone sales figures for the quarter. T-Mobile US (NYSE:TMUS) introduced the iPhone in the quarter, and that likely had some impact on AT&T, but the carrier pointed out that its postpaid churn decreased sequentially in the second quarter.

AT&T said its smartphone base increased by 1.2 million in the quarter and accounted for 88 percent of its postpaid phone sales. The carrier also said 35 percent of smartphones were LTE smartphones and that more than 70 percent of its smartphone subscribers are on usage-based plans. Fully 73 percent of AT&T's postpaid customer base is now on a smartphone, up from 64 percent in the year-ago period.

ARPU: AT&T said total postpaid average revenue per user grew 1.8 percent. Phone-only postpaid ARPU was up 3 percent. AT&T also said postpaid data ARPU grew 17.6 percent in the quarter.

Churn: Postpaid churn was 1.02 percent, up slightly from the year-ago quarter and down slightly from the first quarter of 2013. AT&T said total churn increased year-over-year, due mostly to increases in reseller churn, but was down slightly sequentially.

For more:
- see this release

Special Report: Wireless in the second quarter of 2013

Related Articles:
AT&T offers cheaper Mobile Share shared data plan options
T-Mobile slams AT&T's 'Next' handset upgrade program
AT&T's 'Next' program allows smartphone, tablet upgrades every 12 months
AT&T expects to add 500K postpaid subs in Q2, but margins will be hit
AT&T adds only 296,000 postpaid subs in Q1, but sells 6M smartphones

Read more about: quarterly earnings, AT&T, AT&T Mobility
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This week's sponsor is Telecom Council of Silicon Valley.

By Mike Dano

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3. Sprint's LTE rollout hampered by lack of backhaul and Network Vision issues

Apple (NASDAQ:AAPL) reported a decline in its quarterly net profit, from $8.8 billion a year ago to $6.9 billion in its most recent quarter. But the company's sales of iPhones during the period--31.2 million units, up from the 26 million it sold in the year-ago quarter--beat Wall Street expectations of around 27 million units. Apple CEO Tim Cook partially attributed the company's better-than-expected iPhones sales on shipments of the company's iPhone 4.

Click here for Apple's quarterly iPhone and iPad sales since 2007.

"We are especially proud of our record June quarter iPhone sales of over 31 million and the strong growth in revenue from iTunes, Software and Services," Cook said. (Apple recorded fully $4 billion in revenue in the quarter from sales in its iTunes store. Click here for that story.) "We are laser-focused and working hard on some amazing new products that we will introduce in the fall and across 2014."

During Apple's earnings conference call, CFO Peter Oppenheimer said that Apple recorded stronger-than-expected iPhone sales in a number of established and emerging markets including the United States, India and elsewhere. Indeed, Cook noted that increased sales in the United States during the quarter represented an "unusual pattern" but that Apple is "very, very happy with this." Apple's U.S. iPhone sales increased 51 percent year-over-year during the company's most recent quarter--a noteworthy number considering the company introduced its iPhone 5 almost 9 months ago.

While iPhone sales in the United States and elsewhere were up, sales in China were down. Cook explained that sales in mainland China were up slightly, though not as much as in previous quarters. He attributed that to a number of factors, including sluggishness in the broader Chinese economy. He also said that Apple's Chinese sales were dragged down by a 20 percent fall in sales in Hong Kong, and Cook said that "it's not totally clear why that occurred."

Oppenheimer said that the iPhone 5 "remains by far the most popular iPhone" but that Apple is also happy with its iPhone 4 and 4S sales. Oppenheimer did not break out specific iPhone 5 sales vs. older models. In his comments during the company's earnings conference call, Cook said that Apple witnessed "significant growth" in iPhone 4 sales. He said that sales of less expensive, older iPhone models expanded during Apple's most recent quarter compared with previous quarters, and that Apple expects to continue to work on expanding and improving those lower-end sales. Cook said the iPhone 4 is suited to new smartphone customers and that "it's a great way for a buyer to get into the iOS ecosystem. The stickiness of the platform is huge."

In response to a question about possible saturation in the high-end smartphone market, Apple's Cook said he does see the potential for expansion in the segment. Specifically, he said Apple is planning to release new products in both existing and new categories to drive sales, and he expects Apple to expand distribution via channels including new wireless carriers and new retail stores. Finally, Cook said Apple expects to increase sales into the enterprise segment. "I think we have lots of growth opportunity," he concluded.

Apple shipped 37.4 million iPhones and 19.5 million iPads in the first quarter of this year, the company's fiscal 2013 second quarter. In its most recent fiscal 2013 third quarter, Apple shipped 31.2 million iPhones and 14.6 million iPads. A year ago Apple shipped 17 million iPads.

Oppenheimer also offered a few quick stats on Apple's iOS progress. He said the company now counts a total of 900,000 iOS apps, of which 375,000 are intended for the iPad. He said that Apple has paid a total of $11 billion to its iOS developers, and half of that figure has been paid during the past 12 months. Oppenheimer said Apple counts 320 million iCloud accounts and has transmitted 900 billion iMessages and 8 trillion push notifications.

As for the company's financials, Apple posted revenue of $35.3 billion, up slightly from the $35 billion it made a year ago. The company's gross margin during the period was 36.9 percent, down from 42.8 percent in the year-ago quarter.

In the coming quarter, Apple predicted an increase in revenues (between $34 billion and $37 billion) and a relatively stable gross margin of between 36 percent and 37 percent.

The iPhone vendor's stock rose by around 4 percent in after-hours trading immediately following the release of its results, to around $436 per share.

Apple's earnings report comes amid rumors that the company is preparing to release a less-expensive iPhone. According to a range of media reports, including those from outlets such as Bloomberg and the Wall Street Journal, Apple is in the final phases of preparing to release a low-cost iPhone in order to address emerging markets where consumers aren't able to purchase the company's existing phone products. According to recent reports, the low-cost iPhone could cost around $400, compared with the $650 a new iPhone 5 costs. Reports indicate Apple will announce the low-cost iPhone (reportedly coming in a range of colors) when it announces a new iPhone 5S (reportedly carrying an improved camera and a fingerprint scanner) sometime this fall, likely in September.

According to ABI Research, Apple was the world's third-largest mobile phone manufacturer in the first quarter, with 9.2 percent of the global market, behind heavyweights Samsung Electronics (with 27.9 percent) and Nokia (NYSE:NOK) (with 15.3 percent). However, in sales of smartphones alone, Apple trails only Samsung. Samsung is expected to report its quarterly earnings on Friday, and analysts generally expect the company to outsell Apple in smartphones due to the recent release of Samsung's flagship Galaxy S4 Android smartphone.

For more:
- see this MarketWatch article
- see this FierceMobileContent article
- see this release

Special Report: Wireless in the second quarter of 2013

Read more about: iPad, Apple, Tim Cook
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By Phil Goldstein

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4. LG's smartphone biz gains traction in Q2, with record 12.1M shipments

Sprint (NYSE:S) is chugging along toward its goal of covering 200 million POPs with LTE by the end of 2013, but the pace of its deployment has lagged its Tier 1 competitors, including late-comer T-Mobile US (NYSE:TMUS), which launched LTE in March and now covers 157 million POPs in 116 markets. Sprint's LTE deployment has been hindered by a variety of factors, ranging from not enough fiber backhaul to issues related to its wide-ranging Network Vision network modernization project.

An in-depth look at the carrier's LTE deployment by CNET reveals a series of issues Sprint is working through as it races to catch up to its larger competitors Verizon Wireless (NYSE:VZ) and AT&T Mobility (NYSE:T) in LTE network breadth and depth, and keep pace with T-Mobile. Sprint, which just this month closed its deal with new parent SoftBank and its acquisition of Clearwire, has had to contend with months of drama surrounding its fate, mostly because of Dish Network's (NASDAQ: DISH) attempts to purchase both Sprint and Clearwire.

"We all would like this to go faster," Iyad Tarazi, head of network development and integration for Sprint, told CNET. "If there was a silver bullet, we would have found one." Sprint had originally hoped to cover 250 million POPs with LTE by year-end, but earlier this year scaled that back to 200 million. The carrier first deployed LTE in July 2012.

Backhaul for the network has presented a major problem. When Sprint was relying on Clearwire's mobile WiMAX service for its "4G" network, Clearwire was using a great deal of microwave backhaul. As part of Network Vision, however, Sprint has been laying in more fiber to its cell sites, but that takes time and money. For its part, T-Mobile laid the groundwork for its LTE deployment years in advance by adding in fiber backhaul to its HSPA+ network before it refarmed its spectrum and turned on LTE.

Further, Sprint's LTE rollout has been hampered by cell site zoning issues. According to CNET, in New York Sprint needs to make sure that every cell site, including those from rival carriers, are operational before it can add LTE. Sprint also needs to contend with tracing down landlords for cell site deployments in the city and adding antennas in hard-to-reach places such as church steeples.

Another issue for Sprint is work on its existing 3G network. Sprint's Network Vision network modernization involved both LTE and CDMA elements, and the upgrades to Sprint's CDMA voice network are also slowing the deployment process down, since part of that involves ensuring that the CDMA network conforms with 911 requirements. "We are replacing virtually all elements of the network in what is a compressed timeline," Bob Azzi, Sprint's senior vice president of networks, told CNET.

Finally, Sprint in May said poor execution by its network vendor partners in the latter part of 2012 was part of what caused it to delay LTE deployments and its larger Network Vision network modernization plan, according to a securities filing.

Some of these issues should be easing soon. Sprint plans to deploy LTE on a 5x5 MHz channel in its 800 MHz spectrum, which had been used for its now-defunct iDEN network, in the fourth quarter. And Tarazi said that 5,000 Clearwire sites will be lit up for Sprint LTE this year in the 2.5 GHz band, with 500 in New York City alone.

As for its rivals, Verizon's LTE network now covers 301 million POPs. By the end of the year, AT&T plans to cover 270 million POPs with LTE and T-Mobile plans to cover at least 200 million POPs with LTE.

For more:
- see this CNET article

Related Articles:
Sprint adds Clearwire's 2.5 GHz band to LTE coverage area
With iDEN shutdown just days away, Sprint begins 800 MHz refarming for CDMA, LTE
Sprint changes terms of service to give WiMAX customers more flexibility to switch to LTE
Sprint blames 'vendor execution' as a reason for Network Vision delays
Sprint loses 337,000 net subs, lowers LTE coverage goal to 200M by year-end

Read more about: Network Vision, WiMAX, Bob Azzi
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By Phil Goldstein

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5. Cablevision shutting down OMGFAST wireless broadband service

LG Electronics reported strong year-over-year growth in its mobile business with a record 12.1 million smartphone shipments in the second quarter as its handset unit is starting to gain traction after several quarters of struggles.

Overall, the electronics conglomerate reported an 8 percent drop in year-over-year quarterly profit and a 10.1 percent increase in sales. However, the company's mobile business was a particularly bright spot, with sales rising 34.5 percent year-over-year to around $2.8 billion. The unit posted an operating profit of $54.6 million, compared to a loss of $25 million in the year-ago period.

LG's 12.1 million smartphone sales were above the previous record of 10.3 million it had in the first quarter and more than double the 5.7 million it had had in the year-ago quarter. The strength speaks to the market niche it has found with its Optimus G line and other high-end Optimus phones. The company did not report how many overall handsets, including smartphones and feature phones, it shipped during the period; an LG spokeswoman did not immediately respond to a request for comment.

LG said that while demand fell in its home market of South Korea, it found success with its mass-market Android phones in its L-series II and F-series. The company expects that the upcoming launch of its high-end G2 smartphone will help spark further sales in the third quarter.

"The G2 is set for distribution through most carriers in Europe and the U.S., including Verizon …we are getting a good response from our partners," CFO David Jung said during a conference following the earnings release, according to the Wall Street Journal. He didn't provide any sales targets for the G2. Jung's comments about Verizon Wireless (NYSE:VZ) as being a partner are notable, especially because the G2 reportedly has passed through FCC certification showing support for AT&T Mobility's (NYSE:T) spectrum bands, perhaps an indication that multiple carriers will support the G2.

Looking ahead, LG said in the third quarter it plans to enhances its "smartphone brand power by strengthening product competitiveness in the premium segment with the global launch of G2 while continuously increasing sales from mass-tier phones, L-series II and F-series." LG said earlier this month that future smartphones in its high-end premium series will carry only the "G" brand name.

For more:
- see this release
- see this LG presentation (PDF)
- see this WSJ article (sub. req.)
- see this Bloomberg article
- see this Reuters article
- see this CNET article

Special Report: Wireless in the second quarter of 2013

Read more about: Handsets, LG
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By Steve Donohue

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SPOTLIGHT ON... Verizon, AT&T continue bickering over 'most reliable' LTE network claims

Cablevision (NYSE: CVC) said Tuesday that it is shutting down its OMGFAST wireless broadband service in Florida next month.

The MSO launched OMGFAST in 2012, marketing a $29.95 monthly Internet service that relied on Multichannel Video and Data Distribution (MVDDS) spectrum that it acquired through an FCC auction in 2004. Last fall, Cablevision sold its MVDDS spectrum to Dish Network (Nasdaq: DISH) as part of a settlement of a contract dispute, and it has been leasing the spectrum licenses from Dish in order to operate OMGFAST.

"OMGFAST will be discontinuing its voice and broadband services. We are in the process of notifying existing customers so they can identify alternative services," Cablevision told FierceCable in a statement late Tuesday. While Cablevision didn't announce a specific shutdown date for OMGFAST, a recorded message on its customer service line Tuesday said that service in Fort Lauderdale, Boca Raton and 10 other cities would be discontinued on Aug. 19.

In March, Cablevision disclosed in a Securities and Exchange Commission filing that OMGFAST counted just 1,600 customers as of Jan. 31. The product, which relied on microwave transmitters installed on building rooftops and communications towers, was available to 90,000 homes in Broward and Palm Beach counties.

While OMGFAST may not have generated significant demand, Cablevision was able to use the service to experiment with new business models. It had offered OMGFAST subscribers the option of leasing Apple TV (Nasdaq: AAPL) or Roku set-tops for $5 monthly.

Read more about: Cablevision, Wireless Broadband
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Also Noted

This week's sponsor is Oracle.
	Whitepaper: Customer Experience for Service This Executive Brief explores the role of service and support in creating great customer experiences, the service goals market leaders use related to customer experience and the Oracle approach for empowering new service experiences. Download today!

AT&T Mobility's (NYSE:T) claim last week that it has the nation's "most reliable" LTE network has sparked a heated war of words between AT&T and rival Verizon Wireless (NYSE:VZ).

In response to AT&T's claim, Verizon released a full-page advertisement in the Wall Street Journal touting its own network reliability. And now, Mike Haberman, vice president of network technology at Verizon Wireless, is calling AT&T's claim outright misleading: "The information doesn't appear to be based on latest methodology or what customers are experiencing," he said of AT&T's claim, noting that AT&T has not revealed its sourcing or methodology for the claim.

Haberman pointed to a recent study from network testing firm RootMetrics showing that Verizon's network is actually the most reliable in terms of customers being able to get access across the country. (Verizon's LTE network currently covers around 301 million POPs while AT&T's covers 225 million.) Haberman said the RootMetrics study "replicates the customer experience as close as possible right now."

But AT&T executives aren't pulling back. According to a Seeking Alpha transcript, during AT&T's second-quarter earnings conference call AT&T executives referenced the "most reliable" claim five times. "The facts are the facts. We stand by our claim," an AT&T representative told CNET. "Our 4G LTE reliability claim is fully supported by independent test data performed by a highly-credible source. Contrary to Verizon's assertion, we disclosed the source of the data to Verizon and it is a source that Verizon has endorsed in the past." Article

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> Claro and Dish Network teamed to offer bundled TV, Internet, wireless and telephone services in Puerto Rico. Release

> The FCC is moving forward with a spectrum-sharing plan between the Department of Defense and wireless carriers. Article

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> RadioShack warned that it will continue to liquidate inventory this year. Article (sub. req.)

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> The FCC approved the LG G2. Article

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> According to Chitika, Apple's iPad accounts for 84 percent of all U.S. and Canadian tablet Web traffic. Post

Mobile Content News

> Big-box retailer Best Buy has posted product listings for the new Google Nexus 7 tablet hours prior to a media event where the search giant is expected to unveil the device. The Best Buy listing also confirms the device will run Android version 4.3, which Google is also expected to officially announce. Article

> Microsoft is scrambling to quell a Windows Phone user insurrection. Editor's Corner

> Electronic Arts beat earnings expectations during its fiscal first quarter, narrowing its losses to $121 million compared to $130 million in the year-ago quarter and increasing revenues to $495 million, well above guidance of $450 million. Article

And finally… The National Transportation Safety Board wants vehicles to talk to each other. Article

Madden: Consumer femtocell shipments have stalled at around 2M per year

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