An Ignoble Experiment

2. AT&T was only bidder for Leap, upped price by 58% in negotiations

Sprint (NYSE:S) will be able to deploy Clearwire's 2.5 GHz spectrum for TD-LTE service on a nationwide basis now that it is flush with fresh capital from SoftBank, which now controls 78 percent of Sprint, according to Sprint CFO Joe Euteneuer. Sprint formally took control of Clearwire earlier this month.

Steve Elfman, president of network operations at Sprint, noted during the company's second-quarter earnings conference call that Sprint now plans to deploy Clearwire's 2.5 GHz spectrum on all 38,000 of its planned Network Vision cell sites and even more sites than that in a nationwide rollout. Previously, Sprint had said it would use Clearwire's spectrum as a "hotspot" LTE network to offload traffic in urban markets.

In an interview with FierceWireless, Euteneuer said SoftBank's $21.6 billion acquisition--which includes $5 billion in new capital and allowed Sprint to buy Clearwire--spurred Sprint to make the shift in strategy. The move will let Sprint add more capacity to its own FDD-LTE network, which it is still in the process of being built out. Euteneuer noted that Sprint and Clearwire originally planned to deploy Clearwire's spectrum on around 5,000 cell sites as an offload network in urban markets. Those plans are still proceeding this year, but Sprint now wants to expand that to improve the customer experience.

"Now that we own 100 percent of Clearwire, with the help of SoftBank, we said, how do we take full advantage of the 2.5 GHz spectrum?" Euteneuer said. "The best way to do that is to have it fully integrated with the rest of your spectrum capabilities. And to do that you really need to put it on every tower."

The Sprint CFO said because of the weaker propagation characteristics of 2.5 GHz, Sprint will deploy small cells and other sites beyond the 38,000 Network Vision sites the company has mapped out. He said it is unclear at this point if the nationwide deployment of Clearwire's spectrum will be finished by the end of 2014. Clearwire commands around 160 MHz of spectrum in the top 100 markets.

It is unclear exactly how many TD-LTE cell sites using Clearwire's spectrum will be online by year-end. Iyad Tarazi, head of network development and integration for Sprint, recently told CNET that Sprint will have 5,000 Clearwire sites on air by year-end, but on Tuesday Elfman was less specific, and said "we'll have several thousand sites up this year because of the work that Clearwire was doing before us."

"We are working with Clearwire on plans and will share more soon," Sprint spokeswoman Roni Singleton said in a follow-up statement.

Looking ahead though, Elfman said the 2.5 GHz expansion will proceed at a brisk clip. "It will not be fully built up, but it will be quite a bit easier than the current Network Vision plan because we will already have backhaul," Elfman said of the 2.5 GHz expansion, according to a Seeking Alpha transcript. "We will already have done most of the leasing and it will be more of an overlay effect the way you're seeing our competitors do overlay LTE network. So it will move much faster than the current Network Vision plan."

Euetneuer said the cost of the 2.5 GHz buildout is already included in Sprint's network spending projections. "Clearly we think we can do it in the constructs of the capital that's already been put out there," he said. Sprint plans to spend $8 billion on capital expenditures in 2013, and, according to a proxy statement Sprint filed in June with the Securities and Exchange Commissions, envisions spending $8 billion in 2014.

The expanded Clearwire deployment will require adding antennas to cell sites, Euteneuer said, not just replacing line cards. However, he said the added capacity will bring a noticeable improvement in customers' real-world speeds, though he did not specify what kind of speeds customers will see when they access Clearwire's spectrum for TD-LTE service.

Euteneuer said Huawei gear will not be part of the expanded Clearwire network. "We made a commitment that we will take Huawei out of the Clearwire network," he said. Sprint agreed to give the U.S. government oversight of its network vendors as a condition of SoftBank acquisition of the company. The action was a response to concerns that China would be able to use equipment from Huawei and ZTE to spy on Americans--ZTE and Huawei have vehemently denied those claims.

The expanded Clearwire deployment will likely be carried out by Network Vision vendors Alcatel-Lucent (NASDAQ: ALU), Ericsson (NASDAQ:ERIC) and Samsung, or perhaps by another vendor as well, Euteneuer said, depending on how the contracts get ironed out.

Sprint CEO Dan Hesse said the deployment of a nationwide LTE network on 2.5 GHz will help give Sprint "competitive parity" with its rivals. "And the important thing in terms of what we believe will be a better, a superior network experience will depend upon how quickly we roll out the 2.5 [GHz spectrum], because that will give us extraordinary capacity and some speed and performance advantages in the market," he said.

Analysts said the deployment will help Sprint, but that it will take time to translate into material results for the company. "TBR believes Sprint will keep the TD-LTE network and will use it to improve its existing FDD-LTE network," TBR analyst Eric Costa wrote in a research note. "The acquisition of Clearwire greatly improved Sprint's position in the wireless market, yet the operator is unlikely to gain market share from AT&T and Verizon until at least 2015 as Sprint invests to build out its network over the newly acquired spectrum."

Read more about: Dan Hesse, TD-LTE
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3. Isis m-commerce network rolling out nationwide, expanding to iOS, Windows Phone

AT&T (NYSE:T) previously passed on an opportunity to strike a deal with no-contract wireless carrier Leap Wireless (NASDAQ:LEAP) but was ultimately the only bidder for the company and wound up paying 58 percent more than it had initially offered, according to a securities filing.

According to Leap's preliminary proxy filing on the deal with the Securities and Exchange Commission, the Cricket provider sought deals or merger agreements with a range of wireless partners during the past several years, likely including MetroPCS, Dish Network (NASDAQ: DISH), T-Mobile US (NYSE:TMUS) and parent Deutsche Telekom, and Sprint (NYSE:S) and new parent SoftBank.

In the end, AT&T was the only company willing to make a definitive bid for Leap, after initially walking away from a possible arrangement that had been under discussion: In March 2012, AT&T CEO Randall Stephenson called Leap CEO Doug Hutcheson and indicated that AT&T did not have any interest in a joint venture or MVNO arrangement with Leap, and in April 2012 Stephenson told Hutcheson AT&T wasn't interested in an acquisition either.

The proxy filing, prepared for Leap's shareholders, goes to great lengths to detail the dire straits that Leap's business found itself in as it wound its way toward being acquired by AT&T. According to the filing, Leap said its subscriber base declined 22 percent between March 31, 2012, and June 30, 2013, "resulting in Leap's fixed costs (including its significant purchase commitments) being spread over a smaller customer base." Leap said its debt and costs continued to increase, making it difficult for the company to fund its business.

Further, Leap said that "T-Mobile's planned shutdown of the legacy MetroPCS CDMA network and the scaling back of the manufacture of AWS-compatible CDMA handsets are likely to adversely impact Leap's ability to procure cost-effective AWS-compatible CDMA devices in the future." Leap said it has tried to remain competitive by offering better smartphones new services such as Muve Music, but that despite these efforts it has been looking for strategic transactions to save the business.

After being rebuffed by AT&T in 2012, Leap sought deals with companies that, according to the details in the filing, are most likely MetroPCS and Sprint. However, during that time T-Mobile announced its purchase of MetroPCS and SoftBank announced its plans to acquire Sprint. Leap also tried to strike a deal with "a company in the satellite communications industry," most likely Dish, but those talks broke down in November 2012 when the satellite company indicated it did not want to acquire Leap.

Leap rekindled discussions with AT&T in early 2013, but Stephenson again rebuffed Leap. However, Stephenson soon changed his tune and by June 19, AT&T indicated it was interested in pursuing a potential acquisition of Leap in an all-cash transaction at $9.50 per share of Leap common stock.

Leap's board and its financial advisors discussed the offer, and Hutcheson and Leap's chairman, Mark Rachesky, agreed that Leap's management should pursue a higher price from AT&T. Over the next several weeks, Leap and AT&T engaged in negotiations over the terms of the deal. A critical moment came on July 8, when, according to the filing, Hutcheson and Rachesky met with Stephenson and another member of AT&T's senior management.

Rachesky and Hutcheson discussed "the value of Leap's business and how an acquisition of Leap would strengthen AT&T's position in the growing prepaid segment of the wireless market, the potential network, marketing and capital expenditure synergies, the effects on AT&T's spectrum position and the value of Leap's tax assets to AT&T." The parties held several hours of negotiations, and Stephenson agreed to increase AT&T's initial bid price of $9.50 to $15 per share of Leap common stock, a 58 percent jump. The companies announced the deal on July 12.

As BTIG analyst Walter Piecyk notes in a blog post, the filing helps explain AT&T's interest in Leap. According to Leap's filing, "the complementary nature of Leap's and AT&T's spectrum assets, combined with the addition of Leap's significant experience in the prepaid wireless business, its dedicated and knowledgeable employees, its distribution network and its well-known and established Cricket brand, will help AT&T accelerate the expansion of its prepaid wireless business and result in a combined company that is expected to have the scale and spectrum to better compete with other major national providers for customers interested in low-cost prepaid service."

AT&T will pay $1.2 billion, or $15 per share, to acquire Leap, but analysts have said that headline price hides other costs AT&T will assume, which will raise the total price of the transaction. AT&T Mobility CEO Ralph de la Vega said earlier this month 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.

Leap will report its second-quarter earnings after the market closes on Thursday, but Moffett Research analyst Craig Moffett wrote in a research note that the "rate of decline [in Leap's recent filing] implies that Leap lost about [375,000] subscribers in the [second] quarter (subject to rounding error), making it the worst quarter in the company's history from a net adds perspective."

For more:
- see this SEC filing
- see this BTIG blog post (reg. req.)

Read more about: AT&T Mobility, prepaid
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By Jason Ankeny

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4. Samsung Galaxy S III beats iPhone 5 in customer satisfaction study

Isis, the Near Field Communications-based mobile commerce network spearheaded by Verizon Wireless (NYSE:VZ), AT&T Mobility (NYSE:T) and T-Mobile US (NYSE:TMUS), will expand services nationwide later this year after completing pilots in Salt Lake City and Austin, Texas. The company also pledged to extend its mobile wallet beyond Google's (NASDAQ:GOOG) Android to support Apple's (NASDAQ:AAPL) iOS, Microsoft's (NASDAQ:MSFT) Windows Phone and BlackBerry (NASDAQ:BBRY).

Click here to watch a video of Isis in action.

Isis kicked off tap-and-pay consumer pilots in the fall of 2012, enabling customers to fund purchases, use store loyalty cards and redeem discounts and coupons across thousands of contactless-enabled merchant locations, including Macy's, Jamba Juice, Aéropostale, Foot Locker and Whole Foods. Isis also is partnering with cashless payment services firm USA Technologies on mobile loyalty programs optimized for the vending machine industry.

To begin using Isis services, consumers must first visit an AT&T Mobility, T-Mobile US or Verizon Wireless retail store to obtain a secure element SIM card and ensure their Android smartphone model is NFC-enabled. From there, users must download the Isis application from the Google Play digital storefront and load either an eligible American Express, Capital One or Chase credit card into their Isis wallet or leverage the Isis Cash Card inserted into every account.

The three Isis carrier partners cumulatively offer 35 handsets supporting the service, with more expected later this year. At present, the iPhone does not support NFC; Isis did not disclose how it plans to extend payment capabilities to the Apple smartphone.

Isis said its national expansion will incorporate feedback from the Salt Lake City and Austin trials. On average, active Isis Mobile Wallet test users tap more than 10 times per month: Two-thirds of users opted in to receive offers and messages from their favorite brands, following an average of seven brands each. Consumers engaged in Isis loyalty and offers efforts tap up to two times more frequently than users who exclusively make payments, the company added.

For more:
- read this release

Read more about: Android, T-Mobile US
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By Phil Goldstein

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5. Starbucks ditches AT&T for Google's free Wi-Fi

Samsung Electronics' Galaxy S III and Galaxy Note II were the top-rated smartphones in terms of customer satisfaction, beating out Apple's (NASDAQ:AAPL) iPhone 5 and other recent iPhones, according to a new report from the American Customer Satisfaction Index.

The Galaxy S III outranked Apple's iPhone 5.

According to the ASCI, which was founded by the University of Michigan's Ross School of Business, Samsung's flagship smartphone for 2012, the Galaxy S III, received an 84 (on a 0 to 100 scale), as did the Note II, beating the iPhone 5 at 82. Apple's iPhone 4S also scored an 82, and the iPhone 4 scored an 81. The survey was completed in March, before the introduction of Samsung's Galaxy S4, its 2013 flagship model.

Interestingly, while U.S. customers rated Samsung's smartphones the best, consumers in Samsung's home market of South Korean prefer Apple. According to the National Customer Satisfaction Index (NCSI) in South Korea, which uses the same technology and methodology as the ACSI, the iPhone 5 has higher customer satisfaction than Galaxy S III.

The data is notable in light of the ongoing rivalry between Samsung and Apple for smartphone supremacy.

In an interview with FierceWireless, ACSI Director David VanAmburg said Samsung's newer devices received a big boost in part because of their larger screen sizes. (The S II has a 4.3-inch screen and the S III has a 4.8-inch screen, while the Note II has a 5.5-inch screen.) The S III received a much higher score than the S II, its predecessor.

"The S III seemed to be a game-changer for Samsung in a way the iPhone 5 wasn't for Apple," VanAmburg said, noting that iPhone 5 has same score, 82, as the iPhone 4S.

VanAmburg agreed that Samsung's marketing likely helped. "We're measuring the customer experience rather than perceptions based on marketing," he said. Yet, "we're likely to perceive what we've been told to perceive over and over again, especially if we don't have comparisons."

Apple has lately been using its ads to tout the overall customer experience on the iPhone, including for music and photography, rather than focusing on specifications. "I think that's an interesting approach for them," VanAmburg said. "It's an attempt, and I think it's smart of them do this, to move away from that flavor-of-the-month phenomenon, more into the iPhone--it's your trusted brand. It's all about that brand affinity."

Google's (NASDAQ:GOOG) Motorola Mobility Droid Razr Maxx HD scored an 80, and the Droid Razr scored a 77. VanAmburg said the Maxx HD score "shows that Motorola can put out that Android smartphone that is in striking distance of both Samsung and iPhone."

The firm did not have any scores for BlackBerry's (NASDAQ:BBRY) new BB10 phones, the Q10 and Z10. "We'll be anxious to see what the rankings of the new [BlackBerry 10] devices are," VanAmburg said, who noted the company's previous Curve and Bold scored 67 and 64, respectively.

ASCI did not rate any Windows Phone devices.

In May the ASCI reported that customer satisfaction with wireless devices such as smartphones improved 2.7 percent in 2013 for a total rating of 76, matching a 10-year high. Apple led the OEM ratings with an 81, but that was down 2 percent from the previous year. Samsung had the biggest gain of 7 percent for a rating of 76. Motorola had a rating of 77, Nokia (NYSE:NOK) had a 76 rating, HTC scored a 72 rating and LG Electronics was down 5 percent with a rating of 71. BlackBerry came in low with a rating of just 69.

For more:
- see this release

Read more about: Motorola Mobility, Droid Razr Maxx HD
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By Phil Goldstein

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