An Ignoble Experiment

2. Despite shifting focus away from U.S., Huawei still scores with Tier 2, Tier 3 carriers

Verizon Wireless (NYSE: VZ) will continue to respond to pricing changes in the market but is not going to go overboard in terms of a response, according to Verizon Communications CFO Fran Shammo.

The comments come shortly after Verizon reported first-quarter results in which its lucrative postpaid subscriber additions were down year-over-year--results that analysts said show that competitive pressures are starting to impact Verizon's results. AT&T Mobility (NYSE: T), which cut the prices of its shared data plans for families, netted 625,000 postpaid additions in the quarter. And T-Mobile US (NYSE:TMUS), in part because of its offer to pay off the Early Termination Fees of customers who switched and traded in their devices, saw branded postpaid net additions of more than 1.3 million in the period.

For its part, Verizon added 549,000 retail net connections, including 539,000 retail postpaid net subscribers and 10,000 prepaid customers, in the first quarter. However, Verizon's postpaid additions were down 20.4 percent year-over-year and the company actually lost 95,000 postpaid handset customers (its gains in the quarter were largely due to tablet activations).

"We will react rationally and where we think we need to react," Shammo said at the Jefferies Technology, Media and Telecom Conference. "The key to any competitive move is not to overreact to a competitor."

Shammo said that Verizon needs to monitor the market carefully and in the start of the first quarter it did see pressure on its feature phone customers and 3G CDMA smartphone subscribers. That's why, he said, Verizon introduced a $60 entry-level plan ($40 for a smartphone, plus $20 for unlimited voice, texting and 250 MB of data). That plan is now $55 per month. "I guess you could accuse us of not moving fast enough," he said, but he added that Verizon needs to take measured moves "because once you make the move you can't go back."

"We exited the quarter better than we entered the quarter," the Verizon finance chief said. "I feel much better about the second quarter."

Shammo said analysts have focused on Verizon losing handset customers in the quarter. However, he noted that while Verizon lost feature phone and 3G smartphone customers, it also added 866,000 net new LTE smartphone customers, who generally use more data and have higher credit profiles. Verizon also notched a record 634,000 retail postpaid tablet net adds in the quarter and said its M2M revenue grew 40 percent year-over-year. "There's more to the ecosystem than just the smartphone category," Shammo said.

Shammo also reiterated that Verizon expects to increase sales of its Edge handset upgrade program. The carrier in the first quarter said around 15 percent of new and upgrading customers signed on to the program, and as Verizon rolls out the program to its resellers, Shammo said that figure likely will rise to 30 percent.

As for Verizon's network, Shammo said Verizon is deploying its AWS spectrum in major markets to augment capacity for its LTE network, which now carries 73 percent of all of Verizon's wireless data traffic. He said Verizon would roll out AWS nationwide over the next 14-18 months.

Shammo also addressed the FCC's upcoming auctions. He said right now Verizon is most focused on the AWS-3 auction scheduled for this fall. "We will be a participant for that," he said.

As for the incentive auction of 600 MHz broadcast TV spectrum scheduled for next year, Shammo said Verizon is still evaluating that auction. He said that, since the rules for that auction are not yet final, he wouldn't comment on whether Verizon would participate. Verizon currently is lobbying against the FCC's proposed rules for the 600 MHz auction that could limit the amount of spectrum larger carriers like Verizon can bid on in the auction.

For more:
- see this webcast
- see this CNET article

Read more about: Verizon, Fran Shammo
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This week's sponsor is GSMA.

By Phil Goldstein

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3. Supreme Court to decide case on how cell tower permits can be denied

Despite the national security concerns that have stymied Huawei in the U.S. network equipment market, the company continues to maintain strong relationships with Tier 2 and Tier U.S. carriers that have been buying equipment from Huawei and are pleased with their relationships with the vendor.

The Chinese vendor has for years worked with Tier 2 and Tier 3 carriers in the United States, something that is becoming more and more apparent as it has been shut out of working with Tier 1 carriers because of national security concerns. Huawei works with smaller carriers such as Nemont Telephone's Sagebrush Cellular, SpeedConnect, Union Wireless and United Wireless, providing radio access network and core networking equipment.

Huawei declined to list all of its U.S. carrier customers for its networks business or to say how much revenue its U.S. networks business takes in. "Our revenue from the carrier network business and enterprise business in the U.S. remains relatively stable year-on-year," Huawei spokeswoman Jannie Tong told FierceWireless. "We have been cooperating with Tier 2 and Tier 3 carriers in the U.S. on the network business and our business in this segment is expanding. We will certainly continue to serve our existing customers, including enterprises, and sell smartphones to consumers."

SpeedConnect, for instance, has worked with Huawei for about three years. The wireless service provider, which has been operating since 2002, controls 2.5 GHz spectrum across the Great Plains and Midwest and has at least 35,000 customers, according to John Ogren, the company's founder and managing partner. SpeedConnect worked with Huawei to deploy WiMAX services and its customers typically use the service in conjunction with TV service from either DirecTV (NASDAQ: DTV) or Dish Network (NASDAQ: DISH), Ogren said.

Ogren said the company was looking for WiMAX vendors and it was hard to ignore that Clearwire, at the time a Sprint (NYSE: S) wholesale partner, used Huawei gear. Huawei provided SpeedConnect with radio heads, baseband units and some modems and routers for in-home use. Cisco Systems, DragonWave and Juniper Networks are also vendors in the network, Ogren said.

SpeedConnect is looking to upgrade its network to TD-LTE technology in the near future and is looking at Huawei as a potential vendor among many for the job. Ogren said SpeedConnect has an ongoing relationship with Huawei and uses its SingleRAN BTS platform. "They have proven to be a very supportive vendor for us," he told FierceWireless.

SpeedConnect began its partnership with Huawei before the kerfuffle over security concerns with Huawei exploded. Still, Ogren said that he has never experienced any security issues or concerns related to Huawei equipment. "I have no signs of any of the things that have been reported in the popular press," he said, adding that security is a constant concern and that the company takes it "very, very seriously." Still, he said, "Huawei represents no particular risk--no more, no less" than any other vendor.

A 2012 U.S. government report labeled Chinese network vendors Huawei and ZTE as security threats that could be used as backdoors for Chinese espionage. Both companies have repeatedly said the claims are without merit.

Ogren noted that Huawei has a long way to go in the battle of perception. "I think it's Huawei's responsibility to solve this problem for both of us. I am a good customer of theirs and they need to support me," he said. "And one of the things they need to do is convince my country that they are OK." He said Huawei has made progress in doing so but needs to become more fully invested in the U.S. market, and until the company clears up the perception of security concerns "it is a bit of liability for them."

Huawei also highlighted its relationships with Nemont and United Wireless at the Competitive Carriers Association conference in April. Nemont, based in Montana, has worked with Huawei for the past two to three years and employs Huawei's SingleRAN platform, which supports GSM, CDMA, UMTS and LTE networks. Patrick Kaiser, director of wireless product marketing for Huawei's U.S. business, noted in the presentation on Nemont that Huawei is "enhancing multi-technology coverage in high-cost rural areas in an efficient and cost-effective manner."

United Wireless is using Huawei's SingleRAN platform as well, and used Huawei equipment to deploy LTE and CDMA services, and is contemplating deploying GSM and UMTS. The carrier operates on 700 MHz and 1900 MHz spectrum in the southwestern part of Kansas, and has tens of thousands of subscribers, according to Michael Laskowsky, United Wireless' wireless operations manager.

United Wireless has worked with Huawei for around three years and has never had any issues related to network security, Laskowsky said. He said the relationship has been a positive one. "We took all of [the security concerns] into consideration," he told FierceWireless, saying the company spoke with third parties about Huawei before making a decision to work with the vendor. "We just felt that the overall product and the capabilities of the product worked well for what we were trying to do."

"Since these networks are small and in sparsely populated areas, they generally avoid the kind of national security concerns that influence Tier 1 operators' vendor selections," Current Analysis analyst Ed Gubbins wrote in a recent blog post. "So, targeting them makes sense for Huawei; even if it's not very lucrative, it's a way to demonstrate that the fears surrounding its participation in the American market are unfounded. There are a lot of rural carriers in America, so there are a lot of chances to win deals, and those chances may be improved by the fact that major RAN vendors usually aren't as aggressive in chasing these smaller operators. Bottom line: it's a foot in the door of the U.S. infrastructure market that poses at least the theoretical possibility of future expansion."

For its part, Huawei has said it is moving its focus away from the U.S. market due to the government's concerns over security. "Right now we should not be expending too much effort in the United States as it might take 10 or 20 years for them to know that Huawei is a company with integrity," Huawei CEO and founder Ren Zhengfei told reporters at a briefing in London last week, according to Bloomberg. "We will accelerate efforts in countries that have accepted us."

Ren, who rarely gives interviews, said that his "reluctance to meet with the media has been used as a reason to label Huawei as a mysterious company," and that in a few years, "our idea is to make people perceive Huawei as a European company."

SpeedConnect's Ogren said that Huawei is a "fierce competitor" and that Huawei has been a strong partner in terms of service and support. "They are a solid company," he said. "I hope Huawei resolves all of these issues and stays around for the long haul."

For more:
- see this Bloomberg article
- see this Reuters article
- see this WSJ article (sub. req.)
- see this Current Analysis blog post

Read more about: SpeedConnect, Ren Zhengfei
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By Phil Goldstein

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4. Sprint's Boost cuts prices, introduces $40 prepaid plan in challenge to T-Mobile

The U.S. Supreme Court agreed to decide a case that turns on whether local municipalities must provide detailed explanations to wireless carriers when they deny applications to build new cell towers.

The high court will hear a case that arose after a T-Mobile US (NYSE:TMUS) subsidiary was blocked from constructing a 108-foot tall cell tower in Roswell, Ga. T-Mobile said that various city council members voted to deny the tower application, but the carrier claims the city did not provide an official written explanation for the denial.

Later, a federal trial judge sided with T-Mobile and told the municipality to issue the permit, ruling that the city violated federal communications law that says government officials need to provide a denial "in writing and supported by substantial evidence contained in a written record."

However, the 11th U.S. Circuit Court of Appeals, based in Atlanta, overruled that and said that the city met the federal requirement by issuing a general denial letter and a transcript of hearings that led to the denial. Other appeals courts have issued differing rulings on what local governments must do to meet the "in writing" requirement.

The case, T-Mobile South v. City of Roswell, will be heard during the next Supreme Court term, which begins in October.

T-Mobile argued that a victory for the Georgia city "will seriously impede the prompt deployment of wireless services to consumers." Carriers need detailed explanations from cities so that they can more easily appeal decisions to block towers, the company said. The city replied in its own brief that if T-Mobile wins "it is the local governments who would be harmed, as they would be forced to allow cellular towers in the heart of their residential communities based upon a mere technicality."

PCIA President Jonathan Adelstein said in a statement that the wireless infrastructure trade group "commends this morning's decision by the U.S. Supreme Court to address a circuit split that has created ongoing and undue delay and expense in the roll-out and upgrade of wireless broadband facilities. Our industry stands ready to meet consumers' skyrocketing demands and expectations for reliable mobile service, but too often we are faced with local requirements contrary to federal law that frustrate our ability to get critical wireless technologies deployed. PCIA fully supports its member company, T-Mobile, in this case and looks forward to a final resolution on this matter."

The case comes at a time that wireless carriers in the U.S. are finishing their macro buildouts of LTE networks. However, carriers are likely going to deploy more and more cell sites to add capacity and density to their networks. Further, in the years ahead, carriers will likely need more sites to accommodate new antennas and equipment for new spectrum bands they plan to put into service for LTE beyond their initial deployments.

For more:
- see this AP article
- see this WSJ article (sub. req.)
- see this Broadcasting & Cable article

Read more about: Cell Towers, Litigation
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By Phil Goldstein

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5. HTC banks on revival in Q2 thanks to new One M8 smartphone

Sprint (NYSE: S) prepaid brand Boost Mobile cut its pricing and introduced three new plans, including an entry-level $40 option that challenges T-Mobile US (NYSE:TMUS) and its MetroPCS brand. The moves indicate increased competition in the prepaid space.

Boost's new "Monthly Unlimited Select" plans include a $40 option with 500 MB of high-speed data before speeds are throttled down to 2G; a $50 plan with 2.5 GB of data before throttling and a $60 plan with 5 GB of data before throttling. All of the plans come with unlimited voice and texting.

The plans also support Sprint's Boost Wallet, which provides checking for a $4 fee and allows for free domestic and international money transfers. Customers can also take a picture of their paychecks and have the money deposited into an account tied to a Visa debit card.

The plans replace Boost's previous offer of a $50 feature phone plan and $55 smartphone plan. The plans also do away with one of Boost's signature offerings, its "bill shrink" plan that cut up to $15 off customers' bills over time for making on-time payments. Boost first introduced the "shrinkage" offering in March 2012.

"We felt it was time," Dow Draper, president of Sprint's prepaid business, said in an interview with CNET. "We're tailoring the plans to fit with what people needed."

Existing Boost customers with "shrinkage" plans will be grandfathered, Sprint spokesman Jack Pflanz said, allowing them to continue earning "tokens" for on-time payments. They can also switch to the new $40 per month plan; $40 was the lowest price point customers could have their monthly bills lowered to under the shrinkage plans anyway.

Boost's new plans come shortly after T-Mobile introduced its $40 "Simple Starter" plan, which includes unlimited voice, texting and 500 MB of LTE data. Once a user reaches the 500 MB of high-speed data, the service is suspended, and customers need to buy either a 1-day on-network data pass of 500 MB for $5 or a 7-day on-network data pass of 1 GB for $10. MetroPCS also offers a $40 plan with unlimited voice, texting and 500 MB of LTE data before throttling.

Further, the new plans come ahead of AT&T's (NYSE: T) refresh of the Cricket prepaid brand. AT&T has promised to unveil the "new Cricket" sometime in the second quarter and be "aggressive" in terms of pricing.

In the first quarter Sprint lost 364,000 Sprint platform prepaid customers and 415,000 prepaid customers overall, which the carrier blamed on changes in the Lifeline program recertification process. Sprint sells Lifeline service to low-income customers under its Assurance Wireless brand. Meanwhile, T-Mobile added 465,000 branded prepaid net customer additions in the first quarter, which T-Mobile said was driven by the success of MetroPCS and growth in the 30 expansion markets launched in 2013.

"We are shifting away from a one-size-fits-all approach to a more stratified set of plans," Draper told Bloomberg. "Prepaid has always been very competitive. After the first quarter we decided to broaden our offering."

In March, Sprint launched a new no-contract offering dubbed "Sprint Prepaid" to go after the prepaid market, a brand that is separate from the Boost and Virgin Mobile prepaid brands.

For more:
- see this release
- see this Boost site
- see this Bloomberg article
- see this Re/code article
- see this CNET article

Related Articles:
T-Mobile adds $40 'Simple Starter' plan, promises more moves ahead
Sprint replaces Sprint As You Go with Sprint Prepaid brand: New plans at $45 and $60 for smartphones
FCC approves AT&T's acquisition of Cricket provider Leap, with divestitures
Verizon cuts prepaid prices, data allotments with new 'AllSet' plans
Sprint launches Boost Mobile LTE promotion, cuts price to $35/month from $55/month

Read more about: Sprint, Boost Mobile
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By Phil Goldstein

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