Bullet Point Analysis: MetroPCS's 15 New Market Expansion & New Handsets

MetroPCS had multiple announcements. The first announcement focuses on expanded its smartphone portfolio with the Nokia Lumia 521 ($99) and LG Optimus F3 ($149). While handset announcements are less than notable on a strategy, there are small tidbits that one can glean. They are:

• The  smartphones are not CDMA. This is a step to migrate the subscriber base to the T-Mobile network (100% goal in 2015) .
• The Lumia is an HSPA+ only device and comes from the T-Mobile prepaid device stable. Moreover, it give MetroPCS a Windows Phone choice.
• The LG Optimus F3 is HSPA+/LTE. Other carriers have the F3 in CDMA configuration. The F3 has better processor specs than the postpaid Optimus L9 offering. So the prepaid version bests a postpaid offering, albeit a tad smaller (4" vs 4.5" screen).   

The second press release was more interesting.  MetroPCS announced 15 new markets, expanding their total market reach to 30 markets.  With this announcement, the company has opened up for business in those markets along with distribution.  However, Metro will wait until September 1 for their advertising push. 

Of the 15 markets, 8 are Leap markets. T-Mobile's CEO has talked up a head-to-head match up against Leap. Interestingly some are in Texas, a Leap stronghold. One symbolic market that stands out is San Diego - Leap's corporate headquarters.  Key to the success will obviously be distribution - big box stores such as Best Buy and third party retailers. The company is looking for 200 doors in August with more in the fall.

• Baltimore, MD - Head-to head against Leap/Cricket
• Birmingham, Ala. - New market without retail Leap presence; Next major city that links up with Atlanta market
• Cleveland and Akron, Ohio - adds to Great Lakes coverage
• Corpus Christi, Texas - Head-to head against Leap/Cricket
• Fresno, Calif. - Head-to head against Leap/Cricket
• Houston, Texas - Head-to head against Leap/Cricket
• Memphis, Tenn. - Head-to head against Leap/Cricket
• New Orleans, LA  - New market without retail Leap presence
• Rio Grande Valley, Texas  - Head-to head against Leap/Cricket
• San Antonio and Austin, Texas - Head-to head against Leap/Cricket
• San Diego, Calif. - In Leap's backyard (its headquarters)
• Seattle and Tacoma, Wash. - In T-Mobile's HQ area, no brainer in opening up distribution in the parent's backyard; New market without retail Leap presence
• Tallahassee, Fla. - Rounds out MetroPCS's Florida coverage. New market without retail Leap presence
• Toledo and Sandusky, Ohio - adds to Great Lakes coverage; New market without retail Leap presence
• Washington, DC - Head-to head against Leap/Cricket

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US 4Q2012 Carrier Results - Google Hangout with RCR Wireless

Dan Meyer, Editor in Chief of RCR Wireless asked me to discuss Q4 2012 carrier results and some thoughts on some future direction.

http://www.rcrwireless.com/article/20130307/carriers/breaking-q4-wireless-carrier-results/

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Tier 1 Q4 2012 Smartphone Growth and the iPhone

Now that three Tier 1 carriers have reported their Q4 results, here are some observations and commentary on smartphone growth.  As most industry people know, smartphones are the hot user commodity. Smartphones serve many purposes from a churn reduction tool, to ARPU uplift (offsetting voice revenue decline) to increasing operational efficiency (move data consumption to a more data efficient (capacity and throughput to the LTE network). But the old 3G network also has legs so for now, wholesale (MVNOs & M2M) and prepaid can extend return on old investment there.

iPhones have been a catalyst for increased carrier data revenue. AT&T's past  iPhone exclusivity has allowed it to accumulate a massive customer base that proven to be low-churn and loyal. With the exclusivity gone, other carriers (through Apple's deal-making and carriers' realization that an iPhone is competitive table stakes) also jumped on the iPhone bandwagon.  The notion that iPhone is such a powerful sales acquisition and retention tool has played out again in Q4 2012.

For the big three, AT&T, Sprint, and Verizon Wireless, smartphones sales/activations continue to be on a positive track.  AT&T reported 10.2 million smartphone sales in Q4, while Verizon Wireless came close at 9.8 million, and Sprint posting 6.1 million. These added up to 26.1 million smartphones.  The interesting observation is how many of these smartphones were iPhones.

• AT&T - 8.6 million
• Verizon Wireless - 6.2 million
• Sprint 2.2 million

As a percentage of the overall Q4 smartphone sales, iPhones activations accounted for:

• AT&T - 84%
• Verizon Wireless - 63%
• Sprint - 36%

On the whole among the three Tier 1 carriers, the iPhone accounted for 65% of smartphone activations. 

Impressive stats for sure. With contenders from BlackBerry (BB10 OS), Microsoft (Windows Phone 8) and Android, can the iPhone in the U.S. continue its run?  I submit that this hinges on Apple innovation.  As I've said previously, Apple needs to innovate, as its user interface (UI) is aging with incremental innovation.  Customers have a lofty expectation of radical things for each iPhone (and iPad) model.   Apple needs to deliver in 2013 or the early adopters (and then the mainstream) will move on.   

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T-Mobile USA Q3 2012 - Postpaid Trouble Continues, Reliance on Prepaid

T-Mobile released their Q3 2012 numbers along with commentary through the Deutsche Telekom parent.  Some of my thoughts ahead of this release were substantiated and some were not.  The US unit earnings slide touches on four areas, two financial and two operational performance metrics. From a broad view, the financial indicators are on a downward trend. Service revenue, earnings revenue and margin are all down.  Let's dissect the two important operational areas - net additions and ARPU. 

Net Additions: Though there were 160K net additions, the glass half empty side looks at the postpaid losses.  With nearly 500K of postpaid subscriber losses, it's alarming.  The company blames the iPhone 5 as a key element for the decline.  So where are these people going? AT&T had record iPhone 5 activations and Sprint's iPhone 5 with an unlimited data proposition are the likely culprits.  How does the company reverse its postpaid slide?  Q3 2012 represents the ninth quarter  of postpaid losses.  Its shift to promoting Value plans as part of the greater postpaid strategy may help its margins and lower device subsidy costs but really, is it working?  To deflect this, DT Chairman Rene Obermann cited that there are now 1.5 million iPhones running on the T-Mobile USA network. The last iPhone count was 1 million back in June 2011.  Pushing the glass half full view, the prepaid and wholesale business is contributing to the company's growth.  While wholesale should be positive across the industry, the MVNO business is a consistent performer that makes up almost 12% of the customer base.  The machine-to-machine side represents about 9% of the company.  These two areas should be all accounts continue to add to the customer count throughout the quarters. The prepaid additions are on a very good positive slope, beating previous quarter additions handily.  The introduction of the Monthly4G plans that offer alternatives to Boost, MetroPCS and Leap plans.  Going into Q4 and with the company increasing its customer acquisition spend, can T-Mobile sustain a 300K+ net addition run?



ARPU:  One take away on the postpaid ARPU is that it's going down.  While the chart shows data ARPU increasing, the subscriber base was traditionally more voice centric.  Minutes of use came in at 899 compared to 986 a year earlier.  This follows the industry trend. The quandary for the company is that it will continue to see a decline in overall ARPU as it pushes its value plans. That may be OK if the business case shows that margins are better in the long run. On prepaid ARPU, the $21 mark was flat sequentially. If the higher ARPU bearing Monthly4G plans take hold en masse this should go up slightly. 

Churn:   Overall and postpaid churn increased for obvious reasons. The postpaid churn went from 2.2% the previous quarter to 2.3%. Closest rival Sprint has turned its churn fortunes around but its highest postpaid churn rate was 2.01%. Verizon Wireless and AT&T are near 1% as a gauge. 

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T-Mobile -Thoughts Ahead of the Q3 2012 Earnings Release

T-Mobile USA is set to release its Q3 earnings and performance metrics on Thursday , November 8th as part of its overall parent's (Deutsche Telekom) Q3 2012 release.  DT's US unit is fresh off an merger/acquisition announcement of MetroPCS in October  and that had grabbed much of the news around the carrier but the Q3 earnings numbers should reveal whether T-Mobile would continue key trends or reverse them.  The company has provided five focus areas throughout previous quarters and many of its Q3 progress points will fit again in these areas.

Under Amazing 4G Services, we should expect to hear about network progress (LTE buildout) and new halo devices. Under the Value Leader, we should expect to hear about any new services or marketing initiatives. In furthering the Trusted Brand, T-Mobile has been talking about expanding their distribution. For the last two quarters, the company has been putting a lot of effort into opening new 'doors', the first fruits of this may show up in Q3.  With the Multi-Segment Player focus, this is mostly about expanding wholesale (machine to machine/MVNOs) and ramping up the B2B efforts.   Finally the Challenger thrust should roll up cost control and churn containment.  Maybe there will be light shed on acquiring iPhone switchers. However, some performance metrics continue the bellwether of corporate direction. 

Net Additions:  The trend doesn't look good for the company as its postpaid base continues on a negative trajectory since Q3 2010. On the other hand, T-Mobile's prepaid business is the bright spot in preventing a totally bleak story. The fact that the company has been able to post positive net prepaid additions in an ultra competitive prepaid segment is notable. Throughout the years, prepaid has been on the rise and makes up more of T-Mobile's customer base. In Q2 2010, the prepaid business accounted for about 20% of the base. By Q2 2012, that percentage increased to over 27%.  Q3 looks to increase that percentage.  Switching over to postpaid, the company still needs to reverse the slide.  The unlimited data and plan value story should resonate and pits the company against Sprint's own unlimited data proposition.  How well the company markets to iPhone switching will be a key element in increasing its postpaid pool.

  

Any increase should signal somewhat to the traction of its expanded distribution strategy.

Churn:  Looking at prepaid churn, the company is doing a good job in stabilizing that base.  Q3 should continue the downward direction. However, the churn number currently at 6% is very high relative to rivals.  In contrast, Sprint's multi-branded prepaid group posted 3.37% for Q3 while dedicated prepaid plays MetroPCS and Leap are in mid-3% and mid-4%, respectively.  On the postpaid side, the magic threshold for Q3 should be sub 2%. Rival Sprint crossed that mark two quarters ago. T-Mobile remains the only national carrier to be above the 2% postpaid churn mark.

ARPU: The carrier is also behind in these metrics relative to its national rivals. The downward postpaid ARPU trend is in stark contrast to AT&T, Sprint and Verizon Wireless which has been sloping positively nicely. While AT&T is the postpaid ARPU leader at over $65, Verizon Wireless is T-Mobile's closest ARPU neighbor at $56 in Q2 before they moved to the new ARPA stat. On the prepaid side Sprint remained over the $26 mark in Q3 while regional Leap and MetroPCS are in the 40s.  To move the mark in prepaid, T-Mobile needs to focus on the high-value users. Of course this will be moot in 2013/2014 once MetroPCS starts to get integrated.

Finally Network: There will undoubtedly be discussion on how well the LTE buildout is progressing. T-Mobile while it pushes its 4G speed (AWS=based HSPA+), it should be stating how the well the PCS refarming is going. This refarming is central to moving ahead with its AWS LTE plans.  The PCS HSPA+ network also serves as the honeypot for additional unlocked GSM iPhone users. Given the jump that other national carriers have in LTE, there should be a mention or reiteration of when T-Mobile expects to launch LTE markets. 

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AT&T Mobility - Q3 2012 Highlights

Quarterly Earnings performance releases are always half-full for some and half-empty for others.  AT&T's Q3 could be characterized as such because there were some shining areas but there were also areas where expectations were higher.  Inject the Verizon/Verizon Wireless comparison and things get tough.  There were plenty of highs associated with revenue and even remarked some of the growth percentages in a down economy "are pretty darn good."  While others can highlight revenue and expectations around those areas, I'll focus in areas where I had my own thoughts and expectations.

Overall Net additions of 678,000 were disappointing particularly in the postpaid segment with only 151,000. Mobility CEO Ralph de la Vega noted that iPhone 5 supply constraints limited the segment's performance and most of that inventory serviced the existing loyal iPhone base. However, it's hard to not compare to rival Verizon Wireless' Q3 1.535 million postpaid net add number. Nice stats thrown out:

• Smartphones made up 81% of the postpaid sales. Followers should note that Q2 delivered 77% in comparison suggesting that the carrier is doing a good job in pushing the mobile data utility proposition. As a gauge with Verizon, smartphones made up 79% of its postpaid sales.  AT&T appears to be doing slightly better job in nailing down data users. 
• 6.1 million smartphones activated, 4.7 million were iPhones leaving 1.4 million to be split among Android, Windows and BlackBerry platforms. Interestingly, AT&T did not provide the iPhone 5 breakdown that Verizon presented (650K). We can just assume that AT&T did well since they reported record iPhone 5 preorder/sales during launch weekend. 
• About 64% of the postpaid base are smartphone users.  

Commenting in the Q&A for the future, Ralph mentioned two things that stuck: 

1.  Q4 postpaid net adds should increase with help from tablets and the mobile share plan. To be fair, mobile share impact wasn't as AT&T expected. Verizon Wireless' data share plan was out of the gate sooner.  The thinking is that as new LTE tablets (iPad mini, Asus Vivo and Samsung Smart PC, Kindle Fire) become options (thinking promos here), subscribers would see the value in sharing data. 
2. AT&T wasn't going to play the traditional net addition game. I assume this was in the context of driving revenue. Rather, revenue was going to be layered service such as Digital Life, a remote monitoring and automation platform that has consumer/business direct services and wholesale partnership opportunities.  The company showed a demo of what could be at a house during the spring CTIA 2012 in New Orleans.  

On the prepaid side, the trend continued downward for a year. The 77,000 net additions were the lowest since Q1 2011 which was 85,000. 

Again in comparison against Verizon Wireless which delivered 228,000 net additions this quarter, this should be a wake-up call to AT&T's prepaid group which represents over 7% of the 105 million base. Given the industry acknowledging that prepaid is a growth segment, AT&T should be playing stronger.

Churn trends were a bit upward. The important postpaid value of 1.08% didn't beat last quarter's sub 1%. Overall churn at 1.34% was higher than Q2's 1.18%; this may be attributed to prepaid and wholesale.   


ARPU (postpaid) continued an upward trend at $65.20 but didn't cross $66.  That may have been optimistic on my part.  Still AT&T continues to lead the industry in this category with a formidable cushion compared to Sprint and Verizon Wireless.  Though the mobile share plan didn't have much opportunity to take full traction in Q3, offering an Average Revenue per Account metric was premature.  Still, that should be the future path (2013?) if mobile share continues to gain subscriber traction.      

EBITDA margin did not match Q2's 45%, coming in at 40.8%. The company's annual guidance of 42.5% was reiterated in slides. Again with Verizon Wireless' 50% figure in comparison, the gap is formidable.  

The LTE Network is rolling out ahead of schedule.  There is no doubt that meeting the Verizon buildout challenge is key to negate any marketing advantage.  Though AT&T's LTE completion timetable is at the end of 2013, Verizon's revised mid-2013 completion provides some incentive to report further accelerations in coming quarters.

Investor Relations

Finally, one must give credit to AT&T Investor Relations for using social media in talking up quarterly earnings.  This is the second quarter that I recall that AT&T has done this.  Some may dismiss this as another element in public relations but that's the point - put an executive face and provide commentary to frame the quarter's messaging.



Hopefully, more IR websites will incorporate this approach and supplement the dry (but useful) presentation files, archived webcasts and 8K, 10Q/10K links.  

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Verizon Wireless - Q3 2012 - The Network Fill Story

As many in the industry know, Verizon Wireless was the first company out of the block with an aggressive LTE buildout schedule. The overall thrust was to mirror its vast 3G geographic footprint by the end of 2013. Now as it has done in the past, its rollout execution has accelerated that timeline and now the company states that it should be done by mid 2013.  

Why?  The faster it can get a full LTE network, the ability to implement VoLTE advances.  There is an operational cost benefit to this.  Why mirror? There isn't an elegant handoff from LTE to CDMA. And of course, the ability to deliver a data byte is cheaper/more efficient on LTE than EV-DO. Of course that's old news.

Onto Q3 and what some of the data tells us.  Since LTE is established as the most efficient data platform, the carrier wants its customers to consume data on that network versus 3G.  The question of how many subscribers are actually on the network comes up. In certain circles, the answer will point to return on investment... 

"You spent so many billions on the LTE network and you only have X% of the base on it?! What are you doing to change that?"   

In Q3, Verizon has admitted that they've spent substantial marketing into moving people onto the LTE network. Its most reliable network messaging has been supplemented with the largest LTE network and speed messaging to the consumer base.  On top of this, the carrier (like the majority of carriers) are pushing LTE smartphones at various price points marrying that effort with the new shared data plan.

To that end, Q3 had paid off as highlighted in their earnings slide below.  Most notable is the smartphone penetration hitting 80%.  In previous quarters, mid 70% were good.  Crossing 80% is the goal and the carrier seems at this point to have good momentum going into Q4. The upsell is decent - migrating subs from featurephones to smartphones. Again with only 53% of the base in smartphones, the carrier has a nice upside.

3G Smartphones Still?! Out of 6.8M smartphones sold, the company doesn't quite provide the LTE smartphone count since 4.5M were LTE devices (which also includes smartphones and modems, tablets & hotspots). Still a clue was divulged when the CFO revealed that 3.1 M iPhones were sold an of those 650K were iPhone 5s (LTE) suggesting the remaining iPhones were 3G - roughly 2.4M. So we can safely say that the iPhone 4/4s though helping out in ARPU/ARPA, those aren't helping to fill the new and shiny LTE network.  These  3G users will likely transition in 2 years unless Verizon entices with an upgrade promotion. By the way, the company is trying to minimize their upgrade percentages to help margins.     

So the takeaway, 14.9M LTE devices of the 95 M retail sub base on the network -  roughly 16%. Is that good? It depends on internal Verizon Wireless planners and financial types' expectations.  For certain, this is an important metric to pay attention to in subsequent quarters for every carrier deploying LTE.

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Verizon Wireless - Q3 2012 Highlights Impressive Adds

Quarterly earnings releases are always greatly anticipated and with Verizon coming out of the gate as the first carrier in Q3, the company has always stood as a reference bar for performance metrics, particularly in subscriber growth.  

Net additions were impressive - the best performance in 4 years. The metric is always an indicator of organic growth/switching and how the company is performing in postpaid and prepaid.  Verizon specifically uses the term retail to pull out any wholesale component. 

What stands out is the monster net addition count.  

Postpaid: This is the shining beacon for Verizon Wireless with 94% of the retail base in this category.  The 1.5+M postpaid is the highest ever. As a gauge, Q2 2011 yielded 1.25+M net adds.  Of course part of the strong addition growth comes the shared data plan platform in which tablets (there is even a bullet point on tablets) and data devices (mobile hotspots) are contributing. 

Additional notable call highlights supporting the segment's performance:

• Highest gross additions in 4 years at 6.8 million
• Sold: 3.4 M Android smartphones, 3.1 M iPhones (650K iPhone 5s - hampered by supply constraints) - this punctuates the power of Apple. The iPhone sold also show the carrier's switching and upgrade strength - 4/4s iPhones are still desired.
• 78.8% of smartphones sold were postpaid vs. YoY of 59.6% - yes, they're successful partly because of admitted marketing ramp up.
• 53% of the base postpaid base is smartphones and ~9% is internet (devices) so there is room for smartphone growth which suggests average revenue per account has upside potential.
• Switchers: 31% of adds were new to Verizon Wireless. This shows the the network 4G LTE messaging is resonating and helping.
• Smartphone Upsell: 44% of the gross adds were new to smartphones

Prepaid: From a quarterly trend view, this quarter dipped below Q4 2011's 250K and less than last quarter's 299K net adds.  Though the segment is positive, we have to watch for its trajectory as the company exits Q4. A consideration may be that the company is putting a great effort in the seemingly more profitable postpaid segment.     

Churn: While this looks alarming relative to the previous quarter, this quarter's .091% betters YoY's .094%. Besides, historically, Q2 churn has always been lower so the trend continues. Honestly, this is a boring (albeit great story) every quarter.  

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