Raising $20 Billion is the Easy Part of Potential Sprint Acquisition of T-Mobile US

Even if the $20 billion in financing is raised, rival bids do not emerge, or not successful, and a deal is agreed to by T-Mobile US, getting a transaction approved by the Federal Communications Commission and U.S. Justice Department remains the truly hard part of the effort.

When AT&T tried to buy T-Mobile USA, the U.S. Depart of Justice argued that the U.S. mobile market already was so concentrated DoJ could not allow the deal to proceed.

DoJ also favors having four national competitors in the U.S. mobile industry, an opinion that likely is shared nearly universally among national regulators.  

For that reason, some believe Dish Network would have advantages in any buyout effort, as antitrust issues arguably would be less. At least in principle, were Dish able to buy T-Mobile US, market structure would not be affected.


None of that would change what many observers believe about long term market structure, which is that, ultimately, the market will only support three major competitors. The simple empirical observation is that the two strongest providers--Verizon Wireless and AT&T Mobility--are gaining share and revenue, while the two smaller carriers struggle.

And some would argue Dish Network is almost impelled to make a bid. The former mobile satellite spectrum Dish Network wants to use to support a terrestrial Long Term Evolution network has a market value estimated at $9 billion. 

If Dish Network fails to meet its construction obligations, though, the FCC has the right--indeed, the obligation-- to revoke the license, wiping out $9 billion worth of equity value. 

Were it to acquire T-Mobile US, Dish Network also would nearly double in size, and escape the confines of the "satellite TV" segment of the market Dish now occupies. 

Dish also would gain the ability to offer triple play or quadruple play services. 

Sprint likewise arguably sees a Sprint combination with T-Mobile US the fastest way to increase existing market share and level the competitive playing field with both AT&T Mobility and Verizon Wireless. 

Though a potential Sprint purchase of T-Mobile US poses major regulatory issues, regulators also have to ponder the other major deals that also could be proposed in 2014, including major cable TV mergers, or even a merger between Dish Network and DirecTV, should Dish fail in any bid to acquire T-Mobile US.

And some will continue to argue that the only long term way the smaller providers ever will catch up to AT&T Mobility and Verizon Wireless is on the strength of a combined Sprint and T-Mobile US, with initial market share substantial enough to rival the other two service providers.

Freemium is Leading App Pricing Model

"Freemium" is the most popular retail pricing model used by mobile apps in the Apple App Store, according to Distimo Distimo analysis, except for the navigation, education and productivity categories.

Between 2011 and 2013, the proportion of revenue based on in-app purchases increased from 77 percent to 92 percent in the Apple App Store and from 89 percent to 98 percent on Google Play.

Rise of Ad-Supported App Firms Could Have Access Provider Implications

There is a potential lesson for communications service providers in the rise of the ad-supported software company, something never seen previously. And the glimmer of significance is the notion that third parties might provide the revenue model for some communication services, at some level.

That would be a historic change from the traditional pattern, which has communications service providers making their revenue from selling services directly to end users.

Granted, it might not be unusual to argue that a smallish firm might attempt, or even succeed at, providing some communication services in exchange for agreeing to view, listen or watch some amount of advertising.

Indeed, from time to time, that has been tried, especially for use of voice services.

What is unusual, historically, is that a firm such as Google can become a giant software company based nearly exclusively on advertising support.

But Google is no longer unique. One might count Facebook and Yahoo as among technology firms supported nearly entirely by advertising support.

In recent years, there has been much talk of ways communication service providers can earn more money from third parties, such as advertisers or application providers buying some network features, to reach or better serve application provider users.

At least so far, the trend remains seminal, in some cases because regulatory bodies prohibit one or more of the business models that would make third party payments lawful. The U.S. fixed network network neutrality rules provide an example, barring Internet service providers from creating quality of service features application providers can use.

It does not seem likely that the revenue driver for an access provider would primarily become services sold to third parties and business partners, rather than business and consumer end users.

But as the experience of Google, Facebook and Yahoo suggests, indirect revenue mechanisms, which generate cash from business partners, not end users, are a new factor. The issue is the extent to which communications service pr

Can "Internet Access" Be More Than a Commodity?

What makes today’s “Internet access” different from voice, text messaging or video entertainment? The answer explains why service providers spend so much time thinking up ways to make Internet access more like voice, texting or video entertainment.

And might ISPs (at least some tier one ISPs) eventually have a business model more akin to Amazon?

Without overplaying the analogy, Amazon’s network resources are a platform for selling things. People pay for the products they buy, not “access” to Amazon.com.

That is the same model service providers have used for voice, text messaging and video entertainment. Only Internet access has used a distinctly different model, namely, selling the right to access the trading platform.

And though we now commonly count a unit of “Internet access” as merely one of several products sold by an ISP, the business model is quite different from the other products. In other words, the other products are “applications” people want to use that require the use of the network. But access to the network is not what people buy.

In the case of Internet access, the model is inverted. People want access to Google Maps, search, Facebook, Twitter, Amazon, eBay and other Web-based apps.

That makes Internet access, by definition, a “dumb pipe” commodity service.

Precisely how that might change in the future is the issue. Though it is unlikely people will stop wanting general purpose Internet access, which might always be the most-purchased product, there potentially are other models, all based on the traditional way service providers have created their products.

It will not be easy to create such services or attain critical mass. Even the traditional apps have become more “commodity like” in recent years, as a wider range of solutions now exist for the communication needs once supplied exclusively by voice (mobile voice, texting, email, instant messaging and social app point-to-multipoint capabilities).

Still, the principle remains: people will buy apps that use networks. That is the principle behind machine-to-machine (Internet of Things) sensing apps. People want the advantages of instant and continual access to sensor data. They will buy the app functionality, thereby creating revenue models for network service providers.

It will not be easy. Still, in principle, nearly all the ways Internet access can be reimagined will involve the ability to create, or participate in, new apps that solve new problems, using the network, but not based on access to the general purpose Internet.

In principle, those new apps will exist, side by side with general purpose Internet access, much as Internet access now rides on the same networks used to deliver voice and video entertainment.

The interesting problem for mobile service providers is that texting is possible because it is enabled by the signaling system that supports legacy voice. As the older voice networks are shut down, in favor of voice over IP mechanisms, “texting” will become an app enabled by the network, not a byproduct of the operations of the network.

Texting functionality can be provided, in principle, though it will not be a simple byproduct of the signaling system. Precisely how much money mobile service providers will want to spend to replicate text messaging functionality in an IP environment, and how to retain distinctiveness, compared to instant messaging, is the issue.

As we now can conceive of video entertainment packages that emphasize sports, might we also conceive of a sports-optimized service including video, audio, shopping and news functions all related to sports (by extension, U.S. football, soccer, basketball or baseball offer further refinements), and sold as a bundle?

Assume for the moment we don’t have to worry about traditional line of business regulation, and that the only thing that matters is creating the product and then marketing the product to a large enough group of buyers to create a sustainable revenue model.

Health applications obviously offer a similar opportunity, where it is the “health monitoring, information and transaction” application that is the retail offering, not general purpose Internet access.

Sirius XM sells satellite audio, primarily for vehicles. In principle, Sirius XM might also provide the foundation for some connected car services as well, where the same fleet of satellites, possibly augmented by terrestrial access (mobile service providers being the logical suppliers), underpins the service.

One might argue there is no need for mobile operators to use the Sirius point to multipoint capabilities, but such “broadcast or multicast networks” are highly efficient for those parts of a service that deliver content not required to be customized.

The point is that ISPs might someday learn to create apps using the network that change “access” into managed apps. That is a big deal.

Sprint, Dish Network to Test Fixed Wireless

Sprint and Dish Network will develop and deploy a fixed wireless broadband service, on a trial basis, in Corpus Christi, Texas, available in the middle of 2014. 

The service will initially be available in limited areas of Corpus Christi with a plan to expand into additional markets in the future.

The irony here is that the frequencies used originally were used for fixed wireless (educational TV), before those frequencies were viewed as potential ways to provide fixed local access service. In testing the concept again, Sprint and Dish Network are revisiting a concept that about the turn of the century was viewed as a way to compete, using a facilities approach, with wired access networks.

Depending on a customer’s location, DISH will install either a ruggedized outdoor router or an indoor solution to deliver the best possible broadband service to that site. Both solutions will feature built-in high-gain antennas to receive the 4G TDD-LTE signal on Sprint’s 2.5 GHz spectrum.

Dish Network already owns 40 MHz of assets in the 2 GHz range. 

EE Now Supports AT&T Customer 4G Roaming in United Kingdom

The U.K.’s EE has become the first U.K. mobile service provider to launch inbound 4G roaming for travellers on international networks visiting the United Kingdom. The first deal allows AT&T 4G users to roam on the U.K. EE 4G network, with additional agreements with other carriers expected in early 2014.

Such roaming is quite important for travellers who frequently travel outside their home country, and is useful even when existing roaming agreements for 2G or 3G services already are in place, since Internet access has become a more important mobile application.

The announcement did not specify what roaming rates will be, though. Data roaming typically is an expensive proposition, one reason the European Commission has been mandating wholesale rate reductions for EC roaming rates.

The European Union’s plan to lower the cost of mobile roaming within the EU featured a July 1, 2013 limit on prices for use of roaming data that declined by about 36 percent.

Data roaming now is as much as 91 percent cheaper in 2013, compared to 2007, the EU says.

The EU also has mandated price caps on voice roaming and text messaging as well. As a result of the wholesale price caps retail price reductions of over 80 percent have happened since 2007.

The new price caps set maximum service provider wholesale rates at new lower levels.

Roaming data charges now are set at 45 cents per megabyte, down 36 percent from 2012 levels.

Placed roaming calls are capped at the wholesale level of 24 cents a minute, a 17 percent reduction from 2012 levels.

Charges for receiving a roaming call call dropped to seven cents a minute, down 12.5 percent compared to 2012.

The cost of sending a roaming text message declines to eight cents, an 11 percent reduction compared to 2012 levels.

On July 1, 2014, another planned price reduction will happen, dropping roaming data charges to 20 cents per megabyte, while initiated voice calls will decline to 19 cents a minute.

The cost of receiving a roaming call will dip to five cents a minute. The cost of sending a text message will drop to six cents.

Though the rates do not specifically pertain to 4G roaming, new wholesale rate reductions already are hitting mobile service provider revenues.

Over the last three years, for example, those mandatory rate reductions have accounted for about 75 percent of the revenue decline at Vodafone. At the very least, that means the lower roaming rates will cease to put pressure on overall revenues.

4 and 3: Why Sprint Purchase of T-Mobile US Faces Challenges

Regulators do not like the idea of mobile markets dominated by three carriers, preferring the number of four. So it is that Telefonica's proposed €8.6bn purchase of E-Plus, the German arm of The Netherlands' KPN, which would create Germany's largest cellco, is getting close scrutiny.

That likely will be an issue for Sprint as well.

Australia NBN Will Miss Target of 25 Mbps to All by 2016

Australia's National Broadband Network will miss its original target of providing 25 megabits per second service to all Australians by 2016. Plagued by construction delays, the timetable slippage is not unexpected. 

A strategic review of the program also will rely more substantially on upgrades to cable TV hybrid fiber coax networks, and substitutes fiber to node for fiber to home connections for as much as a third of the network access connections.

According to the new strategy, about 26 percent of premises will be connected using fiber to home networks. Some 30 percent will be reached by cable TV hybrid fiber coax connections, while 44 percent will get fiber to the node drops, moves intended to reduce the overall cost of the NBN and also likely speed deployment times, at the cost of immediate speed upgrades.

Spectrum Exhaust? Not Likely

Though some problems are difficult to solve, access bandwidth seems not be among those problems. 

Whether looking at fixed network speeds, mobile network speeds or coverage in developing nations, Internet access availability, as tough as it might be, is a problem human ingenuity is able to solve. Consider spectrum sharing.

The  2012  President’s Council of Advisors on Science and Technology on spectrum reform report, known as the  PCAST Report, if implemented, would represent a major innovation in assignment and use of spectrum, with some significant advantages for spectrum efficiency.

The PCAST “reforms” would  end the practice of clearing government spectrum for auction to the private sector in the form of exclusive licenses, opting instead for the creation of a government-managed spectrum commons.

That is a big change.

The PCAST report proposes that perhaps 1,000 MHz of spectrum currently in government hands could be shared by commercial users.

The study also suggests current license holders might agree to share their spectrum in exchange for revenue sharing or pay-for-prioritization schemes.

PCAST is important as it represents one more way, aside from actual auctions of new spectrum, better air interface technology, new network architectures and use of offload mechanisms, that future spectrum and bandwidth issues can be addressed.

As was true for digital subscriber line technology, which some knowledgeable technologists suggested would never work in volume deployment, former technological barriers fall over time when enough effort is put into overcoming such barriers.

It seems inevitable that “spectrum exhaust” likewise will be finessed.

If Price Were No Object, Would Most People Buy iPhones?

If price were no object, would most people in the United States buy Apple iPhones? A study of small business adoption suggests the answer is "yes."

In the first 10 months of 2013, Intermedia users activated around 190,000 Apple devices. This accounted for 76 percent of total device activations on our service.

Despite Android’s overall lead in market share, the overwhelming bulk of mobile devices activated by Intermedia’s small- and medium-sized business customers were from Apple.

At least in part, that mirrors U.S.  user preference for Apple devices, at least among users with more discretionary income.

But business devices also might be considered “subsidized” devices, in that the business defrays, subsidizes or pays for the devices used. In other words, if price were not a significant obstacle, iPhone seems to be the preferred choice.

Could a Merged Sprint-T Mobile US Change 600 MHz Auction Rules?

If Sprint eventually makes a bid to buy T-Mobile US and ultimately is successful, what does that mean for the upcoming auction of 600 MHz former TV broadcast spectrum?

Both carriers have asked for “set asides” that would prevent AT&T Mobility and Verizon Wireless from bidding on some percentage of the spectrum, to prevent those carriers from buying most of the new spectrum.

T-Mobile US and Sprint are in favor of "pro-competitive" auction rules for upcoming 600 MHz spectrum for good business reasons: both lag in ownership of lower-frequency spectrum with better propagation capabilities. The bulk of those mobile assets are owned by AT&T Mobility and Verizon Wireless.

According to the Justice Department, AT&T and Verizon control 78 percent of low-frequency spectrum, defined as spectrum below 1000 MHz.

Even a merger of Sprint and T-Mobile US would not change the disadvantage in lower-frequency spectrum, even though the the merged entity would, before the auctions, have the biggest amount of spectrum.

There now is greater focus on the “quality” of spectrum, as well as its “quantity.” Simply, both T-Mobile US and Sprint argue they will be at a disadvantage, compared to market leaders AT&T Mobility and Verizon Wireless, unless they are assured of access to about a third of the proposed spectrum to be auctioned, presumably under rules that would bar the two largest carriers from bidding for those blocks.

But some economists argue that barring the largest market contestants, or possibly even using set asides, could have negative impact. Basically, the argument is that the largest spectrum holders are able to more efficiently harness the spectrum than firms with smaller holdings.

Others argue that it'd be more fair to adopt a rule that enforces the same limit on all the participants, regardless of their existing holdings. Such symmetric caps would not take into account current market share or spectrum asset holdings.

Others (including Sprint and T-Mobile US) argue for “asymmetric” caps that take into account current market share and spectrum quality issues

As always, “efficiency” and “equity, ” “competition” and “investment” issues exist.

Regulators and policymakers often use set aside rules to encourage competitors. But, over the long term, markets still become more concentrated. And, as European regulators have discovered, competition can reduce the climate for investment.

Those arguments still will be made, even if Sprint and T-Mobile US become one company, but the resolution of that possible merger, one way or the other, could affect the construction of bidding rules for the 600 MHz auction.

If the new company has the largest amount of spectrum going into the auction, and has 28 percent market share, compared to Verizon’s 34 percent and AT&T’s 33 percent, is there still an argument for set asides?

To be sure, the disparity in ownership of lower-frequency spectrum still would exist, but not so much the argument that the two smaller carriers are so much smaller they need spectrum set asides to level the playing field.

And the argument about amount of spectrum owned would tip further in favor of the new entity, compared to AT&T Mobility and Verizon Wireless, before the auction.

Is U.S. Mobile Market About to be Rearranged?

With shocking suddenness, U.S. service providers are preparing a key test of regulator willingness to rearrange U.S. service provider market share. The latest potential move has Sprint considering a possible bid to buy rival T-Mobile US, a merger that will test regulator and antitrust authority thinking about sustainable market structure in the mobile business.

Separately, cable companies are circling Time Warner Cable, the second-biggest U.S. cable operator. And while an initial bid by Charter Communications likely would not raise undue regulatory issues, a bid by Comcast, the biggest U.S. cable company, clearly would do so.

Though earlier Federal Communications rules specifically prohibited any single U.S. cable company from serving more than 30 percent of U.S. cable TV customers, that rule was invalidated by U.S. courts.

But antitrust authorities are sure to consider a merger of the number one and number two cable companies--Comcast and Time Warner Cable--too big to ignore.

The potential Sprint merger with T-Mobile US also would face high hurdles. Antitrust requlators already had argued, when AT&T tried to buy T-Mobile USA, that the U.S. mobile market already was too concentrated.

Though a Sprint-T-Mobile US tie up would not have the market impact of the proposed AT&T merger with T-Mobile USA, the merger review still would occur under circumstances where the U.S. Justice Department already has deemed the market excessively concentrated.

The rival argument is that only if Sprint and T-Mobile US are combined would they be able to compete on a relatively even basis with the larger Verizon Wireless and AT&T Mobility.

Also an issue is the general regulator thinking that a minimum of four providers is required to sustain innovation and competition in a mobile market. That has been an issue for European regulators in 2013, for example.

Sprint, according to a  Wall Street Journal report, is studying regulatory concerns and could launch a bid in the first half of 2014.

A deal could be worth more than $20 billion, depending on the size of any stake in T-Mobile that Sprint tries to buy.

Whether such an acquisition always has been an explicit part of SoftBank’s thinking about strategy for the U.S. market is unclear.

But observers have been noting for some years that the market share gap between Verizon Wireless and AT&T Mobility, on one hand, and Sprint and T-Mobile US on the other hand, could not be closed easily any other way than by a merger of the two smaller companies.

If such a deal were to pass regulatory muster, it also would have implications for other would-be providers of Long Term Evolution Services in the U.S. market, as the gap between any new provider and the top three carriers would be formidable.

Dish Network is among the potential contenders who then would have a tough decision to make. But there also is the matter of Globalstar and LightSquared, for example.

Study Suggests Amazon Kindle Strategy Works

Amazon and Apple are mirror images in terms of how the roles content, transactions and devices play in their respective revenue models. Apple mostly cares about content because it helps Apple sell more devices.

Amazon mostly cares about devices because devices help Amazon sell more content and products.

A study by Consumer Intelligence Research Partners suggests Amazon’s sale of devices a bit above cost actually works.

CIRP conducted a survey of 300 Amazon.com customers over the three months leading up to Nov. 15, 2013,  and foundthat people who own Kindles spend more on Amazon than those who don’t own Kindles.

The size of the revenue difference is key. CIRP estimates that Kindle owners spend $1,233 per year on Amazon compared to $790 per year for Amazon shoppers who don’t own an Amazon e-reader or tablet.

Apparently, the pattern is that Kindle owners place many more small orders. If you assume that is because they are buying content, that makes sense.

It appears Jeff Bezos, Amazon CEO, was right. Kindles are sales platforms, and seeding the market by selling at only a bit above cost does stimulate sales at levels that justify the practice.

What Drives "UnCarrier" Success?

Is T-Mobile US success boosting its subscriber numbers between the second quarter of 2013 and the end of the third quarter of 2013 evidence of success with its "Uncarrier" marketing, bring your own device policies and "no contract" plans, or the right to sell the Apple iPhone? 

Some might argue it was the the Apple iPhone, which T-Mobile US began selling in 2013, which accounts for the subscriber gains. 

Not the sharp uptick between the end of the first quarter of 2013 and the end of the second quarter of 2013. 

Some likewise would say it was the exclusive right SoftBank had for a time to sell the Apple iPhone, starting in 2010,  that likewise fueled SoftBank's rapid gain in market share .

More recently, NTT Docomo blamed a quarterly subscriber loss on limited inventory of Apple iPhones.

The answer might matter. 

Perhaps the ability to sell the iPhone is what affected subscriber gains, not "no contract" plans or device installment plans. Perhaps it was the perception of "lower price" that mattered.

That's the problem when attributing gains to one policy, when several changed at once.

Is Utopia in Utah a Potential Investment Target for Google?

Is Google Fiber, now the owner of Provo, Utah’s municipal fiber access network, about to buy or invest in Utopia, the other municipal-owned fiber access network in Utah?

It appears that is at least possible, as officials  from the 11 municipal investors in Utopia recently have signed nondisclosure agreements with Utopia, in advance of revealing talks with a new investor said to be an “Internet giant.”

To be sure, talks might be possible with any number of “Internet giants,” Google Fiber likely is the logical potential entity interested in investing.

Utopia is a financially-challenged supplier of open access gigabit fiber to the home networks in Brigham City, Centerville, Layton, Lindon, Midvale, Murray, Orem, Payson, Tremonton

and West Valley City, Utah.

Utopia operates a wholesale network used by Beehive Broadband, Brigham-net, Dish Network, Fibernet, InfoWest, SumoFiber, Veracity Networks, Webwave and XMission.