Will Move Away from Subsidies Really Help T-Mobile USA, or You?

Will consumers really care if the out of pocket monthly payments for T-Mobile USA service are marginally lower, in the case of services without subsidies but with an installment plan?

Put another way, will consumers actually even save money on T-Mobile USA's new "no contract" plans?

The answer might well be that most consumers will not save much money, if any money.  

In fact, some consumers might even wind up paying less, out of pocket, with a contract plan. 

If one assumes most consumers still are going to opt for device installment plans rather than buying their devices outright, the savings are relatively slight, on a recurring basis, for purchases involving high-end devices.

T-Mobile USA has a $60-a-month 2.5 gigabyte data plan is more than $300 cheaper over two years than an AT&T plan that offers 3 gigabytes and 450 minutes of talk time with the same device. For a user who opts for the installment plan, that works out to about $12.50 a month lower bills than for the rival AT&T plan.

There is an argument that T-Mobile USA plans will save more, compared to service from Verizon Wireless. A user buying that same T-Mobile USA plan, and using the installment plan, would save perhaps $20.83 a month, over two years, compared to a single-user Verizon Wireless plan with 2 gigabytes of data (though the Verizon Wireless plan also would offer unlimited talking and text messaging. 

Still unknown is whether bring your own device trends will get a boost, in addition to a possible shift of end user demand to installment plans or lower-priced devices. 

Vodafone has had unpleasant experience with a shift to "no device subsides" in Spain, leading the firm to reverse course. 

So if you are expecting T-Mobile USA to "disrupt" the U.S. market, you are most likely in a for a let-down. Many of us think the real potential disruption could come from a Softbank-lead Sprint, one way or the other.

Do you really think a "Google" mobile service would fail to be disruptive?

FCC Thinks Mobile Business is "Not Competitive"

The Federal Communications Commission does not, in its latest report on mobile competition in the U.S. mobile industry, find the business “competitive,” despite the observation that  “82 percent of the U.S. population has a choice of at least four mobile broadband providers and approximately 92 percent of Americans are served by at least four mobile providers of voice and text messaging services.

And prices are dropping. Mobile wireless prices declined overall in 2010 and 2011, the

FCC mobile competition report says, and are down since 2006.

Oddly, outgoing FCC Chairman Julius Genachowski argues that among the most important achievements of the Commission under his leadership is that the United States leads the world in “advanced wireless networks, devices, applications.

Genachowski notes that the United States is the first country deploying 4G LTE networks at scale, and in late 2012 the U.S. had as many LTE subscribers as the rest of the world combined, making the United States the global test bed for LTE apps and services.

The FCC report also notes that Long Term coverage has grown rapidly since 2010, when virtually no customers could buy LTE, from nothing in mid-2010 to 86 percent of the U.S. population as of October 2012.

Annual investment in U.S. wireless networks grew more than 40 percent between 2009 and 2012, from $21 billion to $30 billion, while investment in European wireless networks has been flat since 2009, and wireless investment in Asia, including China, is up only four percent during that time.

Genachowski notes that more than 90 percent of smart phones sold globally in 2012 run operating systems developed by U.S. companies, up from 25 percent three years ago.

Also, notes Genachowski, the new mobile apps economy is a “made in the U.S.A.” phenomenon as well.

It is reasonable to look at competition as it exists in rural areas, which always are more difficult for service providers to serve, compared to urban areas.

At the moment, at least 65.4 percent of the rural population can buy mobile broadband service from at least three different providers, and increasingly, people will be able to buy a 4G service.

In addition, 63.6 percent of rural square miles and 87.3 percent of rural road miles in the U.S. were covered by at least one mobile broadband provider, while 90.9 percent of non-rural square miles and 98.7 percent of non-rural road miles were covered by at least one mobile broadband providers, the FCC says.

Based on October 2012 Mosaik data, 97 percent of the U.S. rural population has coverage by at least one mobile wireless broadband provider, up from 92 percent in November 2009.

In contrast, 99.9 percent of the non-rural population is covered by at least one mobile broadband provider.

While rural mobile broadband coverage has improved, 1.3 million people in rural areas have no mobile broadband access.

While 97.7 percent of the population in non-rural areas was covered by two or more mobile broadband providers, only 89.7 percent of the rural population was covered by two or more providers as of October 2012, up from 69.1 percent as of August 2010, according to the FCC.

Furthermore, 65.4 percent of the rural population was covered by at least three providers and 37.4 percent by at least four providers, compared to 97.7 percent and 92.4 percent, respectively, for the non-rural population as of October 2012.

This represents an increase in coverage to the rural population since August 2010 when only 38.1 percent of the rural population was covered by three or more providers and only 17.1 percent was covered by four or more providers, according to the FCC.

With regard to rural road miles, 87.3 percent are covered by at least one mobile broadband provider, compared to 98.7 percent of non-rural road miles.

In addition, while only 67.7 percent of rural road miles are covered by at least two mobile broadband providers, 95.8 percent of non-rural road miles are covered by at least two mobile broadband providers.

In addition, only 35.7 percent of rural road miles are covered by at least three mobile broadband providers and only 14.2 percent by four mobile broadband providers compared to 86.6 and 71.8 percent, respectively, of non-rural road miles.

There are other potential implications as well, namely the growing likelihood that AT&T and Verizon, among others, will use LTE as ways to provide new broadband access alternatives to fixed networks in rural areas.

“Mobile wireless Internet access service could provide an alternative to wireline service for consumers who are willing to trade speed for mobility, as well as consumers who are relatively indifferent with regard to the attributes, performance, and pricing of mobile and fixed platforms,” the FCC says.

in 2010, Verizon Wireless launched the “LTE in Rural America Program” to expand LTE coverage in rural areas.

Under this program, Verizon Wireless leases portions of its 700 MHz Upper C Block spectrum licenses to facilities-based mobile wireless service providers in rural areas where Verizon Wireless currently lacks coverage and does not intend to build out.

The rural partners also gain reciprocal roaming rights on Verizon Wireless’s nationwide LTE network, while Verizon Wireless’s customers can roam on the rural providers’ LTE networks when traveling in such areas.

As of September 2012, the program included 18 small, rural providers that planned to launch LTE to areas covering 2.7 million people across 14 states.1207 In April 2012,

Are Net Neutrality Rules Stifling Fixed Network Investment?

There's really no way to say for certain whether U.S. network neutrality rules have shifted investment decisions. A rational actor, owning both mobile and fixed assets, might well conclude that higher investment returns are gotten from deploying capital to support the mobile networks, rather than the fixed networks. 

But departing Federal Communications Commission member Robert McDowell speculates that mandating "best effort only" policies for the fixed network, while allowing mobile networks to potentially provide quality of service features could have something to do with investment decisions. 

To be sure, telco and cable TV operator capital investment is down substantially from late 1990s levels. But those reductions predate the net neutrality rules. 

Singapore Auction of 270 MHz for Long Term Evolution

Singapore's communications regulator, Infocomm Development Authority of Singapore (IDA, plans a mid-2013 auction of 270 MHz of spectrum for Long Term Evolution. 

The spectrum includes 150 MHz in the 1800 MHz band and 120 MHz of spectrum in the 2.5 GHz band. A 2 x 20 MHz block will be set aside for a new entrant to the Singapore mobile services market. 

Spectrum licenses will have terms of 13 years (1800 MHz spectrum or 15 years for the 2.5 GHz spectrum. 

IDA will cap any single service provider at of 2 x 30 MHz for the 1800 MHz band, and 2 x 45 MHz for the 2.5 GHz spectrum (assuming a successful new entrant emerges). 

There will be no mandatory wholesale requirements for any of the licenses. To avoid "spectrum flipping," no spectrum can be sold until the spectrum licensee has completed its national build. 

In that context, "new entrant" refers to potential service providers that do not currently provide nationwide mobile service in Singapore. 


Reserve prices have been set at S$16 million for each 2 x 5 MHz block of spectrum in the 1800 MHz band and S$10 million for each 2 x 5 MHz lot for the 2.5 GHz band, excluding the goods and services tax. 

IDA will also require the bidders to pay an annual spectrum management fee of S$26,400 per 2 x 5 MHz spectrum lot per year of each spectrum right, and a one-time application and processing fee of S$5,400 per 2 x 5 MHz spectrum lot.


Service providers are required to obtain a "Facilities Based Operator" license from IDA, among other licences, to roll out any new nationwide mobile system.


IDA forecasts that the mobile data traffic mobile data traffic in Singapore will grow exponentially from around 3.1 petabytes in 2010 to around 37 petabytes in 2015, representing a compound annual growth rate of 64 percent. 

Potential additional blocks of spectrum in the 700 MHz and 900 MHz bands also are expected to be auctioned at some point, separately and in the future. The 700 MHz blocks would not be available until 2020, when analog TV services are shut off. 

Demystifying "Software Defined Network"

Without a doubt, software defined network is among the latest "next generation network" buzzwords to gain traction. Of course, it's hard to describe what SDN actually is, or does, though there is much hype about both topics. 

SDN, some might say, is nothing more than the separation of network data traffic processing from the logic and rules controlling the flow, inspection, and modification of that data. That separation of control and data planes has implications. 

Traditional network hardware such as switches and routers implement these functions in proprietary firmware. SDN  might allow the separation of those functions. Some would say the value is increased flexibility and ease of reconfiguration of networks.

Some might say the advantage is lower cost of network operation. And some would note that the concept has much to do with the ability to use commodity hardware rather than dedicated hardware. 

In fact, some might argue that, next to "big data," SDN is one of the most "hyped" concepts in information technology or communications networking. 

If so, that is because it is hard to pin down precisely what SDN actually is. It's a design principle, not a protocol, not specific set of boxes or software platforms. It's more like the concept of "cloud computing." 

But there is no mistaking the reasons why service providers might like the concept: it promises lower-cost hardware investments and more flexible networks that can adapt in real time, or close to it, to changes in requirements or capabilities. 



The main advantage of a software defined network is that it no longer consists of dedicated and proprietary boxes with names like: firewall, load balancer, router.

If an organization tomorrow suddenly two times the need for firewall capacity, compared to load balancers, they can just provision other software on their existing hardware. 

In addition everything that is controlled by software can be much easier automated than something that is based on hardware. 

That also makes more feasible end-user configurations of services, not simply easier service provider reconfiguration of functions. 

Even Satisfied Mobile Customers Churn, Study Finds

Mobile service providers are said to have hundreds of different customer churn indicators. So how important are “satisfaction” measures, and do they really contribute to customer “loyalty?” The answer could be more difficult than you might think.

A new study by WDS suggests that only about 13 percent of U.S. mobile customers are truly loyal to their service provider, defined as being resistant to competitive price promotions and forgiving of their service provider when things go wrong.

“Satisfaction,” one normally supposed, has something to do with customer loyalty. The notion is correct, but only up to a point. Of those customers currently at risk of switching in the U.S. mobile market, 40 percent are “moderately” satisfied. Only 37 percent of at-risk customers  have “low” satisfaction scores.

The most shocking statistic is that about 23 percent of customers at risk of switching are highly satisfied with their mobile operator. In fact, WDS argues, 19 percent of all “highly

satisfied” customers are considered to be churn candidates.  

The WDS loyalty audit therefore calls into question the conventional notions of how satisfaction relates to loyalty. In fact, even significant numbers of customers who have “low” satisfaction scores are unlikely to churn.

You might easily agree that if a customer has to contact a support channel more than once in a six month period, that customer is twice as likely to become a switcher.

But even “happy” customers will churn. Some 36 percent of those respondents who said they were satisfied with “value for money,” still were churn risks. Some 50 percent at risk of churn were “highly satisfied” with service reliability and 53 percent were highly satisfied with network coverage.

Still, satisfaction remains an important metric. A “highly satisfied” customer is 2.2 times more likely to be retained beyond 12 months than a customer who reports “low satisfaction.”

Typically, a rule of thumb is that customers with long tenure have a reduced risk of churn. But WDS says 25 percent of customers with six or more years of tenure are at risk of switching to another provider.

And satisfaction only goes so far. About 34 percent of “highly satisfied” customers are resistant to switching for a 10-percent price discount. But increase the discount to 20 percent and only 15 percent continue to say they “definitely” would not switch.

All that noted, it might be said that customer satisfaction tends to create conditions for loyalty, but does not assure loyalty.

A customer who reports “low satisfaction” with a mobile service providers service is 3.4 times more likely to be a churn risk than a “highly satisfied” customer.

A customer with “medium” satisfaction score is two times more likely to be a switch-risk than a highly satisfied customer.

In general, a customers’ likelihood to switch decreases with age. For those aged over 60, just 19 percent are at risk of switching, compared to 45 percent of customers who are 25 to 34 year olds.

Of those at risk of switching, 28 percent are high spenders, spending over $120 per month. So you might argue that monthly billing and churn propensity are related in some causal way.

That probably is not the case. About 25 percent of all respondents spend that much. In other words, customers spending more than $120 a month have reported churn sentiment that is in line with their share of the customer base.  

The WDS Loyalty Audit interviewed 1000 U.S. customers.

What Will Softbank Do?

Federal Communications Commission Chairman Genachowski has said the agency’s review of the deals between Softbank, Sprint and Clearwire was on a schedule “consistent with” its nonbinding 180-day transaction “shot clock,” which runs through May 29, 2013.

The chairman’s comments suggest to analysts at Stifel that he believes the FCC ultimately will approve the Softbank purchase of Sprint, as well as the Sprint acquisition of Clearwire.

That likely would take much of the wind out of Dish Network’s rival bid to buy Clearwire, though aggrieved shareholders might yet file lawsuits that would prolong the uncertainty.

Assuming the analysis of FCC deal approval is correct, the real speculation can begin. Up to this point, there has been some speculation that all the moves and counter moves were tactical, on the part of Sprint and Dish Network.

In that view, Sprint doesn’t really want to buy Clearwire right now, but only wants to block Dish and Clearwire from merging. Others might argue Dish doesn’t really want to buy Clearwire, but only to force Sprint to help Dish build its own network, or raise the equity value of Dish Network overall, before Dish sells its spectrum, or itself, to another firm, such as AT&T.

But assume Softbank really does want to acquire Softbank, and wants to use Sprint as part of a larger plan for U.S. market entry. That is a straightforward assessment with no complicated “real motives” required.

Assume Softbank wants Clearwire’s spectrum to make a big splash, in some disruptive way, when it enters the U.S. market. Assume Softbank stays “in character,” and focuses on software (applications) and low retail prices, as it has done successfully in Japan.

Recall that Clearwire’s primary value is that it owns so much spectrum, and already is a wholesale capacity provider.  So then imagine that Softbank decides to leverage that wholesale value proposition, to enable a Google, Amazon or Apple to create a nationwide LTE Internet access network.

That network still could offer voice and text messaging, if customers really wanted it, using Sprint. But the disruptive angle would be a fast, data-centric mobile network optimized around Internet apps and experiences.

One advantage could be a disruptive pricing scheme, leveraging low retail prices and a simple LTE data access value proposition.