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Wireless Infrastructure Newsletter

Antitrust agencies will be on high alert over AT&T/Time Warner bid October 24 2016

AT&T has pulled off one surprise with its bid to acquire Time Warner for $85.4bn – prompted an opinion from Donald Trump on which most can agree. Trump said the merger would concentrate too much power in the hands of a few, and the current wave of consolidation between US telcos and media/web companies will certainly test the antitrust regulators.

Virtualized networks will transform the MVNO model November 17 2014

by Caroline Gabriel, Research Director, Maravedis-Rethink

When AT&T describes its User-Defined Network Cloud, the future network it is developing on top of its Domain 2.0 virtualized architecture, it often talks in terms of consumers and direct enterprise customers. But in fact, the platform it envisages would perfectly support one of the most important emerging business models for network infrastructure owners, mobile network-as-a-service (NWaaS).

Whether or not AT&T takes this route, many carriers following in its architectural footsteps intend to. NWaaS is the logical next step after enterprise-focused „aaS‟ models, in which organizations access software, platforms and infrastructure from a cloud-based provider, on an as-required basis. The latest iteration would see network operators creating their own cloud platforms, or working with cloud partners, to be able to offer network capacity to large numbers of enterprises, vertical players, MVNOs and web service providers, on an on-demand basis. The customers would pay for what they used, rather than signing rigid virtual operator or wholesale deals as they do now – thus removing a key barrier for smaller service providers or those which only need to be active at certain times of day or year.

This could create an important new business models for carriers which are investing heavily in infrastructure, but largely recognize that the rising tide of consumer data will be increasingly unprofitable. Some may opt out of the consumer retail space altogether to pursue enterprise and wholesale models, where customers are less fickle and, if service quality is good, more lucrative. But the NWaaS approach opens up a whole new range of potential customers which want to include mobile connectivity in their services – device makers; smart home and other internet of things (IoT) providers; mobile content firms and so on.

NWaaS may also be an opportunity for cloud platform providers. A rising number of mobile operators already outsource all or part of their network operations, and in future, major managed service vendors such as Ericsson are highly likely to start offering flexible, on-demand NWaaS options to MNOs, not just to MVNOs. 47% of mobile users are currently covered by networks managed by a third party (Ericsson claims to be the world‟s largest MNO). And according to NSN analysis, while RAN sharing can achieve 40% opex savings, a shared network managed by a third party in the cloud can add up to 15% to that figure.

To access the 10-page research note, please visit our store.

Mobile carriers accelerate their connected car efforts October 21 2014

By the Maravedis-Rethink RAN research team

Mobile operators know that, if they are to have more than a ‘dumb pipe’ role in the internet of things, they will need to cooperate, using their combined weight to influence standards and support global systems.

This is sparking a number of alliances and cooperation deals focused on applications such as smart grid, industrial internet and smart home, and also one of the most immediate IoT markets, the connected car. In this area, Deutsche Telekom and China Mobile have formed a joint venture focused on China's exploding automotive sector.

The 50:50 JV, called Connected Car, will see the German telco contribute its existing automotive telematics platform, and China Mobile will provide the LTE network to support the services, plus integration and the resources of its widespread channel organization.

"Connected Car is a strategic initiative within Deutsche Telekom, while China is of strategic importance for our Connected Car business. The partnership with China Mobile is therefore strategically of utmost importance to Deutsche Telekom," said Deutsche Telekom board member Reinhard Clemens, in a statement.

The venture will create a cloud-based platform based on DT’s technology and deploy network and hardware elements where these are needed on top of China Mobile’s existing infrastructure. The JV will also develop content services, and integrate and operate the systems.

The scale of the market is important for Deutsche Telekom to extend its reach beyond its own territories. There were 137m cars on the road in China at the end of 2013, up from 24m a decade ago, and DT claims the number of connected cars will reach 68m in 2018. The venture will work with the automotive sector to deploy services in new vehicles but also to retrofit existing ones. It will become operational at the beginning of 2015.

One of the most aggressive mobile operators in the connected car world is AT&T, which says it added 500,000 connected cars to its network in the third quarter of this year, bringing its total to two million in the US. This growth shows why AT&T is so involved in the sector, as its traditional SIM-only business added 400,000 subscriptions in the same quarter. Connected cars and their lucrative data plans will likely be one of the main expansion targets of cellcos over the next few years.

At a recent CTIA panel, AT&T’s chief executive of its mobile and business group, Ralph de la Vega, said the connected car would change the entire wireless industry, and added that research suggested there would be 10m connected US cars within the next few years.

AT&T wants to ensure that all occupants of a car are able to use data on the go, whether it’s the driver using GPS navigation, making hands-free calls or listening to podcasts, or perhaps putting Netflix on to silence the kids in the back. AT&T sees the potential revenue from this data, and wants to get in on the action ahead of the competition – in both new cars and on older models.

The other major benefit that arises from the connected car is the telematics and usage data that can be sent to the car’s manufacturer for analysis, allowing a car to more easily communicate to its driver that it needs maintenance or that their driving style is shortening its service life. This data can also be leveraged by insurance providers, but other more general data (such as time of use or road condition) could be passed or sold on to municipalities charged with maintaining the road surface. A number of apps already use the telematics data to provide car-tracking and fuel consumption information to consumers.

On the network side of things, if AT&T builds out its 4G network coverage to include densely travelled locations (read highways) it can guarantee that streaming connections won’t be lost during cell tower handoffs or through gaps in the coverage. Similarly, a 4G network provides better bandwidth than the 3G handsets and tablets in the car might be able to get – especially if a tablet or laptop lacks a cellular radio entirely. Similarly, when the car is parked up, perhaps on an idyllic fishing vacation in the countryside, you can keep the kids happy with a solid internet connection – bringing the comfort of high speed internet to the great outdoors.

Many more connected car projects will emerge from AT&T’s Drive Studio, located in Atlanta, where the company tests and develops its technologies and products. This lists a number of partner companies and sponsors, including Ericsson, Qualcomm LG, QuickPlay Media, Red Bend Software, VoiceBox, Synchronoss, Accenture, Amdocs and Jasper Wireless.

Sprint reaches deal for TMo, but regulators beckon? July 15 2014

Reports say Sprint/Softbank will pay $16bn for most of Deutsche Telekom's stake in TMo, but long review process lies ahead

By Caroline Gabriel

The long 'will they won't they' saga of Sprint and T-Mobile USA may be nearing a conclusion, with the US's third and fourth cellcos said to have hammered out a merger agreement - though one which is sure to face a lengthy and difficult review process.

The major owners of the two operators - Sprint's parent Softbank of Japan and T-Mobile's Deutsche Telekom - have reached a "basic agreement" to merge, according to Japan's Nikkei. Its unidentified sources said Softbank would buy more than 50% of T-Mobile's shares, mainly from DT, which still owns 67% of TMo even after it merged with MetroPCS. That would leave DT with about 15%, though it has been widely expected to seek a complete exit soon, and would value TMo at about $32bn.

The Japanese firm, which believes the merger is the only way to create a viable competitor to Verizon and AT&T, would pay cash and use stock swaps to reach the estimated price of over $16bn, and is said to have lined up credit from eight financial institutions, including Japan's top three banks plus JPMorganChase and Deutsche Bank.

More difficult than the financing will be the regulatory process. The companies, particularly Softbank's CEO Masayoshi Son, have been lobbying the FCC and Department of Justice for months, preparing the ground for the inevitable scrutiny of any deal which would reduce the number of mobile carriers in the US still further.

Softbank will be well aware that AT&T's own bid for T-Mobile distracted the carrier for about a year of reviews, before finally failing. However, it argues that the US needs a more powerful third player as a counterweight to the rising power of the big two, and that the competitive landscape must be seen in terms of all mobile, telecoms and media services, not mobile alone. This will be relevant as the regulatory authorities are also examining proposed mergers between AT&T and DirecTV, and between the two leading cablecos, Comcast and Time Warner Cable. Verizon last week denied interest in Dish, which itself wants a partner to launch itself as a mobile operator, and which is opposing all the mega-mergers.

In June, Son told a journalists that he had seen "new movement" in his preliminary talks with regulators, implying that they were softening their approach, but he will not be deluding himself that this will be an easy process. It is already reported that he has had to ask banks to commit financing for a longer time than usual, which will incur higher fees, because of the expected length of the approval process. Sprint is asking its own banks for about $20bn, while Softbank is seeking a similar amount, Bloomberg said. The funds would also be used to refinance some of TMo's debt, purchase spectrum at upcoming auctions, and fund operations.

Fire Phone: Amazon plays it safe June 20 2014

Retailer's first smartphone sports pseudo-3D interface and Prime content, but pricing and carrier tactics lack creativity

By Caroline Gabriel

The pseudo-3D user interface and heavily customized operating system of Amazon's first smartphone, the Fire Phone, do set it apart from the host of Android clones. However, the handset did not break radical new ground, in technology or pricing. Indeed, there was a clear backward step in launching it as an AT&T exclusive, seven years after Apple did the same and in an age when those carrier deals seem distinctly passé.

But there was another way in which the launch was retro - in its echoes of Amazon's unveiling of its original Kindle Fire tablet. Then, the consensus was that the retailer had stumbled by offering me-too hardware, albeit it at an affordable price. But such comments missed the point that Amazon is not a device maker, it is a provider of content and services, and some of the same misconceptions were seen in the disappointment that Amazon had not created an 'iPhone killer'.

As CEO Jeff Bezos was keen to stress this week, the Fire has driven significant additional uptake of Prime, the company's subscription service, which comes with an increasing array of content - and is critical to Amazon for keeping users addicted to its experience and spend-happy. Owners of Fires, like those of Kindle e-readers, typically spend more with Amazon than people using its apps on other gadgets. The question for Amazon now is whether the Fire Phone can pull off the same trick.

Some had expected the company to launch a super-cheap handset to expand uptake and, therefore, purchasing. In fact, the Fire Phone is firmly in the mainstream, price-wise, at $199.99 with contract at AT&T ($650 to $750, depending on memory, without subsidy). Amazon could certainly have been more disruptive with pricing, though that may come in future (its other devices have moved down the price scale fairly rapidly). Bezos has often spoken of how his company has the flexibility to price devices very low, because it is used to operating on very low margins, and because the gadgets are loss leaders to drive revenues from content and goods. However, shareholders are growing restive at those low margins, and may have kicked back against a really cheap handset, as might AT&T, which would risk cannibalizing other key products.

The important element in terms of cost is the bundling of a year's free subscription to Prime (worth $99), as well as unlimited free cloud image storage, which will help hook users on the service, and shows that Amazon understands - and drives - the need to lure users with media rather than hardware price wars (T-Mobile is getting the same message, countering the AT&T exclusive with its own content-driven launch, of unRadio, which offers users a music streaming service that does not count towards their data allowance).

Amazon will benefit if AT&T comes up with similarly creative offers on Fire Phone content deals, though returning to the tactics of exclusives is a weak point of the strategy. Of course an exclusive carrier gives a new device prominence and marketing effort, but Amazon, having entered such a crowded handset space so late, needs to maximize its coverage in its key home market. And so far, there are no indications that it has cajoled its operator partner into doing anything innovative with service pricing - to grab attention, and achieve its primary objective of shifting content, the phone needs to come with some free data, toll-free services or other incentives. In this respect, T-Mobile USA would have been a far better partner, if Amazon really wanted an exclusive.

It also needs to ensure that the Fire Phone appeals to more than just a loyal clique of Amazon aficionados. In this, its challenge is the same as Apple's - creating something with broad appeal, but which retains the core elements of its brand, and is clearly differentiated. The Fire Phone does not need to be a Galaxy 5 in technology terms, but it does in terms of marketing and consumer appeal, otherwise it will not drive sufficient Prime usage to justify its costs.

Here, Amazon's dilemmas are like Google's or Facebook's - how to draw the balance between universal availability of its services on all kinds of platforms, and an optimized experience, under its own control, which can generate user loyalty and higher levels of activity. Facebook and its partners have repeatedly failed to convince users that they need an optimized 'Facebook phone', while Google's Nexus devices - though they boast the latest Android releases and the search giant's idea of the ideal Android user experience - are dwarfed by sales of Samsung Galaxy.

Amazon has done better at establishing a distinct user experience with wide appeal, though this has been in the tablet space - where the big handset makers are less entrenched than in smartphones and the large screen allows for creativity in content delivery. The retailer has invested heavily in achieving a 'Fire experience' for Prime and its other shopping and media services, creating a heavily customized version of Android with its own developer ecosystem and app store. This has been welcome, in creating the only viable alternative interpretation of the Android platform outside China, offering a new choice for consumers and developers - though one under almost Apple-like control.

As Bezos put it: "Fire is the only smartphone to put everything you love about Amazon in the palm of your hand", with access to services like Whispersync, X-Ray and MayDay from an optimized interface.

So will the Fire Phone enhance that user experience and stand out from the crowd for consumers? Its most obvious differentiator is its 3D-like interface, achieved with four cameras and a range of sensors, which create the illusion of 3D on a standard LCD screen. Though 'real 3D' devices from LG and HTC have failed to catch users' imaginations, Amazon says its rendition is richer and more natural.

The other important innovation is Firefly, a scanning and identification feature, which allows users to scan, identify and tag song, films and TV programs - as well as text and numbers on paper - with a single click. Importantly for Amazon, famous for the compulsive ease of its shopping process, Firefly also supports barcode scanning and product recognition - about 70m products can be identified and price-checked, and then bought directly from Amazon (assuming it is the cheapest source).

Otherwise, the handset is similar in its specs to others in its class, such as Moto X. It comes with 32Gbytes or 64Gbytes of memory, with no microSD slot. It has a 4.7-inch display with Corning's Gorilla Glass 3 technology, a rubber body and aluminum buttons. Its 13-megapixel rear-facing camera features image stabilization.

And as always, Amazon stumbles on being so US-centric, at a time when growth in smartphones and mobile content is increasingly driven elsewhere. Outside the US, Prime contains few of the content options available to American customers and is largely a next-day delivery option. Prime Instant Video and the new Prime Music streaming service (similar to Spotify) are US-only, as is Kindle First, which offers early access to upcoming books. Some features are gradually being introduced in the UK and some other markets, but this is no global phenomenon like Galaxy.

Timing all wrong for a Sprint-TMo merger June 05 2014

Despite the risks of a long regulatory process and a new competitive landscape, US's third and fourth cellcos set to table merger plan

By Caroline Gabriel

The regulatory scrutiny could distract Sprint and T-Mobile USA for a year, at a critical juncture in 4G roll-out, but the two firms are nevertheless expected to announce a merger deal within the next few weeks.

Their argument - echoed by many European would-be spouses - is that a combined third player would be in a better position to compete robustly with AT&T and Verizon. The real logic is that the competition is no longer just about mobile - the real power will lie with converged wireline/wireless/video providers, which means the major WiFi-toting cablecos, and potentially Dish, are in the frame too. Indeed, the merger of two mobile-only players is somewhat old-fashioned, since it will position the cellcos better in the increasingly price-sensitive war for megabytes and minutes, but do nothing for quad play or content offerings - in that respect, a merger of either with Dish would make more sense, and invite less regulatory scrutiny.

As European cellcos such as Telefonica, KPN and Hutchison 3 have discovered, competition agencies remain, perhaps anachronistically, focused on not reducing the number of like-for-like rivals, rather than accepting the broader definitions which quad play is bringing to communications and media. Sprint and TMo will have to argue their case on the basis of providing a stronger, better funded mobile-only operator in the US, at a time when the mobile-only business case is weakening, and their larger rivals are building up acquisitions and partnerships in converged networking and content (as seen in AT&T's bid for DirecTV).

So Softbank's ambitions to turn its majority stake in Sprint into a US powerhouse are actually less threatening to the big two than they would have been a couple of years ago, but they will attract just as much regulatory scrutiny - a process which could be harmfully distracting. Softbank CEO Masayoshi Son would do well to remember the sorry saga of AT&T's bid for T-Mobile (smaller in those days, prior to its own merger with MetroPCS). That tied up AT&T resources and put some key decisions on hold for a year, while Verizon took advantage of its rival's tied hands to make its own moves, primarily a spectrum deal with four cablecos - just as valuable in terms of network capacity, and less worrying for competition agencies.

Sprint and TMo need to be very sure that their deal will be approved to risk all this time and distraction. Sprint is already lagging behind with its hugely ambitious Network Vision and LTE program. T-Mobile has had a disruptive impact in recent months with its 'Uncarrier' series of initiatives, and would worry AT&T more by carrying on with that activity, than engaging in a merger process. So it is bad timing to engage in a complex approval pitch to regulators and shareholders - and even if the deal were green-lighted rapidly, the companies would have to face the challenges of merging their networks, customer propositions and business plans.

But corporate ambitions do not always listen to history or logic, so it seems that the two cellcos - and their respective primary shareholders, Softbank and Deutsche Telekom - will indeed put their proposal on the table, after almost a year of speculation, in July. According to Bloomberg sources, price has been a major sticking point, with DT demanding $40 a share and Softbank angling for about $37. The final price is likely to be around $39, say the sources. That would value TMo at $31.3bn, but the total cost would be about $40.8bn including debt and cash considerations. Sprint is likely to offer 50% stock and 50% cash, leaving DT with a stake of about 15% (it currently owns 67% of the enlarged TMo).

If regulators reject the plan, Sprint would have to pay TMo more than $1bn in cash and other assets, according to the reports.

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