Carriers

Sprint Spins Quarterly Loss

U.S. number three carrier Sprint released Q2 results. Losses continued but the company suggested that things were stabilizing:

  • Stable post-paid ARPU, driven by the success of Simply Everything with high value customers, and lower operating expense drive $87 million sequential improvement to Consolidated Adjusted OIBDA of $2.1 billion
  • Post-paid churn improves more than 45 basis points from 1Q '08, to below 2.0%

Yet:

  • The company served 51.9 million customers at the end of the period, compared to 54.0 million at the end of the second quarter of 2007. The company’s mix of prime customers improved sequentially and year-over-year for new customers and the post-paid base.
  • For the quarter, total wireless customers declined by 901,000, including losses of 776,000 post-paid customers and 250,000 traditional prepaid users, partially offset by gains of 112,000 Boost Unlimited customers and a 13,000 increase in the number of wholesale and affiliate subscribers.
  • At the end of the second quarter, the company served 38.9 million post-paid subscribers, 4.2 million prepaid subscribers and 8.7 million wholesale and affiliate subscribers.
  • Subscribers by network platform include 35.5 million on CDMA, 14.6 million on iDEN and 1.7 million PowerSource users who utilize both networks.
  • In the second quarter, the company added to its device and service capabilities with the launch of the Instinct, the nationwide introduction of four Nextel Direct Connect handsets on CDMA using the EVDO-Rev A network, and the Blackberry Curve. The company also simplified its service pricing and completed its conversion of post-paid subscribers to a new unified billing platform.

(emphasis added).

These continuing subscriber losses compare unfavorably with AT&T and Verizon, which posted subscriber and revenue gains.

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Here's more on the Q2 financial results from Bloomberg.

Carrier Universe Opening Up

In the U.S., carriers have been like ISPs only stronger, controlling users' access to content and being "kingmakers" of third parties seeking to reach mobile consumers. The carrier "deck" has been a kind of alpha and omega experience for most mobile users -- until recently.

The NY Times writes today how that's changing in a variety of ways. The article talks about the OpenMoko phone, LiMo's new phones, how the iPhone has impacted the market, the FCC's call for more openness and a range of other developments.

The U.S. carriers that "open up" faster and give consumers ways to personalize their devices and gain access to the types of content they want will win, those that resist will not. Sprint Web is a step in that direction.

Carriers also need to actively facilitate development of mobile applications for their handsets and make it easier for developers to "write once, publish many times." This even suggests industry wide cooperation, which is unlikely.

Carriers have a role to play, but not as "gate keepers" and "kingmakers." To the extent they recognize it they will benefit and help accelerate the development of mobile advertising and the mobile Internet.

Carriers Have Quick Decisions to Make

Sprint's recently announced "Sprint Web" combination of personalized homepage/home screen, Google search and other services is conceptually a model that other carriers will need to follow if they hope to remain relevant, amid smartphone growth and mobile Internet adoption. Carriers should reconceptualize their decks as "start pages" for the mobile Internet, which can be heavily customized by users. While customization of sites like MyYahoo! has historically been limited online my bet is that consumers will be much more willing do so in mobile, provided it's a relatively intuitive process.

Carriers need to provide consumers with access to the content and services they want or risk losing them as AOL lost its users over time. Verizon's pseudo openness moves are also something of a model. Carriers need to create or help facilitate software developer ecosystems like Apple, Blackberry and Android are doing or trying to do in an effort to built software that attracts their consumers.

Take the Samsung Instinct for example. The Instinct is a fine phone -- though no iPhone -- but it lacks software that would make it truly competitive. An Apple-like apps store of desireable software for the Instinct would make it "good enough" to compete effectively for those consumers who want to remain with Sprint. Right now, however, it's just a pretty good touch-screen piece of hardware with limited software. It has been selling relatively well as a kind of "poor-man's iPhone."

On the advertising side, Motricity's Brendan Benzing and I discussed the need for standards and metrics that help media buyers justify mobile ad buys, and how the carriers might participate in that process. Collectively they offer the greatest mobile ad reach in the US. However there's no easy way for marketers to buy across networks. And there are other problems with the execution of campaigns. However, the carriers can play a significant role in helping develop the mobile advertising ecosystem if they recognize the opportunity and can work together.

All these things will require cultural shifts at the carriers. They clearly need to make more money from data services as voice revenues growth flattens. But they also can diversify into other areas (mobile payments and commerce) and also help grow data revenues by making the mobile Internet more compelling and attractive for consumers to adopt. But that's not about the "walled garden."

What role the carriers are going to play and whether they're going to embrace the "mobile Internet" or remain quasi-walled gardens is the difference between being relevant to the future of mobile or simply being the ISP that provides access and little more.

Centro Selling Well Amid iPhone Frenzy

Unprofitable Palm is selling its $99 Centro phone, despite a big consumer push by Blackberry and the iPhone. The company reported (via Bloomberg) the sale of more than 2 million units in little under a year. The Centro is available from Verizon, Sprint and AT&T.

Consumers are responding to the price of the full-featured phone, which is essentially a Palm Treo 755 with much lower margins. The company also just released an updated Treo, the 800.

Smartphone adoption drives much more data plan and mobile Internet usage. There's a direct correlation:

smartphone internet usage

Source: comScore/M:Metrics (2008)

Verizon Q2: 70 Billion SMS Messages, Wireline Down

For those interested, here's the full press release. Here are the wireless highlights:

  • 1.5 million net customer additions; 68.7 million total customers; 66.7 million retail (non-wholesale) customers, most in the industry, up 11.0 percent.
  • 1.12 percent total churn and 0.83 percent retail post-paid churn.
  • 11.8 percent increase in total revenues; data revenues up 45.3 percent.
  • 45.6 percent EBITDA margin on service revenues (non-GAAP).

In addition:

Data revenues grew 45.3 percent over the prior year, contributing nearly $2.6 billion. The company had 49.6 million retail data customers in June (approximately three-quarters of its retail customer base), a 25.6 percent increase over the prior year.

During the quarter, Verizon Wireless customers sent or received nearly 70 billion text messages and 1.4 billion picture/video messages. Customers also completed 36.5 million music and video downloads.

It's not clear what sorts of plans these data customers are on, but data subscriptions in a leading indicator of mobile Internet usage.

Sprint Introduces Personalization and Google Search

U.S. carrier Sprint has launched what it's calling "Sprint Web," which consists of an "adaptive" (passively customized) home screen and default mobile Internet search from Google. From this morning's press release:

Sprint Web offers an adaptive home page that delivers content based on the customer's previous usage, along with direct access to search from Google Inc. This enhancement is automatic for Sprint customers who currently access the mobile Web on these phones and requires no additional action on their part.

The new Sprint Web home page uses technology by ChangingWorlds, a global expert in mobile Internet personalization and content discovery technologies, to provide each customer with dynamic, relevant content and information as a result of their past usage. This makes each customer's Sprint Web home page unique, depending on their interests.

This move helps make the "carrier deck" be more "relevant" to end users -- and makes it less likely that they'll blow by that screen to get to the mobile Internet (those with data plans). The default search from Google, is part of a larger relationship with Sprint that includes a Clearwire investment by Google. That too makes it less likely that people will go off the home screen or deck to get to Google.

Sprint also has a mobile search relationship with Microsoft.

Separately, AT&T is reportedly complaining to the U.S. FCC about the merger of some of Sprint's WiMax assets into Clearwire. The substance of the complaint is quasi-procedural, but the subtext is that AT&T finds WiMax a threat given that it will enter the market at least a year before LTE, the 4G standard that AT&T and Verizon have embraced.

On the other side of the Atlantic, U.K. carrier 3 touted mobile broadband success, which potentially bodes well for 4G initiatives like Clearwire's.

AT&T See Strong Wireless Growth, Has Voice for iPhone

Many companies, including Nuance, are working on voice control or speech enabling applications for the iPhone. But iPhone carrier AT&T has reportedly developed voice control for iPhone apps itself. The AppleInsider blog has a video showing use of the capability with the Yellowpages.com iPhone application. (Scroll for the video.)

The speech recognition capability and processing occurs on the server side and isn't on the device itself. It also isn't limited to the iPhone and could work with other handsets or appliances like IP-connected TV.

Meanwhile, AT&T posted modest growth in Q2 overall (4.7% YoY) but more "robust" growth in wireless (15.8%):

"The Apple iPhone 3G is a dramatic example of this transformation," Stephenson added. "In the days following our exclusive U.S. launch of this new device, powered by the nation's fastest 3G wireless network, customer response has been everything we had anticipated and more. This strengthens our wireless business, and it reinforces our positive view of the opportunities ahead for AT&T and the industry."

AT&T is subsidizing the new iPhone (to the tune of $400), which accounts for much of its rapid sales pace.

VirginMobile in Upbeat Media Profile

Though it's tiny, USAToday presents a mostly upbeat profile of VirginMobile, which recently bought Helio's business for roughly $39 million in equity. The company has some innovative marketing and retention programs and is focused squarely on the youth market.

Here's an interesting tidbit in the USAToday piece about the company's ad subsidized minutes/texts program "SugarMama":

Its "Sugar Mama" service, aimed at fusing ads into the mobile experience, rewards customers — with wireless minutes — for watching ads. So far, about 750,000 customers have signed up, earning 23 million minutes overall. (Customers are limited to 75 free minutes a month.)

Blyk in the UK reports phenomenal success with its program, which is more central to the overall value proposition.

Report: Korea's SK Telecom to Invest in Sprint

Reuters and others are reporting that Korea's SK Telecom, one of the two partners in the now defunct Helio MVNO (acquired last month by VirginMobile), is going to make another run at the U.S. market with a potential strategic investment in Sprint. Some outlets had reported that SK Telecom was seeking to acquire Spint outright; however, that outcome is highly unlikely.

Alternatively, the discussions could be exclusively about technology collaboration.

Sprint, the number three U.S. carrier (52 million subs) lost just over a million subscribers in Q1, but has said sales of "iPhone Killer" Samung Instinct have exceed expectations.

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The Guardian UK is reporting that SK Telecom has denied that it's interested in a "controlling stake" in any U.S. carrier. That doesn't preclude an investment of some sort however.

What's Real in Renewed Talk of A 'GPhone'?

There have been so many stories since the Friday release of iPhone 3G it's dizzying: the lines, the European sales, the software update glitches, the rapturous reviews of the Apps Store and so on. Even as they curse the iPhone all Apple's competitors owe the company a debt of gratitude for helping to build awareness of the mobile Internet and giving the industry the kick in the pants (and shock) it needed.

Lines for iPhone in SF

(Lines at the Apple Store in SF on Friday)

Amid all this TechCrunch and GigaOm are speculating about the potential (re)emergence of a branded Google phone or "GPhone," based on a snippet of a quote that appeared in an article from MediaWeek/Hollywood Reporter this past week:

The trio of Google execs also used the opportunity to talk about the inroads the company is making with its own branded mobile phone as a replacement for the iPhone, as well as the Chinese market and how they're treated there -- and even Google's inhouse educational programs and the salaries and potential of teachers.

The writer was probably talking about Android and not a GPhone. But there almost certainly will be Google branded phones in the market after Android phones finally make their debut. Now what does "Google branded" mean exactly? It could mean one or both of two things. The Google software is prominent enough that the phone is primarily identified with Google (something akin to how Micorosft promotes Windows Mobile). Alternatively it could mean a specially designed handset (as TechCrunch posits) that bears the Google name. (This latter scenario is probable but more complicated for Google from a competitive standpoint.)

Google developed Android and brought together the Open Handset Alliance (OHA) so that it could help move the whole industry forward and indirectly advance its own position in mobile (see, "Will Google Dominate the Mobile Web?"). If mobile usage and search rise, so will Google is the logic here. That is a fair assumption.

Android is fundamentally about scale on a global basis, which is one of the primary values and drivers in Google's thinking about products. But the company, recognizing the success of the iPhone, has always also considered its own branded phone. It has never shut the door on this possibility. Here's a summary of Google CEO Eric Schmidt's remarks during the conference call held to announce Android and the OHA in November, 2007:

ES: Imagine not just one Gphone, but a thousand Gphones as a result of the partnerships … the many other people who will be joining the open initiative. We forgot to tell you that it’s available next week, and the terms are the broadest in the industry.

Q: ………..Gphone?

ES: We are not announcing a Google phone.

Q: Eric, I want to go back to the Gphone–what’s the deal?

ES: The deal is we don’t pre-announce products… if there were to be a Gphone, it would run Android…”

Thus I would imagine we'll see varying degrees of "GPhones," depending on the prominence of Google software and Google services. But I would also image the company will bring out a phone that has the word "Google" on the plastic casing that houses the chips and software.

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A GPhone and Carriers: Verizon and AT&T have "opened up" to allow third-party phones on their networks. This would permit a GPhone, which almost certainly wouldn't be sold by Verizon -- although potentially by competitors such as T-Mobile, which has already promised Android phones this year -- to operate on the major U.S. carrier networks.

Recall that Google bid in the US 700MHz spectrum auction to help "unlock" the U.S. carrier grip on wireless spectrum access. Google continues to work on mobile broadband access through the "White Spaces Coalition."The company is also an investor in the Sprint/Clearwire WiMax initiative. All these efforts to gain direct access to mobile broadband further point to the possibility of Google-branded hardware devices.

A branded GPhone is thus be all but guaranteed a home on U.S. carrier networks or alternative networks. In Europe a GPhone could be immediately introduced across networks.

AllTel Taps ChaCha for Mobile Answers

Alltel is going to be promoting ChaCha's mobile answers. Here's the press release:

Alltel customers need quick and concise answers to questions they may have while on the go, and we believe that ChaCha’s mobile answers services provides the right amount of information mobile users need,” said Craig Kirkland, vice president of messaging and voice services for Alltel Wireless. “We’re delighted to work with ChaCha, and our mobile users will be thrilled with the fun and user-friendly ChaCha mobile answers service.”

Verizon has acquired Alltel (for $28 billion). So that may lead to expansion of the deal to Verizon.

Sprint Tries to Sell Service, Change Culture

The NY Times has a good discussion of U.S. carrier Sprint's Churn crisis and how the carrier is trying to push its "Everything" plan, sell improved customer service and change its culture. According to Sprint's publicly reported data, the company lost roughly a million subscribers in Q1.

There is an opportunity to sell and succeed with improved service, but that service hasn't yet "trickled down" to the local store level. Bad, indifferent service still prevails at many Sprint stores. If that can be changed the carrier has an opportunity to compete on price/plans and to retain and even attract customers based on service.

Underdog status and the continuing need to compete aggressively will cause Sprint to publicize and popularize its Everything plan, keeping the heat on the other major carriers. These plans will help drive mobile Internet adoption. Price is the biggest single hurdle in that equation.

Sprint in many ways is the most progressive operator (including with advertising) and its WiMax/Clearwire initiative has the opportunity to shake up the marketplace if it can be rolled out efficiently and is priced correctly.

U.S. carrier numbers:

  • Verizon Wireless -- 80.4 million (+ AllTell)
  • AT&T -- 71.4 million
  • Sprint -- 52.8 million
  • T-Mobile USA -- 30.8 million
  • U.S. Cellular -- 6.2 million
  • MetroPCS -- 4.6 million

At one point Sprint was discussed as a takeover or merger candidate for T-Mobile. There will certainly be more consolidation in the market in the near term.

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BusinessWeek reports on MetroPCS enabling "unlocking."

Get the Android Phones Out Already

The time between announcements and product releases can be excruciatingly slow. Such is the case with the Android platform and Android phones. We've been teased with mobile applications and pseudo-demo phones running Android. But there are no handsets yet.

T-Mobile is now rumored to be ready to release an Android-based handset in the U.S. in late fall to coincide with the national rollout of its 3G network. This is generally consistent with what Google's Andy Rubin has been saying all along about a "second half" ('08) launch. It's just hard to wait.

HTC is the first confirmed OEM to be offering one. An HTC touch-screen phone paired with an Android OS (together with a range of software) could become a viable alternative for the mobile-Internet-interested unwilling to switch to AT&T (to get the iPhone).

But it all remains a matter of speculation unless/until the handsets ship.

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Wired offers a sneak preview of aspects of the 3G iPhone software.

More Lessons to Learn from Apple

The wireless carriers and OEMs have been busy developing phones that imitate and try to best Apple's groundbreaking iPhone. Most recently, embattled U.S. carrier Sprint touted the success of its iPhone-like Instinct (Samsung) and the company's stock has recently gained on the news.

There's another lesson that U.S. carriers, and Sprint in particular, could learn from Apple about customer service. Last year, on my Screenwerk blog, I contrasted the customer service experiences at an Apple and a Sprint store. Apple has successfully turned customer service into a sales and marketing tool, which is undoubtedly mapping to the bottom line.

Sprint, which lost just over a million U.S. subscribers in Q1, should be aggressively cultivating customer service improvements in an effort to prevent further losses and differentiate from its carrier rivals. While I don't have visibility across all Sprint stores in the US, lackluster customer service has not improved in my recent anecdotal experience. There are long customer wait times, even for the simplest questions and issues (e.g., product returns). And employees appear to be largely indifferent to successful customer outcomes and so on.

So while carriers are busy trying to deliver hardware to match Apple's innovative iPhone they should be equally innovating and emulating Apple in another area: customer service.

Nokia in China Search Deal with Baidu

Forbes reports that Chinese search engine Baidu will provide a mobile search service for Nokia phones in China. Baidu is the number three search engine globally according to comScore (because of the sheer population in China):

Global search marketshare

Sprint's Instinct Has Real Limitations

While waiting a considerable length of time for the software upgrade to my HTC Windows Mobile phone in a local Sprint store, I had an opportunity yesterday to get "hands on" with the Sprint Instinct. After hearing all the hype and tales of sell-outs I was eager to see it.

I spent about 20 minutes with the o'er-hyped device. However my comments below don't rise to the level of a full-blown Walter Mossberg-like review:

I found its email system and Web browser to be less sophisticated than the iPhone's or the BlackBerry's. I also thought the phone's onscreen keyboard was harder to use than Apple's. It would flip unpredictably from landscape to portrait mode. The Instinct does allow handwriting recognition as an alternative, something the iPhone doesn't.

If you're a devoted Sprint customer, or want to avoid AT&T, the Instinct is an OK choice. But it's no iPhone.

I agree with the Mossberg review that it's a poor substitute for the iPhone. Had the iPhone not come along the standard of comparison would be quite different. However we can't turn back the clock and in that context it simply doesn't live up to the hype.

I didn't test the video and image aspects of the phone but I spent a fair amount of time on the Internet and playing with other features of the device. It can be customized and has a nice interface and look and feel but it's quite limited by comparison to the much more robust iPhone. Most importantly perhaps, it doesn't have a software ecosystem around it, as the iPhone now does.

Beyond core usability it's this ecosystem of developers that will likely separate the winners and losers in the smartphone market going forward. Blackberry knows this, Nokia knows this (hence Symbian open source), Microsoft knows this, Google and Yahoo do too. However there is a scenario where the ecosystem doesn't matter as much if next-generation mobile browsers make the entire Internet truly accessible on mobile devices. In that case phone (and camera) features could be quite competitive with the iPhone.

Skyhook Announces 'Hybrid Positioning System'

Skyhook wireless, which came to national attention through incorporation of its technology into the iPhone, is announcing a combined location-awareness technology that takes Wi-Fi positioning and combines it with GPS and cell tower triangulation (for mobile handsets):

Skyhook Wireless is delivering the most advanced positioning system in the world by combining ground breaking positioning algorithms along with comprehensive environment survey data. XPS builds on top of the revolutionary Wi-Fi Positioning System (WPS) that is already deployed on tens of millions of mobile devices worldwide. The original version of XPS delivered "multi-mode” location switching between WPS and GPS readings based on availability and error estimates. XPS 2.0 combines raw Wi-Fi, GPS and cell tower readings to produce a single hybrid calculation.

People often fail to understand the limitations of GPS, illustrated here by Nokia:

GPS 1

GPS 2

A hybrid system like this -- the only one in existence apparently -- will speed location detection and make it more reliable accordingly. This technology will be available on handsets that ship in 2009 and 2010 according to Skyhook CEO Ted Morgan.

Virgin Confirms Helio Buy

In the end there are likely to be four carriers in the U.S. market that matter. Will Virgin be one of them? For the time being Virgin has decided in incrementally increase its share with the anticipated purchase of stuggling MVNO Helio.

According to the press release the terms and value of the deal are as follows:

  • Additional strategic investment totaling $50 million made by Virgin Group and SK Telecom at $8.50 per share
  • Improved capital structure through increased liquidity and $50 million paydown of senior secured credit facility
  • Incremental $60 million added to revolving credit facility - Maximum assumption of $10 million debt and $15 million net working capital liabilities - Net debt reduction of approximately $35 million upon closing
  • Approximately 170,000 Helio customers with approximately $80 ARPU
  • Entry into postpaid segment through acquisition of highly sophisticated customer platform supporting unique user applications
  • Improved network rates and ability to realize significant operational synergies

It's important to note that Virgin gets only 170K subscribers from this acquisition for a total of $39 million (in equity).

Report: Virgin to Buy Helio

As expected, the Financial Times is reporting that Virgin Mobile USA will acquire struggling MVNO Helio (both are actually):
Virgin Mobile USA is to acquire the US mobile phone operation controlled by SK Telecom of South Korea, after each side decided to combine their struggling businesses to build scale in the fast-maturing market.

One person with knowledge of the matter said that the sides had agreed a deal in principle and that an announcement could be made as early as this week.

SK Telecom yesterday declined to comment.

The agreement will see Helio, the US mobile business of SK Telecom, injected into Virgin Mobile USA. The better-recognised Virgin brand will be retained.

In return, Virgin Mobile, which listed in New York last October, will issue new shares, leaving SK Telecom holding close to 20 per cent of the equity of the enlarged business, which will be worth about $50m.
Accordingly, the Helio brand will disappear.

Loopt Now on All Major U.S. Carriers, ShoZu Expands

According to the Loopt press release:

Loopt is available today on select Verizon Wireless phones for $3.99 monthly access in the Tools on the Go, Featured Applications and Community shopping aisles in the Get It Now(R) virtual store. Customers need a Get It Now-enabled handset and Verizon Wireless digital service to access the Get It Now virtual store.

Loopt is now on all the major U.S. carriers, which makes it truly "interoperable" and an eventual acquisition target. Mobile social networking (Loopt calls itself a "social mapping" service), is a little like online video. There were lots of startups in the space and then winners started to emerge. The same is true for this market.

We have lots of startup competitors and, eventually, a few winners will start to become clear. Some companies will be acquired to add their capabilities to a larger portfolio (as with Nokia and Zyb and Plazes).

Mobile social media service ShoZu has broadened its network to include Snapfish, Ovi and SnapMyLife. In addition:

ShoZu users can now upload images to and exchange content with a total of 46 Web 2.0 properties from a single screen on their mobile device for fast and easy mobile social networking - including the ability to mass-publish any photo or video to multiple sites and/or email addresses simultaneously from the handset.

Other destination options added in ShoZus latest round of integrations include AOLs new BlueString media sharing and Xdrive file storage sites, photo/video sharing communities DivShare and Smugmug, Web creation and hosting site Free Webs, and citizen journalism site Reuters You Witness News.

The additions mark ShoZus third major expansion in seven weeks. In May, ShoZu added support for Twitter, Photobucket, Dailymotion, Friendster and five other community sites. Earlier this month, the company upgraded its Facebook services to enable Facebook status updates from ShoZu as well as delivery of new Facebook photos, event listings and other friends posts directly to the phone.

ShoZu also supports communities ranging from YouTube, Flickr, Google Picasa, Kodak Easy Share Gallery and Webshots to personal blogging sites and news desks such as Google Blogger, LiveJournal, Textamerica, TypePad, Vox, WordPress, MetaWeblog, CNN, the BBC and Scoopt.

ShoZu isn't trying to be a social network per se but rather an umbrella media sharing service that helps users manage mobile media across services.