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Sprint a Pawn in Masayoshi Son’s U.S. Investment Scheme

President Trump met with Softbank’s Masayoshi Son in December, 2016.

Japan’s Softbank has a deal tailor-made for President Donald Trump’s desire to inspire companies to invest more in the United States and hire more workers, and all the president has to do is get Washington regulators concerned with mergers, acquisitions, and competition out of Softbank’s way.

Softbank’s Masayoshi Son has delivered a lot of speeches and made a lot of promises since acquiring Sprint in 2013 for $21.6 billion, originally promising to rebuild the struggling wireless company into a potential competitive juggernaut, capable of beating Verizon and AT&T and even take on cable operators. Now he’s offering to invest another $50 billion in the U.S., and create 50,000 new jobs, assuming the business climate is right.

Before accepting such a deal, one should take a closer look at how Sprint is doing three years under Softbank’s ownership. Few would argue with the fact Sprint has languished and fallen to last place among the four national carriers, now behind T-Mobile. Despite Son’s commitment to Donald Trump to invest and hire, Sprint has severely cut investment by more than 60% between 2014 and 2016 and has laid off more than 4,000 employees, most in the United States. Customers continue to complain about the perpetual ‘massive upgrade’ undertaking the company embarked on years ago that never seems to be finished and hasn’t helped service quality as much as customers expected.

In January 2016, BusinessWeek reported SoftBank has “plowed more than $22 billion into Sprint, and yet all of Sprint is now valued at $11.8 billion. The company’s $2.2 billion in cash is about the same as its 2016 debt obligations.”

Ten years earlier, Sprint was worth $69 billion and was prepared to dominate the U.S. wireless industry, but drove customers off with very poor customer service and inadequate investment in its network, allowing competitors like AT&T and Verizon Wireless to leap ahead. Sprint also embarked on an executive-inspired fantasy: a disastrous merger with Nextel that preoccupied the company for years. Softbank taking the lead has done little to change customer perceptions, nor those of some Wall Street analysts who fear Sprint is a bottomless money pit that always promises better times and profits are coming, but never seems to get there.

“You’ve watched a once-great institution deteriorate to the point that it is now a badly, badly compromised asset,” said Craig Moffett, an analyst at MoffettNathanson. “They’ve been living from hand-to-mouth for years, constantly making short-term decisions in order to live to fight another day.”

It calls into question Softbank’s vision to use technology “to reduce loneliness and ease the sadness of people as much as possible.” There are a lot of sad Sprint customers, churning away into the arms of competitors like T-Mobile faster than Sprint can sign new customers up.

Son’s dream depended on his business plan that reduced the number of U.S. competitors to three by merging Sprint and T-Mobile together, something federal regulators under the Obama Administration failed to accept despite Son’s argument the combined resources of the two companies would theoretically make a super-sized Sprint more competitive with AT&T and Verizon.

In contrast to Son’s plan to consolidate the wireless industry to improve Sprint’s financial health, T-Mobile instead decided to boost investments in network upgrades and improved coverage to attract new customers. Ironically, some of the money to pay for those upgrades came from AT&T after it paid a reverse breakup fee of $3 billion in cash and $1–3 billion in wireless spectrum after its merger proposal with T-Mobile collapsed.

While Son promises he will invest billions in the United States, he is already spending much less on Sprint. In 2017, Verizon planned to spend $9.12 per subscriber (adjusted spending per monthly phone-equivalent subscriber), AT&T will spend $9.67 and T-Mobile will spend $9.04. Sprint will lag behind with $6.78 per subscriber in network investments. Moffett predicted of the $22 billion Verizon has committed for capital spending this year, about $11.3 billion will go toward wireless. By contrast, Sprint will spend $2.97 billion, excluding costs of leased phones. T-Mobile is spending just over $5 billion.

In the last two years, customers have delivered a new paradigm to wireless companies: bigger isn’t necessarily better. The only bright spot among all four national carriers in 2016 was the scrappy T-Mobile, once destined for a fire sale by owner Deutsche Telekom. But under the “Uncarrier” leadership of CEO John Legere, T-Mobile USA is worth pure gold in Deutsche Telekom’s global wireless portfolio. The turnaround came not from trying to consolidate the industry but rather giving customers what they have asked for — more data, unlimited data, better deals, and better service. T-Mobile’s network investments paid off, giving the company very competitive 4G LTE speeds and comparable urban and suburban coverage to its larger competitors. Legere has been so successful, the German owners of T-Mobile no longer seem to be interested in selling T-Mobile USA.

Softbank’s record of achievement with Sprint in the last two years has been much less of a success story.

Customer Gains and Losses by Carrier – 2016-Q4 Phone Activators

Investments by Sprint in its wireless network have plummeted 62.7% under the leadership of Softbank from 2014-2016. (Chart: Hal Singer)

In 2015, Sprint’s capex was $3.958 billion. Last year, it was $1.421 billion — less than half the previous year. Mr. Son seems reticent about maintaining the kind of investment necessary to grow Sprint’s network over the long term to keep up with customer demand, instead willing to compete short term on price and promotions. Sprint’s past reputation for poor customer service, a slow data network, dropped calls, and coverage dead zones makes attracting former customers back to Sprint a hard sell, especially considering T-Mobile exists as a credible alternative to Sprint for those seeking cheaper service plans.

Son’s argument to the new administration depends on President Trump and FCC Chairman Ajit Pai being more friendly to the idea of less competition than the Obama Administration. Son may have an uphill battle, considering the former Obama Administration’s opposition to earlier mergers, including T-Mobile and AT&T and T-Mobile and Sprint seems to have paid off for consumers in the form of today’s fiercer competition and a price war.

Convincing President Trump to loosen merger standards to allow Softbank a stronger position in the U.S. market in return for vague and illusory investment and job creation promises is ridiculous considering Mr. Son’s performance with Sprint has not been as rosy as his rhetoric. No president should agree to a de facto bailout deal for Softbank that reduces competition and guarantees higher prices. Mr. Son should instead direct some of the $50 billion he apparently has stashed in waiting to improve Sprint’s network to more effectively compete. If he cannot or will not, the entire country should not pay for his investment mistake by watching more wireless competition get eliminated in yet another merger.

T-Mobile Literally Giving Away Free Line of Service in Price War Bonanza

T-Mobile continues to raise the stakes against AT&T, Verizon Wireless and Sprint with another improbable promotion that literally gives away an extra line of service for free.

“Today, I’m thanking customers by giving them one of the things they want the most – a way to connect more of their family or more of their devices all the time,” said John Legere, president and CEO of T-Mobile.  “That’s why we’re giving customers a free line to use any way they choose!”

The press release offers customers a variety of options:

Current T-Mobile customers with at least two voice lines can use that extra line however they want. Get an extra line of unlimited T-Mobile ONE. Or if you have Simple Choice, you’ll get an extra Simple Choice line with your same data plan. Or use your free line for a new tablet or smartwatch. Or turn your car into a 4G LTE hotspot and a lot more with SyncUp Drive. It’s your call!

The “2 Unlimited Lines for $100 All In” promotion that began this morning offers new or current customers a chance to score a free extra line of service (after bill credits). The discount continues indefinitely and is also good for customers with more than two lines on their T-Mobile account. Here are the details:

  • How do I get the free add a line promotion?
    • Starting March 1st, for a limited time only, anyone activating 2 unlimited lines on T-Mobile ONE, and existing customers with at least 2 voice lines on T-Mobile ONE or Simple Choice can get 1 additional line for FREE after bill credit.
    • All free lines must be activated during the promotional period and you can keep the promotional pricing as long as you maintain qualifying service and line count. Customers may take advantage of this offer in addition to other offers and promotions, including 2/$100 and Carrier Freedom.
  • Who’s eligible for this promotion?
    • New customers, current customers and employees are eligible to receive this offer as long as they are on a qualifying rate plan, have two paid voice lines, and an account in good standing.
    • Customers with one voice line will need to migrate to T-Mobile ONE and add a second paid voice line to qualify for the FREE Line. Qualifying new and existing @Work customers may add one additional qualifying line on us for a max of 12 lines total.
  • How does the offer work?
    • The free line will match your current paid voice line data, i.e. T-Mobile ONE customers will receive a FREE T-Mobile ONE line and similarly, Simple Choice customers will receive a FREE Simple Choice line.
    • If your lines have varying amounts of data, the free line will match the line with the least amount of data. Existing customers with two paid voice lines get a free line whether you’re adding a smartphone line, tablet line or wearable.
    • In most cases, you will see your free line credit on your first bill. If credit is not applied on the first bill, two credits will appear on the second bill.
    • For customer’s not on the new T-Mobile ONE taxes and fees included plan, taxes/fees may be applied to pre-bill credit price. A maximum of 1 free line can be added per account.
    • If you cancel service on one of your lines within 12 months or migrate to another plan, you will lose the monthly bill credit for the free line.
  • Where is this offer available?
    • Anywhere that T-Mobile offers new lines of service, including T-Mobile retail stores nationwide, and authorized postpaid dealers.

Legere

For most customers, signing up with a T-Mobile ONE plan with unlimited phone, texting, and data will offer the best value and simplify the promotion by matching the same kinds of service on all three (or more) lines. This also guarantees your new line will cost absolutely nothing because T-Mobile ONE bundles all taxes and fees into the cost of service, which in this case is free. On similar promotions at other carriers, customers are on the hook for up to $10 a month in taxes, fees, and various surcharges on that “free” line.

You can bring a device to this plan or buy one from T-Mobile. A new SIM card is required, and T-Mobile charges an outrageous $25 to get one through their website or in stores. But many customers report if you call T-Mobile customer service from a T-Mobile phone on 611, a discounted SIM card for 99 cents is usually available if you ask.

T-Mobile has not put an expiration date on the offer. Judging from customer buzz, there is considerably interest in this offer and a lot of disbelief it comes free of charge.

T-Mobile acknowledges there are some billing issues going on at the wireless carrier as it continues to add customers. At present, customers will see a charge for the service followed by a bill credit, which may take up to two bill cycles to appear (but is retroactive back to your signup date.). It appears T-Mobile bills customers for the free line of service several days before a corresponding credit is issued, which has confused some customers being billed for a service and credited for it on the following month’s invoice. But many on autopay say T-Mobile actually deducts the correct amount (with the credit applied) no matter what the bill indicates. Customer service is also on hand to issue on the spot credits for concerned customers, and T-Mobile claims it is working through this billing issue and should have it resolved.

To take advantage of this offer, customers must not have canceled a line after Jan. 1, 2017. T-Mobile wants this offer to encourage customers to add lines, not convert existing lines from one plan to another.

T-Mobile Slams Its Own Deal With DirecTV Now, Throws In Free Year of Hulu

Former AT&T customers who dumped their former carrier for T-Mobile in return for a free year of DirecTV Now are getting a sweeter deal with a free year of Hulu with Limited Commercials as well.

T-Mobile CEO John Legere had avoided criticism of the streaming television service from AT&T-owned DirecTV until customers began complaining it has never worked as advertised, making the T-Mobile’s promotion a “meh” experience.

Legere has been a frequent critic of AT&T in social media, so it isn’t too surprising Legere started taking shots at AT&T’s streaming effort as well this morning.

On Twitter, Legere slammed DirecTV Now and called AT&T executives “delusional” over claims the service exceeded their expectations.

“To make things right for those new T-Mobile customers, the Un-carrier is giving everyone who participated in this deal a free year of Hulu — an awesome streaming service that actually works — on top of their free year of DirecTV Now,” said the company in a statement.

Customers need not surrender their existing DirecTV Now service. Hulu’s limited commercials plan comes along for the ride for one year. T-Mobile will send affected customers a promotional code they can use to sign up over the next several weeks.

No word on if customers can also upgrade to the $11.99 no-commercial plan and receive a partial credit.

Wall Street Analyst Craig Moffett Unhappy “Unwelcome” Phone Subsidies Are Back

Moffett

Craig Moffett, a Wall Street analyst specializing in telecommunications stocks, has lowered his opinion of T-Mobile after the wireless company successfully topped analyst estimates of subscriber growth, in part by giving customers a better deal than its competition.

Moffett is concerned T-Mobile’s subsidized holiday price cuts on the latest Apple iPhone and a new flat rate plan delighted customers but threatened profits.

“[…]Even as the wireless stocks were rising in November and December, handset subsidies were quietly making their unwelcome return,” said Moffett in a report to his clients. “T-Mobile’s new ‘All-In’ pricing plan opens yet another front in the battle over service plan pricing, leaving us incrementally more cautious about ARPU (average revenue per user) forecasts for all operators, not least T-Mobile itself.”

T-Mobile has ditched promotions for all of its usage capped data plans and is now advertising T-Mobile One, an “unlimited” (but throttled for very heavy users) data, text, and calls for an all-inclusive price of $40 per line. Customers can still buy a limited data plan, but T-Mobile’s website strongly de-emphasizes that option.

While T-Mobile added 1.2 million postpaid customers in the fourth quarter, exceeding estimates, Moffett isn’t happy with the prices those customers are paying because it may force other carriers to reduce their pricing as well. That hurts everyone… on Wall Street.

T-Mobile USA John Legere has become a perennial and profane thorn in the side of his competitors.

That kind of marketplace disruption the wireless industry could do without, so analysts on Wall Street are taking bets on what company will acquire T-Mobile and get things back to business as usual. Moffett believes all signs point to an unprecedented wave of deregulation, lower corporate taxes, and money-fueled industry consolidation under the incoming Trump Administration.

Sprint is a rumored favorite to acquire T-Mobile, but then so is Comcast, which may seek to enter the wireless space through a large acquisition. Companies repatriating billions in excess funds stashed in overseas banks at the special low tax rate President-Elect Trump is proposing may be what drives the next buyout frenzy.

Wireless Providers Create Challenges for Smartphone Upgrade Marketplace

samsung s7Smartphone manufacturers are dealing with sluggish sales for the newest and greatest phone models because American consumers are increasingly resistant to paying for top of the line devices.

Apple, Samsung, and others are facing some of their biggest challenges ever delivering upgrade features deemed useful enough to encourage consumers to spend the more than $600 that many high-end phones now command in the marketplace. As blasé new features fail to deliver a “must-have” message to consumers, many are hanging onto their existing phones and refusing to upgrade.

The decision by wireless providers to stop subsidizing devices backed by two-year contracts have delivered sticker shock to consumers looking for the latest and greatest. The Apple iPhone 7, expected to be announced this month, will likely carry a price of $650 — a serious amount of money, even if your wireless provider or Apple agrees to finance its purchase interest-free for 24 months. Despite the fact wireless providers charged artificially higher service plan rates to recoup the cost of the device subsidy over the length of the contract, consumer perception made it easier to justify paying $200 for a subsidized phone versus paying full retail price and getting cheaper service.

As a result, consumers are strategically holding on to their cell phones longer than ever and avoiding upgrade fever just to score a lower cell phone bill. The Wall Street Journal reports that since T-Mobile started the trend away from device subsidies in 2013, Citigroup estimates the smartphone replacement cycle has now lengthened to 29.6 months, considerably longer than in 2011 when upgrades were likely even before the two-year phone contract expired.

The average combined revenue earned per subscriber from service and equipment installment plan fees is still rising, despite the alleged "price war."

The average combined monthly revenue (in $) earned per subscriber from service and equipment installment plan fees is still rising, despite the alleged “price war.” (Image: Trefis)

Wireless providers don’t mind the change since they endured fronting the subsidy cost to phone manufacturers and slowly recouped it over the next two years. Not dealing with a subsidy would make the accounting easier. But AT&T and Verizon Wireless both understood the average consumer doesn’t have a spare $650 sitting around for a new device, much less the nearly $2,500 it would cost to outfit a family of four with a new top of the line smartphone every two years. So they entered the financing business, breaking the cost of the device into as many as 24 equal installment payments. Instead of paying $672 for a Samsung Galaxy S7, Verizon Wireless offers 24 equal installments of $28. That would be a distinction without much difference from the old subsidy system except for the fact some carriers are trying to sell their equipment financing obligations to a third-party, allowing them to move that debt off their books as well.

In fact, wireless providers are doing so well under the “no-contract/pay full price or installments” system, Wall Street analyst firm Trefis has started to ask whether the so-called wireless carrier “price war” is just a mirage. The firm notes (reg. req’d.) all the four major carriers are doing well and collecting an increasing amount of money from their customers than ever before. Much of that added revenue comes from customers bulking up data plans and being forced to pay for unlimited voice and texting features they may not need. But Trefis also points to reined in marketing spending at the carriers, who no longer have to entice customers into device upgrades as part of a contract renewal.

Things are looking worse for phone manufacturers that have relied on revenue based on the two-year device upgrade cycle in the United States. Apple is under growing pressure as its iPhone faces declining demand. In the U.S. alone, analysts predict iPhone sales will drop 7.1% this year. UBS predicts an even less optimistic 9% drop, followed by a 5% drop next year, even after iPhone 7 is introduced. AT&T has already reported some of the lowest upgrade rates ever during the first three months of 2016.

Another clue consumers are planning to hold on to their smartphones longer than ever — sales of rugged cases and screen protectors are up, as are smartphone protection/loss insurance plan sales, according to AT&T senior VP Steven Hodges. Parents even expect their children to give their phones better care.

Customers “realized it was a $500 to $700 device,” Hodges said at an industry conference held in June. “As such, they started taking care of them differently. You tell a kid this is only $49, the kid is going to use his phone as a baseball at times.”

Other customers are looking forward to benefiting from a dramatically lower bill after paying off their device in 24 months.

Kristin Maclearie has an iPhone 6 and she wants to keep it for the long term, if only to see her Verizon bill drop once she finishes her monthly payments. She told the Wall Street Journal as long as it keeps working, “I’ll just hang onto the one I have,” she said. “Unless something really cool comes out…but they’re always similar.”

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