AT&T and Verizon Wireless are thrilled customers are moving away from subsidized smartphones, because both are raking in extra revenue they are not returning to customers with lower plan prices.

In the past, customers have usually chosen discounted new phones that come with a two-year contract. A smartphone that retails for $650 sells in the store for $199 or less, with the $450 subsidy gradually repaid through artificially high service plan prices over the length of the contract. The subsidy system didn’t hurt long-term revenues because the money was eventually recovered and contracts locked most customers into place for at least two years. But Wall Street has never been thrilled by carriers tying up subsidy money on the books for two years.

For a transition away from the subsidy system to be fair, providers need to lower plan prices enough to drop the subsidy payback. But neither AT&T or Verizon Wireless have done that.

AT&T customers choosing an $650 iPhone on contract under the subsidy system will pay $200 up front, a $36 activation fee, and $80 a month for a two-year plan with 2GB of data. Total cost: $2,156.

If you buy your own iPhone and finance it through AT&T, which most customers are likely to do, the cost is $65 a month for the service plan, no activation fee, and a device installment payment plan of $32.50 a month for 20 months. Total cost: $2,210 or $54 more than the subsidized plan costs.

Verizon Wireless is a bigger taker.

Sign a two-year contract with Big Red for that same phone and 2GB plan and you will pay $200 up front, an activation fee of $35, and $75 a month for the service. That adds up to $2,035. Buying a no-contract iPhone without a subsidy costs $27 a month for the installment plan, no activation fee, and $65 a month for the service. That totals $2,210, $175 more than a subsidy customer pays.

Big spending-customers can realize some further savings by upgrading to plans with a bigger data allowance, but those plans won’t make sense if you don’t use up your allowance.

Both companies claim the unsubsidized plans save customers money, but they actually don’t for most because neither lowered plan rates enough and are now pocketing the difference. Verizon and AT&T also argue customers don’t have to pay several hundred dollars up front for a phone, which is true, but they will pay more for it over time. It is also true these unsubsidized plans allow for earlier upgrades, but customers are paying for that privilege.

It’s hard to say whether AT&T and Verizon Wireless will pay fair value for old phones as customers choose to upgrade. If they don’t, customers could effectively hand both companies even more money through undervalued trade-ins.

At least 40 percent of AT&T customers are choosing the unsubsidized route through AT&T Next and the company couldn’t be more pleased.

In a conference call with investors this week, AT&T’s chief financial officer told analysts wireless service margins were up to 45.4%, with AT&T Next having a positive impact on that margin.

John Stephens noted that with the retail price of smartphones being in the $600-650 range, more customers are being convinced to sign up for AT&T’s handset insurance plan, which provides AT&T with two benefits. First, the insurance earns AT&T more than it pays out in claims and second, devices returned under the insurance program are refurbished and then sent to other AT&T customers filing claims in the future.

Tim K. Horan from Oppenheimer & Co., Inc. believes AT&T’s total subsidy expenses/internal costs are around $400 for a subsidized phone but only $100 for a phone sold on the Next unsubsidized installment plan.

With competition from T-Mobile starting to have an impact on both companies, AT&T and Verizon Wireless have plenty of room to further lower their rates and still come out ahead.

Comcast will increase capital spending in the first half of 2014 to hasten the rollout of its advanced X1 set-top boxes and new wireless gateways that provide public Wi-Fi from customer homes.

Comcast told investors Tuesday its increased spending will likely be offset by increased earnings from more subscribers and room for further price hikes over the course of the year.

First quarter consolidated revenue increased 13.7% to $17.4 billion over the past three months. Almost $11 billion of that comes from Comcast’s cable business. The company boosted cable earnings by 5.3% in the first quarter. Most of that came from a 4.5% increase in the average customer’s cable bill. Comcast subscribers, on average, pay $134 per month. They will pay even more by the end of the year.

Although Comcast’s head of its cable division Neil Smit noted the company implemented lower rate increases during the first quarter, there is room to boost prices further.

“I wouldn’t read any trends into it,” Smit said. “We took rate increases across the smaller percentage of our footprint this quarter than last year as well, but we target different offers to different customers and I don’t think we’re seeing it topping out. In the competitive arena, the offers are in the same ballpark, the promo prices go up and down, but the destination pricing is fairly similar across these various competitors.”

Roberts

Comcast continued to buck cord-cutting trends and added 24,000 new video customers in the quarter, a major improvement over the 25,000 it lost at the same time last year. Comcast believes its new X1 platform and aggressive customer retention efforts are responsible for winning and keeping cable television customers. Ongoing speed enhancements in Comcast’s broadband division won the company 383,000 new Internet customers in the last three months. Broadband is Comcast’s biggest money-maker, and revenues increased a further 9% during the quarter owing to customer growth, rate hikes, and customers choosing higher-speed tiers. By the end of the quarter, 38% of Comcast’s residential customers subscribed to at least 50Mbps service, showing growing demand for higher speed Internet.

Sources tell Stop the Cap! Comcast intends to further expand its trial of usage caps (Comcast prefers to call them “usage thresholds”) to more markets this year. Comcast has settled on 300GB usage allowances for most broadband products in current test markets, charging $10 for each additional allotment of 50GB as an overlimit fee. Comcast has avoided trials of usage caps in areas where Verizon FiOS delivers significant competition. Verizon has no usage caps on either their DSL or fiber broadband products.

Comcast also picked up 142,000 new phone customers in the quarter, mostly from those subscribing to aggressively priced triple play service bundle promotions. Around 155,000 new triple play customers signed up over the last three months.

At the end of the first quarter, 68% of Comcast customers took at least two products and 36% took three products, compared to 33% at the end of last year’s first quarter.

Brian Roberts, CEO of Comcast, said there were several factors that fueled Comcast’s growth during the quarter, starting with its advanced X1 set-top box platform, which offers a better television experience and makes finding things to watch easier. If customers have an X1, Roberts told investors, they are less likely to drop cable television service.

X1

“These positive early results reinforce our decision to accelerate our X1 deployment this year, and we are now adding 15,000 to 20,000 X1 boxes per day, which is double our rate of deployment from just six months ago,” Roberts told analysts. “Additionally, we are now rolling out a new XFINITY TV app, which enables our customers to live stream virtually their entire television lineup on any IP device in the home and watch DVR recordings in the home or on the go.”

Although usage caps remain controversial, Comcast has been aggressive about increasing broadband speeds at least once a year.

“In broadband, we recently increased speeds again for the 13th time in 12 years,” Roberts offered. “Doubling speeds in our Blast products to 105Mbps, while our Extreme tier moved up to 150Mbps for customers in the northeast. And we’re not stopping there. Our focus on wireless gateway deployment is adding utility to our customers while at the same time helping us create the largest Wi-Fi footprint in the U.S. with over one million public Wi-Fi hotspots currently available to our customers.”

Although Comcast’s first quarter capital expenditures increased $51 million (or 4.6%) to $1.1 billion (10.6% of cable revenue versus 10.7% in the first quarter of 2013), the cable company returned even more money to shareholders. In the first quarter, the company boosted return of capital by 35% to $1.3 billion. Comcast repurchased its own shares of stock totaling $750 million and paid $508 million in dividends for the quarter.

In 2014, Comcast will invest 14% of cable revenue (compared to 12.9% in 2013) to accelerate the deployment of X1 and wireless gateways, increase network capacity and continue to invest in expansion of business services and XFINITY Home. But it will spend far more than that placating shareholders. If Comcast wins support to buy Time Warner Cable, Comcast intends to increase its stock repurchase plan by $2.5 billion. The company earlier committed it would spend $3 billion on repurchasing its own shares, for an expected total of $5.5 billion during 2014.

When a company repurchases its own shares, it reduces the number of shares held by the public. That in turn means that if profits remain the same, the earnings per share increase. It also boosts the value of the massive portfolios of Comcast stock held by executives as part of their compensation packages.

[flv]http://www.phillipdampier.com/video/Comcast Introducing the X1 Platform from XFINITY 4-14.mp4[/flv]

Comcast produced this video showing off its X1 platform and new set-top boxes. (1:47)

Telus, Bell and Rogers charge customers as much as 45 percent less on wireless service where they face a fourth regional competitor in a case of suspected predatory pricing that could threaten the viability of competition in Canada’s wireless marketplace.

SaskTel, a crown corporation, is one of several Canadian regional wireless providers. The Saskatchewan Telecommunications Holding Corporation, based in Regina, said SaskTel’s revenue and net income dipped to $1.205 billion and $90.1 million, respectively. SaskTel (which has net income of $106.2 million in 2012) projects this will be only $59.2 million next year.

The dramatic drop in revenue, in part, comes from suspiciously low wireless rates in areas where SaskTel and other regional providers operate.

Sudden rate cuts were introduced last summer and are available only to customers where regional firms offer wireless service. Vidéotron in Quebec, EastLink in the Maritimes, MTS in Manitoba, and SaskTel in Saskatchewan are all impacted. But the savings don’t extend outside of these competitive areas, leading to whispered accusations that the Big Three are engaged in predatory pricing behavior, designed to undercut competitors while maintaining high rates for everyone else.

Styles

SaskTel president Ron Styles told The Leader-Post Telus has been offering customers in Saskatchewan a rate 45% lower than customers in Red Deer, Alberta pay. SaskTel is forced to match those rates to stay competitive, but it has hit the crown corporation’s finances hard.

“We’re very concerned; it’s had a major impact,” Don McMorris, cabinet minister responsible for SaskTel, told the newspaper.

Although many customers are happy paying a much lower mobile phone bill, the savings may prove temporary.

Canada’s three national carriers have proved particularly adept as killing off any competitors threatening their 90%+ market share. Public Mobile found it difficult to attract new customers away from rival Telus, so as the business floundered, Telus made the upstart company an offer it couldn’t refuse, shut down Public’s network, and transferred customers to its own network.

Although stopping short of directly pointing the finger at the Big Three, Styles is headed to Ottawa to discuss the implications of predatory pricing on SaskTel’s future. But he left no doubt something is up.

If Bell, Telus and Rogers can afford to offer low rates here and on other “4th carrier” turf, does that mean their wireless rates are needlessly high elsewhere, Styles asks. Or are the Big 3 engaged in “predatory pricing” — selling something below cost to damage or destroy competitors and keep new entrants out of the market.

T-Mobile is back with some very aggressively priced packages on data plans, including one offering almost a year of free data. But more impressively, customers also have a chance to buy a 4G LTE-equipped tablet for the same price as a Wi-Fi only version.

T-Mobile’s Simple Starter Plan – $40/mo Unlimited Talk, Text + 500MB 4G LTE data

Simple Starter provides an affordable $40 unlimited talk and text offer with a 500MB entry-level data allowance with no overlimit fees. T-Mobile is intending to shame AT&T and Verizon to ditch overlimit fees on their data plans by demonstrating that a mobile carrier can automatically shut off data when a customer reaches their allowance, inviting them to voluntarily pay extra for continued service instead of slapping overlimit fees on the bill automatically. T-Mobile’s “data pass” resets the allowance, but often for only a limited time, such as $10 for one extra gigabyte, expiring after one week.

Still, the plan may be a comfortable fit for anyone unlikely to run a lot of data applications on their phone and prefer the convenience of having access to 4G speed when they need it. Some other carriers force value-priced plan customers to use 3G-only service, especially in the prepaid market.

Operation Tablet Freedom – Buy a 4G-equipped tablet at Wi-Fi prices, free 1GB data for the rest of 2014, free 200MB data for life.

The biggest problem wireless carriers have selling tablets is justifying the cost of 4G-equipped models that typically run at least $100 more than a Wi-Fi only version. As a result, 4G-equipped portable devices like these just don’t sell well. T-Mobile is tackling that problem by discounting the MSRP of their 4G tablets to the same price one would pay for a Wi-Fi only equipped device.

T-Mobile is also offering trade-in deals for tablet customers who want something new.

“Now you can come to T-Mobile, trade it in and upgrade to a 4G LTE-enabled model and pay no more than you’d pay for the cheaper Wi-Fi-only model,” said T-Mobile’s Mike Sievert. “For example, you might choose to pay the Wi-Fi price of $499 instead of $630 for the 4G LTE-enabled iPad Air (16GB). Or pay the Wi-Fi price of $200 instead of $312 for the 4G LTE Samsung Tab 3. And remember, on all of these tablets you might qualify for no interest financing with nothing down.”

T-Mobile will also cover any early termination fees charged by your current carrier if you purchased one on contract.

Customers will also find good deals on tablet data plans. Beginning April 12, new and existing postpaid voice customers can add tablets to their plans and get nearly 1.2GB of data per month free for the rest of this year. In 2015, customers can keep that data plan for $10 a month or revert to T-Mobile’s 200MB for life data plan, free of charge. Customers who want a 3 or 5GB data plan will find them priced $10 off for the rest of 2014. Be aware that the free 1GB data offer does seem to require at least one voice plan, whether that’s an existing one or one you sign up for in store when you get your tablet.

Sprint has begun decommissioning its increasingly obsolete 4G WiMAX network with definitive plans to shut off the service completely by the end of 2015.

While most Sprint customers with smartphones have long since moved away from WiMAX, Sprint has resold access to the 2.5GHz network for some prepaid Boost, Sprint, and Virgin Mobile customers as well as third parties including FreedomPop and Earthlink.

WiMAX was the first 4G network in the United States, launching first in Baltimore in the fall of 2008. Sprint customers were offered the HTC Evo 4G smartphone to access WiMAX’s faster speeds. Separately, Clearwire marketed access to WiMAX as a wireless home and business broadband solution. WiMAX was often promoted as a longer distance alternative to Wi-Fi, and was initially capable of 30-40Mbps speeds.

In practice, WiMAX in the United States never achieved great success. Sprint and Clearwire’s network was never built out sufficiently to provide nationwide coverage, and because it relied on very high frequencies, even customers inside claimed service areas often dealt with reception problems, especially indoors. Clearwire’s home broadband replacement often required reception equipment be placed near a window, preferably one without a thermal coating that could block or degrade the signal.

As soon as Sprint and Clearwire added a significant number of customers to the network, speeds deteriorated. Neither company invested enough in upgrades to keep up with demand. Instead, Clearwire’s home broadband customers, originally promised unlimited service, were routinely speed throttled for “excessive use.”

The same year WiMAX was introduced in Baltimore, Network World was already warning the technology was in trouble. By 2011, the magazine had officially declared WiMAX dead.

“There was way too much hype surrounding WiMAX (like the White Spaces today, it was marketed as ‘Wi-Fi on steroids’ and a replacement for Wi-Fi; such was, of course, complete nonsense)”, the magazine wrote.

Other American wireless carriers showed little interest in WiMAX, particularly as competing 4G technologies including HSPA+ and LTE were nearing deployment.

Despite the promise of greatly enhanced data speeds with the next generation of WiMAX, dubbed WiMAX 2, many of the world’s largest wireless carriers were already preparing to move on. In particular, China Mobile (and its 600 million customers) became the decisive factor that turned WiMAX 2 into a bad bet. China Mobile decided the better choice was TD-LTE, a variant of LTE technology. With China Mobile providing service to 10 percent of the world’s mobile users all by itself, support for TD-LTE grew and attracted equipment manufacturers that saw the earnings potential from selling tens of millions of base stations.

TD-LTE is an excellent upgrade choice for WiMAX operators because it was designed to work best at high frequencies ranging from 1850-3800MHz — the same frequency bands that WiMAX already uses.

Sprint expects to decommission at least 6,000 of its 17,000 WiMAX cell sites. Another 5,000 of those sites have already gotten TD-LTE technology, a part of Sprint’s broader LTE network upgrade. Sprint will combine its FDD-LTE network in its 800MHz and 1.9GHz spectrum with a TD-LTE network in its 2.5GHz spectrum. Sprint Spark customers are being offered tri-band equipment that can access either technology. Sprint can use its massive expanse of 2.5GHz spectrum to offload data usage from its lower frequency spectrum, especially in large cities.

Another 5,000 legacy Clearwire cell sites will be upgraded to TD-LTE between now and the end of next year. Sprint expects to deploy TD-LTE more widely than WiMAX, potentially serving 100 cities and 100 million base stations by 2016.

Sprint has protected much of its postpaid customer base from the transition by repeatedly encouraging customers to upgrade to LTE service, now being rolled out as part of its Network Vision plan. But firms like FreedomPop and others that now lease access to the WiMAX network will leave their customers with a shorter upgrade path when WiMAX equipment stops working, requiring users to upgrade to LTE equipment.

[flv]http://www.phillipdampier.com/video/Sprint Spark – Today is already the future 10-30-13.mp4[/flv]

Sprint hypes its new tri-band Sprint Spark network, which combines two different LTE networks to deliver faster data speeds. (1:18)