Editor’s Note: Welcome to our weekly Reality Check column where C-level executives and advisory firms from across the mobile industry share unique insights and experiences.
While there was a lot of news last week, we will focus today’s column on the Sling TV announcement, Federal Communications Commission Chairman Tom Wheeler’s Consumer Electronics Show keynote and wireless carriers fourth-quarter performance.
Sling TV supplies the rhythm
First, the Sling TV announcement. It would only be fitting to have Joe “Boom-Boom” Clayton appear pounding a bass drum as he announced Sling TV. Drums form the beat and tempo within a marching band. They are loud and have the ability to quickly change the speed and mood of any musical piece. That is certainly the strategy behind Dish’s announcement: Change the song for the millennial demographic.
Here are the high-level features of the Dish/Sling TV offer:
• $20 for 12-channel package (including ESPN, ESPN2, TNT, TBS, CNN, HGTV, Travel Channel, Disney Channel, ABC Family and three others)
• $5 for “Kids Extra package” (Disney Jr, Disney XD, Boomerang, Baby TV, Duck TV) and/or a “News Extra package” (content not defined)
• Works on Amazon Fire TV, Amazon Fire TV Stick, Google’s Nexus Player, select LG Smart TVs, Roku players, Roku TV models, select Samsung Smart TVs and Xbox One.
• Only one video stream can be active at a time (think PandoraOne rules)
• Ability to pause, rewind and fast-forward channels. Unlike the Hopper product, no commercial skipping with Sling TV. Certain channels will have three days of replay content.
• No other Dish subscription required. No credit checks or contract commitments.
There are several interesting aspects of the Sling TV offer. First, there’s a lot of content missing from Sling’s initial package: Comedy Central, Fox News, CNBC, A&E, Discovery, MTV/VH1 and Bloomberg to name a few. In addition, no local broadcast stations. But Sling has ESPN, which has high appeal to the ever-important 18-34 male demographic.
Second, there’s fairly strong support at launch for a variety of devices. Not surprisingly, the words “Apple” and “Sony” are missing from the announcement, and it’s curious that Google chose to support Sling’s efforts with the Nexus Player and not their Chromecast product. Having just converted to Chromecast, I am hoping this is added soon. But Amazon.com, Roku, and Xbox are all supporting, and it’s likely that at least one of these suppliers might take an active role in marketing Sling more aggressively – especially as Sony’s product remains in beta. Microsoft and Dish could become new allies in the battle against Sony.
Finally, the Sling TV offer is dependent on affordable standalone data. Using Comcast’s current promotional rates – $40 per month for standalone Internet with 50 megabits per second speeds vs. $70 for the same product with 140 cable channels – there isn’t a lot of room to create additional value, especially with likely charges for broadcast-channel packages. However, with Comcast raising their modem lease fees to $10 per month, and Time Warner Cable increasing theirs to $8 per month, many single-TV consumers might choose to have their Roku or Xbox One function as their set-top box.
Bottom line: Sling TV won the “Best of CES” award for a reason – they were first. And, as this section’s title suggests, they will set the tempo for over-the-top live TV until one of the major cable TV providers jumps in.
Chairman Wheeler @ CES: Get ready for Title II (and metered home Internet)
The FCC Chairman took the stage at CES in a wide-ranging conversation with CES CEO Gary Shapiro. In the interview, Wheeler disclosed that details of the new and improved open Internet rulemaking would be released on Feb. 5, with a full vote on Feb. 26.
In their conversation, Wheeler described the dilemma between providing open access to innovators while providing the basis for broader and faster network access to Internet service providers. Early last summer, he came to the conclusion that “commercially reasonable” networks could not be provided to innovators using section 706 – known as the “non-Title II” path. At that point, the FCC began to evaluate “just and reasonable” measures, a key term in Title II regulations.
While these seem like subtle changes, they are not. Wheeler clearly understands that the consequences of moving toward Title II will be a combination of: a) increased metered service; and b) decreased competition, particularly in rural markets. Given no incentive to lower prices, cable companies will continue to offer faster speeds, but there will be data caps. These levels might start at 60 gigabytes per household, two-times average DSL usage, today, but, with increased 4K video usage, a 2 GB per-day average could easily be exceeded. With more “synching” occurring with cloud-based services, monthly home data usage for a family of four could easily exceed 80 GB in 2016.
If broadband metering/capping results, the probability of increased facilities-based competition, especially FiOS and U-verse expansion, will decrease and the long-term success of Sling TV – and Netflix, HBO Go, and other OTT services – also will be placed in jeopardy. Cable companies could use a combination of $30 promotional high-speed Internet (capped) rates with medium- to high-data throughput to attract customers, and $10 for 20 GB increments above the initial cap, but increase (or remove) those caps if the customer takes a bundled service. These pricing plan changes will cement the status quo and discourage innovative OTT services.
The details of the FCC rulemaking on the wireless industry are hard to determine at this point. While Wheeler clearly indicated that the new rules would not take the wireless industry back to the days of state tariff filings and ARMIS reports, he failed to articulate how the proposed rules would satisfy congestion at cell sites during peak data hours. He also neglected to provide any details on how current plans that contain offending practices, for example, millions of T-Mobile US Simple Choice plans that throttle after certain monthly data levels have been reached, would be treated. While he did stress “the future of spectrum is in spectrum sharing,” Wheeler knows that the implementation of this practice is three to five years away.
Wheeler showed part of his hand: More regulation today is better than bi-partisan legislation today. Metered solutions are more equitable than today’s unlimited usage. Unbiased network treatment is better than wireless network forbearance. We have to wait for the details, but it appears that the pricing of the Internet is about to change – dramatically – and affordability is about to be jettisoned for the higher cause of neutrality.
Defining rollover
Several wireless carriers used CES and events surrounding the show to announce metrics. T-Mobile US led the parade with the following Q4 metrics.
• 2.1 million total net customer additions
• 1.3 million branded postpaid net customer additions
• 1 million branded postpaid phone net customer additions
• 266,000 branded prepaid net customer additions.
For the full year, T-Mobile US added 4 million branded postpaid phone net additions and 900,000 postpaid tablets. Sprint, by comparison, lost 900,000 total retail postpaid subscribers in 2014, which includes a Q4 gain of 30,000 postpaid subscribers. This leaves approximately 2.7 million postpaid customers between the No. 3 and No. 4 players and sets the stage for a Q2 2015 change in position.
What’s most interesting about T-Mobile US’ growth is that it was not driven by additional price discounts. Their 2.5 GB promotional pricing that drove 1.4 million postpaid phone net adds in Q3 was not revived until Dec. 9. Their most recent promotion, a rollover data plan called Data Stash, was not announced until Dec. 16. and did not take effect until this month. T-Mobile US drove 1 million net additions on the back of the Apple iPhone launch, which includes Wi-Fi calling capabilities unique to T-Mobile US, and churn focus – no other promotions were necessary.
Proving that imitation is the sincerest form of flattery, AT&T Mobility followed T-Mobile US’ Data Stash with their own rollover announcement (see a cheeky article filled with T-Mobile US’ CEO Twitter responses here). While AT&T Mobility provides the rollover allotment to any members in the Mobile Share Value plan, only the unused data from the previous month is available for use. T-Mobile US allows customers to carry over up to 10 GB of data for use over a 12-month period.
Given T-Mobile US’ continued LTE expansion – at the end of the year, they covered 265 million potential customers or about 83% of the U.S. population – their opportunity to gain customers from AT&T Mobility and Verizon Wireless in more rural areas is the greatest. Many of T-Mobile US’ additions will come from increased footprint size – a 5% postpaid phone penetration of an incremental 35 million increase in 2015 pop coverage is 1.75 million or nearly half of their actual 2014 growth. With conversion from AT&T Mobility being as easy as a SIM card swap, it’s easy to understand why their larger competitor is responding quickly.
This year will be one in which T-Mobile US moves to the postpaid “medal” platform and becomes a national LTE network. They will do this prior to implementing any new 1.7/2.1 GHz spectrum (results pending) and without a robust enterprise offering or a connected car strategy. Their equity market capitalization is 45% higher than Sprint’s as of Jan. 9 (according to Yahoo Finance), and they have largely completed the transition from a subsidy-driven to a plan-driven model. This sets up T-Mobile US well for additional inorganic growth in 2016.
Jim Patterson is CEO of Patterson Advisory Group, a tactical consulting and advisory services firm dedicated to the telecommunications industry. Previously, he was EVP – business development for Infotel Broadband Services Ltd., the 4G service provider for Reliance Industries Ltd. Patterson also co-founded Mobile Symmetry, an identity-focused applications platform for wireless broadband carriers that was acquired by Infotel in 2011. Prior to Mobile Symmetry, Patterson was president – wholesale services for Sprint and has a career that spans over 20 years in telecom and technology. Patterson welcomes your comments at jim@pattersonadvice.com and you can follow him on Twitter @pattersonadvice. Also, check out more columns and insight from Jim Patterson at mysundaybrief.com.
