October greetings from Charlotte/ Davidson/ Lake Norman where morning temps are reminding us of fall’s arrival.  This week’s picture is of a cell tower upgrade (we assume 2.5 GHz T-Mobile equipment) that occurred October 1.  That’s one big crane… 

This week, we will touch on several developments with a special focus on Apple’s iPhone 12 announcement.  The news cycle is full of FCC clarifications on Section 230 and arguments surrounding Verizon’s use of Dynamic Spectrum Sharing (DSS) in their new 5G network.  We will also offer our first impressions of T-Mobile’s Home Internet service which is now the exclusive provider to the Patterson household. 

Before moving on to the market summary, many thanks for your comments on last week’s AT&T column.  It’s good to know that we were not alone in our sentiments; many of you actually challenged us to turn up the volume.   

The Week That Was

The Fab 5 continued to come back this week, adding more than $151 billion (a little over one T-Mobile) in market capitalization.  Most of the gains were in Apple (+$50 billion), Alphabet (+$44 billion) and Microsoft (+$39 billion).  Our presumption is that Alphabet and Microsoft are driven by increased earnings estimates, and that Apple’s gain is a combination of their announcement (discussed below) and increased earnings estimates.  Interestingly, in a “sell on the news” event, Amazon Prime Days were not market-moving (although we agree with many analysts – one article here – that this might have pulled some Holiday sales forward as opposed to generating the originally intended incremental sales lift). 

The Telco Top 5 had one of their steeper drops in recent weeks, losing $12 billion.  A little over half of that (-$7 billion) was AT&T, driven in part by some solid analysis by Craig Moffett that Ma Bell may have to go deeper into debt to remain competitive in upper-mid band spectrum.  His analysis of pension obligations, operating leases and deferred tax liabilities shed additional light on the company’s woes.  AT&T announces 3Q earnings next Thursday (Verizon on Wednesday), and many expect to see a widening of wireless market share gains for Verizon and T-Mobile. 

The big event of the week was Apple’s iPhone and Home Pod mini announcements on Tuesday (full video here).  The full lineup is shown below: 

On top of designing global 5G networks into every iPhone (no small feat, especially with the new MagSafe feature), Apple also upgraded the camera and screen and introduced a “mini” version of the iPhone 12.  And, with the removal of ear buds and a charger, the starting price of the iPhone 12 is the same as last year’s iPhone 11. 

Before going into the most important feature of this device, however, it’s worth answering the question on many minds “Why should I care about 5G?”  One area that is frequently cited is screen resolution.  The iPhone 12 has a 2532×1170 pixel resolution (460 pixels per inch or ppi), a big improvement over the iPhone 11’s 1792×828 pixel resolution (326 ppi).  But even with this improvement, a 20 Mbps LTE video stream would deliver more than enough bandwidth to maximize picture clarity.  It’s hard to remember, but the fact that networks were delivering “too much” bandwidth to the device drove the introduction of T-Mobile’s Binge On program and eventually the default level of Standard Definition video streaming (480p).  If you are on a decent network in a metro area, the chances that you will receive a crisper picture from 5G than you would receive from LTE are slim (and that assumes that the app is smart enough to deliver HD or higher bandwidth to the device). 

This brings us to the most important (and intriguing) feature of the iPhone 12 lineup:  Smart Data mode.  This feature looks at the applications function (video, gaming, email, messaging, location, etc) and decides whether the 5G network is needed – the default is not 5G, but LTE if our understanding of the video is correct (the feature is discussed around minute 26 in the link above).  It does not appear to be a user-controlled function (e.g., you cannot turn on/off through the Settings app). 

The reason most frequently cited for Smart Data mode is battery conservation, which makes sense.  One can only remember back to Sprint’s disastrous launch of the Palm Pre to understand how an overclocked processor can deplete battery life in a matter of minutes.  Simply put, less use of 5G (particularly millimeter wave or Hi-Band 5G) means longer battery life.   Here’s how Apple described their applications optimization process during the announcement:   

“We analyzed our entire software stack down from applications down to firmware to take advantage of 5G speeds.  For example, we optimized iOS frameworks so apps can get the benefit of 5G without using more power.  5G makes iPhone faster. 

We also made 5G smarter with Smart Data mode.  When your iPhone doesn’t need 5G speeds, it automatically uses LTE to save battery.  But the instant 5G speeds do matter, iPhone starts using it.”  

Smart Data mode begs the question “When will 5G be needed?”  As we discussed above, most streaming will not need 5G.  Why will FaceTime need 5G?  Will Apple be able to determine the model number of (video) called party to see if both parties have 5G capabilities?  Will gaming need 5G (all games or only those through the Apple Arcade)?  5G latency definitely presents an advantage in some gaming conditions.  Will the download of a high resolution medical scan require 5G?  Possibly, but viewing an x-ray on an iPhone 12 Pro Max (versus an iPad Pro) is definitely an edge case. 

The bottom line is that Smart Data Mode puts Apple in control of network routing in a similar manner to how YouTube as an application determined the display resolution of any particular video.  Apple could, theoretically, cause one application to work differently for one carrier (e.g., T-Mobile) versus another (Verizon).  Smart Data Mode puts Apple in charge of the carrier experience, answering the question “When will 5G be needed?” That puts a lot of power in Apple’s hands and should raise the eyebrows of every carrier.  

Verizon’s 5G Announcement:  Dynamic Spectrum Sharing to the Rescue! 

The Apple announcement prominently featured Verizon as the paragon of what 5G can be.  Hans Vestberg, Verizon’s CEO, used the announcement to unveil 5G Nationwide, a separate and distinct network from Verizon’s millimeter wave-based 5G Ultra Broadband, that uses a technology called Dynamic Spectrum Sharing. 

While this network is currently available to 200 million people, it appears that Verizon will be expanding this quickly to cover the entire country.  Their announcement prompted a rather interesting graphic from Neville Ray at T-Mobile (one frame of which is nearby – the Tweet with video is here). 

While T-Mobile raises a good distinction between their 5G network design and Verizon’s, there’s no conclusive evidence from either the OpenSignal or RootMetrics recent results that less mid-band spectrum has slowed down Verizon’s network.  We are frankly surprised that of the 53 markets tested by RootMetrics, T-Mobile has zero metro wins (including traditional strongholds such as Jacksonville) while Verizon has outright wins in 51 (tied with AT&T in the remaining two).  While DSS is likely not a long-term strategy, it might be a decent bridge between today and a C-Band world. 

Initial Impressions of T-Mobile Home Internet:  Pretty Darn Good!

When T-Mobile announced that they were expanding their Home Internet footprint to the Charlotte/ Concord/ Gastonia area (see last week’s comments), we raised our hands to put it to the test.  Here are our overall thoughts on the service after five days of use: 

1. The out-of-box-to-service active experience took less than 15 minutes.  Provisioning was easy, and, while there are a few small instructions that need revision (e.g., the screws to secure the battery cover were in a separate plastic bag, not already secured to the router), the overall experience was no harder than installing a Wi-Fi access point.  The Gateway/ router reminded me of my old Sprint ION hub (a subtle way of saying it could use a redesign), but it’s free with the service. 
2. T-Mobile missed a big opportunity to use the provisioning app to capture credit card information (I am not a T-Mobile wireless customer and received a paper bill a week later).  They also missed the opportunity to provide more information on speed history and overall usage (even with no data caps, this information could reaffirm).  I think the app could also be used to provide testimonials and feedback (perhaps a speed test?). 
3. We are running all of our connected devices over the Home Internet Gateway (we literally plugged the cord that was going into our Spectrum cable modem into the back of the T-Mobile box).  This connects to our Google Wi-Fi access point, our LG 4K Smart TV, and, through a Wi-Fi Roku connection, to our HDTV in a nearby room.  We saw no service deterioration while streaming to both TVs, smartphones, and two laptops (many Zoom/ WebEx/ Teams meetings this week).  We had one Roku “your connection appears to be slow” message the entire week but had no pixilation, lack-of-connection, or other issues. 
4. Our speeds (using fast.com as our testing source) were consistently between 45-60 Mbps downstream, and 10-20 Mbps upstream – decent for an LTE wireless router and far better than what we could get from AT&T on our street (one of the many questionable decisions AT&T made was to keep most of Lake Norman on DSL and cede the broadband market to Spectrum).  With an effective monopoly, Spectrum has been slow to augment capacity on our street, and after 4 p.m. we often need to move our conferences to audio-only.  That will change with T-Mobile’s service. 

Bottom line:  For two stay-at-home working professionals (with up to six connected devices), this is a money-saving product.  T-Mobile could do a much better job promoting the product (although they appear to have underestimated initial demand) and improving information through the app.  Overall, however, the service is steady, consistent, and a good harbinger of what a 5G hub will look like.  If I were AT&T or Windstream or Consolidated or Frontier, I would be concerned about this $50/ month taxes and fees included product.

Chairman Pai Speaks Out on Section 230

It has been quite a week for Facebook and Twitter as pre-election rhetoric heats up.  This includes calls by President Trump and former Vice President Joe Biden to revise Section 230 of the Communications Decency Act of 1996.  Here’s what Section 230 says: 

“No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider” 

This section was added to clearly delineate between distributors (at that time they were called bulletin boards) and publishers (the sources of the content).  Like many pieces of 1990s legislation established to encourage the growth of the Internet, section 230 of the CDA became a keystone provision of many social media companies. 

Last Tuesday, Supreme Court Justice Clarence Thomas penned some additional thoughts on this section (see here for full comments which start on page 12), which include a bit on the history of the legislation.  About midway through his comments, Justice Thomas raises an interesting point: 

“Courts have also departed from the most natural reading of the text by giving Internet companies immunity for their own content. Section 230(c)(1) protects a company from publisher liability only when content is “provided by another information content provider.” (Emphasis added.) Nowhere does this provision protect a company that is itself the information content provider. See Fair Housing Council of San Fernando Valley v. Roommates.Com, LLC, 521 F. 3d 1157, 1165 (CA9 2008). And an information content provider is not just the primary author or creator; it is anyone “responsible, in whole or in part, for the creation or development” of the content. §230(f)(3) (emphasis added).”

Thomas then goes on to suggest that companies like Twitter and Facebook (and perhaps Google and Microsoft through search results), because of their algorithms that create “trending” or “top of news feed” results, are creating content (the trending list and the news feed sequence).  While the nuances of the algorithms are unknown but to a select few within these companies, Justice Thomas’ point that perhaps legislative clarification is required is valid. 

The Section 230 rhetoric came to a head at the end of this week when Justice Pai issued a news release on the topic (here).   Chairman Pai ends the note with the following statement: 

“Throughout my tenure at the Federal Communications Commission, I have favored regulatory parity, transparency, and free expression. Social media companies have a First Amendment right to free speech. But they do not have a First Amendment right to a special immunity denied to other media outlets, such as newspapers and broadcasters.”

Our opinion is that the legislative process needs to be lead on (and accountable for) any changes to Section 230, and the time is ripe to revisit and clarify the role social media companies and search engines play in the news cycle.  This legislation needs to be balanced with the deflation that occurs when every decision hinges on the litigious question “Will I be sued if I allow this post?”  There needs to be a balance, and, in our opinion, more “buyer beware” responsibility placed on an already media-skeptic public. 

On that light note, we look forward to returning to core earnings analysis with AT&T and Verizon earnings next week.  Until then, if you have friends who would like to be on the email distribution, please have them send an email to sundaybrief@gmail.com and we will include them on the list (or they can sign up directly through the new website). 

Stay safe, keep your social distance, and Go Chiefs!