More than mile-high Holiday greetings from Fraser CO, the winter office of the Patterson Advisory Group (and regular greetings from Louisville and Dallas).  As the picture shows, heavy snow is the story of the day/week and that means great ski conditions.  Here’s hoping the proverbial powder is white and the slopes are groomed wherever this Holiday finds you.

Thanks to those of you who sent links to your Holiday reading.  I’ll try to post those as an addendum to last week’s Sunday Brief online post by the end of the month.

Sixty eight Sunday Brief readers sent Top 10 nominations that form the basis for this week’s Sunday Brief.  These events (in chronological order) were determined by you as the most impactful of 2014:

1. (January 8) At the Consumer Electronics Show (CES), T-Mobile announces Early Termination Fee (ETF) buyouts of up to $350 and phone trade-in credits of up to $300. It’s hard to remember a time when T-Mobile’s ETF promotion did not exist, but it’s only been around since January (see T-Mobile’s original announcement here).  It launched a remarkably successful year for T-Mobile (re: T-Mobile added more than 1.3 million branded postpaid customers in Q1 2014) and, because of its jarring impact on family plans, created the spark for AT&T’s launch of their pooled data plans in February (see below).

2. (January 14) Federal Appeals Court overturns the core principles of Net Neutrality.  In an action that caught few analysts by surprise, the US Court of Appeals vacated the anti-discrimination and anti-blocking rules of the Open Internet Order.   The reason for overturning the provisions concerned the Federal Communications Commission’s (FCC) authority to impose these rules based on the 1996 Telecommunications Act (specifically section 706).  This action created regulatory uncertainty for most of 2014.  Both the FCC and the Obama administration worked on separate and, in many ways, opposing solutions to resolve the issue.  This promises to come to a head with the new Congress as they will likely enact legislation to allow the FCC to pursue alternatives that fall short of full Common Carrier (Title II) regulation.

3. (February 1) AT&T introduces revised Mobile Share Plans.  Part of the reason why this action deserves “Top 10” status is that AT&T actually surprised the telecom community with their announcement.  Verizon was especially caught off guard and it showed in their Q1 2014 postpaid net adds (excluding tablets, this figure was negative for VZ; in contrast, AT&T added more phone net adds in Q1 2014 than all of 2013).  In addition to external net additions, AT&T allowed existing customers who were under contract to opt-in to the Mobile Share Plans with no penalties (contrast this with Sprint’s $100 for 20 GB introduced in August which was not as easily extended to their existing customer base and opened the door to increased defections).  While customers’ data rates did not change, the cost to have unlimited voice and text dropped from $40 to $25 or $15/ month depending on the amount of plan data.  AT&T paired this change with significant advertising throughout March, and, as a result, notched their lowest postpaid monthly churn in recent memory in Q2 2014 (0.86%, down 160 basis points from Q2 2013).

4. (February 4) Microsoft announces Enterprise and Cloud Services head Satya Nadella as CEO.  Nearly everyone who submitted a Top 10 list talked about the influence of Satya across the entire software industry.  Microsoft is a different company than it was under Steve Ballmer, who once referred to (competing operating system platform) Linux as a “malignant cancer.” Nadella understands the concept of a software ecosystem.  He is happy with a smaller part of a growing pie.  One of his first actions as CEO was to offer a free version of Microsoft Office for the iPad.  Then he launched a free version of Windows.  Then Microsoft announced a strategic relationship with DropBox, making it as easy to access as Microsoft’s competing product called OneDrive.  Microsoft is finally leading – their strategy shift has driven the company’s valuation to $400 billion by the end of 2014, outperforming Oracle, Google, and Amazon.

5. (February 13) After multiple party discussions with Charter, Liberty, and others, Comcast offers to acquire Time Warner Cable for $45.2 billion.  This accelerated the discussions between DirecTV and AT&T, eventually leading to AT&T’s offer in mid-May to buy DirecTV (see description below).  While many may see Apple’s iPhone 6 announcement as the most impactful event of the year, I think this merger “two-fer” will likely shape the industry more than Apple over the next decade.   Comcast will own nearly every major East Coast market following the completion of the transaction, and the resulting business footprint (now in association with Charter Communications, who will own or run most of the Great Lakes territory) will challenge AT&T and Verizon.  Breaking news: The FCC approval clock has been put on hold again, this time at least until January 12, 2015.  See this story outlining the reason for the delay here.

6. (May 18) AT&T Announces It’s Acquiring DirecTV (and the fun does not stop there). After months of rumors (and against the backdrop of the FCC approving Comcast’s acquisition of Time Warner Cable), AT&T announced that it would buy DirecTV in a $67 billion transaction ($48.5 billion of equity, $18.6 billion of debt).  With this acquisition, AT&T gets NFL content (a key component of the deal), additional domestic and international scale to use in retransmission negotiations, and a strong management team.  Most importantly, the U-Verse network can now be used for data (which is what it was designed to do best).  When we ranked this one of the largest acqui-hires in business history, many of you smirked, but AT&T reorganized the company around the DirecTV acquisition, combining business and mobility units in late August.   Then they turned around in November and announced that they would be purchasing Mexican mobile provider Iusacell for $2.5 billion, building on DirecTV’s Latin American presence.  The NFL Sunday Ticket offering is a great content play, but just a sliver of the content they will need to effectively compete against a combined Comcast/ Time Warner Cable (with Charter and their NewCo cable company in full cooperation).

7. (June 16)  Level3 Announces the Acquisition of tw telecom for $7.5 billion.  One of the great comeback stories of the past two years has been Level3.  Lots of hard work and operational focus have allowed it to grow profitability and, as a result, the stock has more than doubled over the past year (see chart for performance versus tw telecom).  It’s hard to imagine five years ago discussing Level3 making a strategic transaction like acquiring tw telecom with stock (76% of the tw telecom deal value is in LVLT stock).  However, that’s exactly what they announced in June.  More details in this presentation.   Wireline may be boring, but to enterprise and carrier customers who depend on Level3’s network for cost-competitive access, the combined company is critical.  Tw telecom brings 21,800 on-net US buildings and 500 data centers across 76 markets to the equation.  They also bring a lot of enterprise customers.  Between Level3 and Zayo, the wireline center of the United States is firmly centered in Denver, and the value creation by both companies should continue to increase throughout 2015.

8. (June 25 and September 15)  Google announces and launches their Android One initiative.  In contrast to the iPhone announcement (bigger processor, powerful graphics, expanded storage and memory), Google used 2014 to solve the problem of smartphone affordability.  First announced at their annual I/O event, the Android One standard runs stock versions of the Android KitKat (4.4) operating system (Google promises that each Android One device will receive the Lollipop update when the carriers make it available).  Google handles security updates.  They also provide the reference architecture for Android One devices, allowing manufacturers to focus on supply chain issues.  The first devices, announced on September 15 for the India market, had very attractive price points (6399 rupees or $101 at today’s exchange rate – see here for the Micromax product on Amazon India and here for the Karbon product on SnapDeal).  The first devices are manufactured by India-based operators Micromax, Karbonn, and Spice and feature a MediaTek quad-core chipset.  No Qualcomm, Huawei, ZTE in the first batch of Android One devices.  The expansion of Android One throughout South Asia was announced yesterday.  The associated impacts to market leader Nokia and challenger Samsung in India are not yet known, but every expansion enables greater scale for their upstart competitors.  Android One expansion is a trend definitely worth watching throughout 2015. 

9. (August 6) Dan Hesse resigns from Sprint and Board member and billionaire entrepreneur Marcelo Claure takes over.  Sprint was reeling from a failed merger with T-Mobile, network upgrades that were keeping the company current with competition in 1/3^rd of the country (Sprint Spark markets) but behind in others, and a balance sheet that was filled with over $31 billion in gross debt.  It was the right time for Dan to step down, but could Marcelo fill his shoes?  The jury is still out after four months, but Marcelo has done a lot to stem customer defections, cut costs, and create market disruption.  Many of their key executive positions remain unfilled, however, as they head into 2015:  Chief Marketing Officer, President of Enterprise Markets and President – Hispanic and Multicultural Markets.  On top of this, Sprint has ceded the #1 position in prepaid to T-Mobile and will likely lose the #3 position in postpaid in 2015 (Sprint’s postpaid subscriber advantage over T-Mobile was 8.5 million entering 2014 and stood at 4.0 million as of the end of the third quarter).  Sprint’s competitive sustainability will be one of the most important events to watch in 2015.

10. (September 9) iPhone 6/ 6 Plus announced (importance to Wi-Fi). Without a doubt, the iPhone 6/ 6 Plus announcement was one of the key events of 2014. There were few hardware announcements prior to that time (the iPad 4 and some small changes to the pricing of the Macbook Air).  But September more than made up for the eight month drought – two smartphones, the promise of a watch, a new Mac with a 5K Retina display, iOS 8 and Apple Pay created momentum for a blockbuster end to the year (think about it – can you name Apple’s Cyber Monday offering? That’s a good indicator).  On the network side, the iPhone 6 supports VoLTE (which will hasten its adoption), voice over Wi-Fi (which will hasten its adoption, particularly in thick-walled buildings), and payments.  Space does not permit a full evaluation of what these announcements hold for Apple, but this article by Andrew Cunningham in Ars Technica does an excellent job of predicting how Apple will succeed.

We’ll take a break for the rest of the year, but back at it again on January 4 with our CES Preview edition.  If you are headed to CES and want to walk the floor Tuesday afternoon, please send me an email and we’ll do it together.  Until then, if you have friends who would like to be added to The Sunday Brief, please have them drop a quick note to sundaybrief@gmail.com and we’ll subscribe them as soon as we can (and they can go to www.sundaybrief.com for the full archive).

Thanks again for your readership, and have a Happy Holiday and a fantastic 2015!