Yuletide Greetings from Paris, Austin, Dallas, and Fraser (Colorado – moose neighbors pictured).  Like many of you, the Sunday Brief HQ has moved to the Rocky Mountains to close out the year.  Due to the exceptional snowfall, this Sunday Brief edition was delayed.  Our apologies – your loss was our powdery gain.

To aid in brevity, we have split the Top 10 list into two groups of five (the second part will be published on the 27^th).  They are in no priority order, and I am sure that I missed some that you might have added to your list (it’s hard to believe, for example, that Sling TV is less than a year old and that the Comcast/ TWC merger remained a possibility at the end of 2014).  Each of these events, however, impacted (and will likely continue to impact) the communications landscape.

The Sunday Brief Top 10 List (Part 1)

1. FCC Approves the Open Internet Order. (An excellent summary
   

   FCC Chairman Wheeler

   from Kelly Drye & Warren LLP is here). In a partisan 3-2 vote, the FCC approved the Open Internet Order which classifies wireline and wireless providers as utilities and makes them subject to Title II regulations.    We commented extensively on the impact that this will have on the carriers as they face “unjust and unreasonable” charges from Internet Service Providers as well as end user customers.  One positive effect of the FCC’s ruling was an increased focus on carrier-to-carrier interconnection.  Thanks to the efforts of COMPTEL and others, there’s more certainty about terms and the escalation policies.  It is not known if the FCC has had to mediate any of the negotiations to date, but there have not been the showcases that many anticipated.

As we discussed in last week’s column, Judge Tatel is interested in the dynamics leading up to the FCC’s decision.  It’s unlikely that this motivation results in the the entire Order being overturned, and it’s not clear if there is enough momentum even to take out wireless restrictions.  What is clear is that legislative change is needed, and that’s very unlikely in an election year.

2. Verizon Buys AOL and launches Go90 (Original announcement here. Great multi-part article on the formation of Go90 from Fierce Wireless here).  While a $4.4 billion acquisition seems small compared to some of the other transactions regularly discussed in this column, Verizon’s May  announcement signaled something bigger:  We will do whatever it takes to shake up the content and cable worlds.

 That strategy seems to be headed in right direction, albeit slowly.

According to the analytics site App Annie, Go90 is currently (as of Dec 19) ranked as the 275^th most downloaded app for iPhones overall and ranks 23^rd in the entertainment sub-category.   It has reached as high as 110^th and 10^th for these categories, respectively. Go90 is not faring well for iPad (which is understandable given Verizon’s current marketing messages).  While Netflix, Hulu, HBO, PlayStation, Amazon, and Chromecast apps are currently beating Go90 in the Entertainment sub-category, they are currently leading Xfinity,  Xbox One, Roku, DirecTV, CBS, ABC, Redbox and Crackle.

Interestingly, Go90 is performing much better on the Google Play store, scoring a 68^th for overall applications and 6^th overall in the Entertainment sub-category (both figures as of December 19).  Hulu and Netflix still beat out Go90, but it is faring much better on Google Play than iOS.

Verizon’s foray into media distribution costs less than many infrastructure initiatives, but requires constant refreshing.  The verdict is still out on Verizon’s ability to change into a “content culture” but the initial results are encouraging.  As we will highlight in the next section, their strategy is markedly different from AT&T.

3. AT&T Expands Into Mexico (analysis from Fierce Wireless here). When we wrote about this in June, we titled the column “Hablamos Su Lengua.”  Even by AT&T’s high internal standards, their entry into Mexico has been a success (and, if Mexican billionaire Carlos Slim’s net worth is any indication, things don’t look bright for the incumbent operator).  As AT&T announced this month, they are going to achieve positive postpaid and prepaid net additions in the fourth quarter.

Glenn Lurie (AT&T’s Mobility President) and Randall Stephenson (AT&T CEO) talked about their success at separate investor conferences in December.  From a customer experience perspective, the goal to “make it as seamless for mobile customers to travel from New York to Mexico as it is today to travel to New Mexico” is very ambitious.  Adding a Mexican resident to an AT&T Mobile Share Value plan sounds easy, but you have taxation, real time rating, and notification issues.  Business plan seamlessness (which is barely seamless between AT&T broadband and wireless today and grows in complexity with business size) is even more challenging.

One additional indication of the impact of AT&T’s entry into Mexico was T-Mobile’s preemptive   Mobile Without Borders campaign which launched in July 2015 (announcement here).  This solved the pain of travel to Mexico, but does not solve the issue for Mexican wireless customers traveling from Mexico.  That’s where we’ll see AT&T’s growth in the fourth quarter, and why their Mexico investment should be one of Ma Bell’s best.

4. T-Mobile’s Unstoppable Success. If we were to summarize 2013, it would be the year of “T-Mobile Gets the iPhone.”  For 2014, it would be “T-Mobile Challenges the Industry – And Wins.”  For 2015, it would be “T-Mobile Remains Unstoppable.”  Let’s look at a few figures using the last four quarters (Q4 2014 – Q3 2015):

 

– 3.6 million branded postpaid phone customer net additions

– 4.5 million total branded postpaid net additions

– 1.1 million branded prepaid net additions (nearly all are phones)

– 1.45% average monthly postpaid churn

– 4.76% average monthly prepaid churn

– $6.9 billion in adjusted EBITDA

– $4.6 billion in capital expenditures

– Total debt increase of $200 million (0.8%)

In 2015, T-Mobile extended 2014’s gains and overtook Sprint as the #3 US wireless carrier as measured by subscribers.  Interestingly, most of these gains have come through phone additions (a lot of new iPhones and Samsung Galaxy S6 devices in the fourth quarter alone).  T-Mobile focused on phones because that’s where they can earn the greatest value for their marketing dollars.  Would their Mobile Without Borders campaign have been successful if it had been diluted with a cross-border tablet offer?  Concentrating on phone-based plans made their marketing more effective and broadened their appeal.

2015 is probably the last year that T-Mobile will be able to be laser-focused.  As we have written in the past, the next 5-10 million of net add growth is going to be harder for many reasons:  Sprint’s network is finally achieving data parity in many markets, AT&T is grabbing more share through their Cricket brand than anyone expected, and Verizon is on a brand advertising binge that will be accompanied by some sort of Go90/ sponsored/ prioritized data in 2016.  As we discussed in an early 2015 column, T-Mobile also achieved gains from LTE expansion.  This “new market” effect (similar to the “new store” vs. “same store” sales argument in retail) will be markedly less in 2016.

T-Mobile’s next great opportunity is business.  They are the market leader in Wi-Fi calling (We urge you to try it – the staff has been using it at our Colorado HQ and the call quality is exceptional), and this alone could disrupt the small and medium business landscape.  Their first year of business offerings could best be described as “meh.”  A partnership with Comcast or Level3 (specifically the unit formerly known as tw telecom) would vault T-Mobile into a leadership role.

5. Nokia Buys Alcatel Lucent for $16.6 billion. We do not spend a lot of time analyzing equipment providers, except when it relates to their ability to further technology (such as DSL vectoring capabilities for AT&T U-Verse), or the bigger transformation that is occurring as carriers such as AT&T seek to separate equipment operating software from their underlying hardware (called Software Defined Networking or SDN).  However, when Nokia announced the acquisition of Alcatel Lucent in April, nearly everyone in the telecom community took notice.

Nokia is betting that their broad base of solutions (read: leveraging of lots of R&D and patent portfolios) will increase their penetration with US wireless and wireline carriers.  There appears to be enough merit to this argument to cause Cisco Systems to forge their own strategic alliance in November (announcement here).  This also led to speculation that Samsung was going to exit the US market for networking services – a rumor that was quickly denied by the South Korean conglomerate.

Equipment manufacturers have struggled to find a source of sustainable value creation over the past decade.  The logical result, especially in a low global interest rate environment, is increased M&A activity.  As SDN and its closely related cousin Network Function Virtualization (NFV) begin to be broadly adopted, the value proposition of intelligent hardware is at risk.

That’s it for this week.  On the 27^th, we’ll publish the remainder of the Top 10.  Until then, please invite one of your colleagues to become a regular Sunday Brief reader by having them drop a quick note to sundaybrief@gmail.com. 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 Happy New Year!