Only two years after taking the helm at T-Mobile USA, CEO Philipp Humm has resigned, in the continuing fall-out from the failure of the company’s planned merger with AT&T last year. He is joining Vodafone to become chief executive of that operator’s Northern & Central Europe operating region, newly created in its recent restructuring, and will be responsible for markets such as the UK, Germany, Turkey and the Czech Republic. T-Mobile USA chief operating officer Jim Alling will take over as interim CEO while a permanent replacement is found. Ironically, his decision was announced as his firm agreed a spectrum swap deal with Verizon, which ‘ combined with licences obtained as part of the break-up fee from AT&T ‘ could go a long way to making TMo viable, in spectrum terms, as a 4G carrier, the key goal of the AT&T plan in the first place.
Humm took the wheel at the Deutsche Telekom unit in May 2010 when his predecessor, Robert Dotson, quit for ‘personal reasons’. In a letter to employees, reported by Reuters, DT’s CEO, Rene Obermann, said Humm had informed him of his decision in April and was leaving to join a competitor. Some observers blamed the AT&T failure and DT’s continuing quest to find a new solution for its US arm ‘ with a replacement acquirer unlikely to be found, this could involve a spin-off, IPO or joint venture. Humm, known as a turnaround specialist, could still be right person to effect such change, especially as the ultimately disastrous choice to pursue the AT&T deal was not his personal mistake but directed from the parent firm. But he is likely to have grown frustrated with the long stagnation imposed by the regulatory review of the merger plan last year.
Jefferies analyst Ulrich Rathe wrote in a client note: “We have long argued that notwithstanding current measures to stabilize the operating performance (including the roll-out of high speed LTE wireless technology), DT is working towards a strategic solution to the fundamental problem at T-Mobile USA: lack of scale driving sub-par returns. Clearly, working as the CEO of an asset that is subject to such uncertainty would likely increase the attractiveness of competing career options.’
In other words, the ambitious spectrum refarming program and LTE-Advanced roll-out plan, detailed by TMo in recent months, may be more about making the unit attractive to partners or new investors, rather than a genuine decision by DT to pursue its own 4G destiny in the US long term. In either case, the proposed deal with Verizon will be a significant boost.
Although TMo has, until now, led small carrier opposition to Verizon’s proposed spectrum deal with four cable operators, now the two cellcos have reached a truce. Assuming Verizon’s $3.9bn purchase of AWS frequencies is approved by regulators, that will activate a spectrum swap with TMo.
The licences to be swapped cover 218 markets across the US, though financial terms were not disclosed. As well as potentially smoothing the path of Verizon’s deal, it will also boost TMo’s LTE spectrum position. The company already owns AWS frequencies and acquired more as part of the break-up fee, following the collapse of its proposed takeover by AT&T last year. It plans to use AWS as its main 4G band, and to migrate the HSPA+ services which currently live there to refarmed PCS spectrum.
T-Mobile commented on its apparent change of heart about Verizon’s purchase from the four cablecos (the SpectrumCo joint venture of Comcast, Time Warner Cable and BrightHouse, plus Cox). “Prior to these divestitures, we believed the transaction represented an unfair concentration of spectrum in the hands of the nation’s largest wireless carrier,” a spokesperson told FierceWireless. “The significant spectrum divestitures by Verizon announced today are good for competition and consumers.” Verizon has already said it will sell its Lower 700MHz A and B Block spectrum if its cable plans get the green light.
Verizon said the T-Mobile plan includes a number of intra-market swaps which will enable both operators to use AWS most efficiently, as they will ‘create more contiguous blocks of spectrum and realign spectrum in adjacent markets.”
Its new friend said the agreement would improve its spectrum position in 15 of the top 25 markets, adding frequencies to cover 60m POPs in Philadelphia, Washington DC, Detroit, Minneapolis, Seattle, Cleveland and Columbus Ohio, Milwaukee, Charlotte, Raleigh-Durham, Greensboro, Memphis, and Rochester NY. The spectrum it gives up will cover 22m POPs.
Since the exchange will result in an overall net transfer of spectrum from Verizon to T-Mobile, the latter will also make an unspecified cash payment. Verizon already owns significant AWS holdings east of the Mississippi River, and while much of the spectrum it will get from the cable firms will be further west.
The TMo deal will require FCC approval and, although technically this is likely to be considered separately from the cableco/Verizon proposals, it will clearly influence the perception of those.
The AWS licences TMo gained as part of its $6bn break-up fee from AT&T cover 128 markets, including 12 of the top 20 – Atlanta, Boston, Baltimore, Dallas, Denver, Houston, Los Angeles, Phoenix, San Diego, San Francisco, Seattle and Washington DC. ‘This is good for T-Mobile and good for consumers because it will enable T-Mobile to compete even more vigorously with other wireless carriers,’ said Humm in a statement.
T-Mobile is not the only carrier frustrated with delays and uncertainties in its 4G strategy, while Verizon and AT&T leap ahead. Sprint has given its investors plenty of cause for nervousness about its 4G plans, first taking an early risk on WiMAX and then announcing a complex migration to LTE in refarmed spectrum, all spiced up by turbulent relationships with network partners like Clearwire and, for a while, LightSquared. Now it is Sprint’s vendor relations which are in the spotlight, driving the carrier’s share price to its steepest decline in two months on Monday. This was sparked by news that the carrier had taken back 250 employees which had previously been transferred to its managed services provider Ericsson, raising doubts over possible hitches in Sprint’s roll-out of its ambitious Network Vision strategy.
Ericsson is one of three key suppliers to Network Vision, a platform which will support multiple network technologies in different bands on the same infrastructure, and also potentially host third party RANs. But the Swedish giant’s relationship with Sprint goes further than that of its fellow vendors, Alcatel-Lucent and Samsung, as it also has a major outsourcing agreement, signed three years ago.
Investment research firm Detwiler Fenton raised fears that the transfer back of 250 staff ‘ assigned to Ericsson to plan and oversee the network – might signal problems for this critical alliance. It called the change a ‘black eye’ for the vendor and a sign that Sprint is finding it difficult to coordinate a project which is vital to its future. Already, it is playing catch-up with Verizon’s and AT&T’s LTE roll-outs, though the cellco insisted to Bloomberg that its 4G schedule was unaffected ‘ LTE is set to go live in six major cities by mid-year.
A spokesperson said that Sprint and Ericsson had decided it was better to move the engineers and network personnel back to Sprint for better strategic control of the ongoing network expansion. ‘Because of the significant change in requirements, Sprint and Ericsson partnered to review the original business model and, together, determined that selected network planning and engineering functions, currently with Ericsson, should be transferred back to Sprint,’ said the operator’s representative.
Of course, rethinks are de rigeur in major managed service deals, and carriers rarely find undiluted advantages in outsourcing (about the time that Sprint and Ericsson were getting together, AT&T was pulling back a large number of staff from various partners to reassert control of key operations). However, the change at Sprint comes at a bad time, given the existing doubts over the carrier’s strategies, especially its massive commitment to the iPhone and the complexities of its on-off relationship with its Clearwire joint venture.
Publicity about the changes will also be unwelcome at Ericsson, the largest provider of carrier managed services. The seven-year contract with Sprint was a turning point, establishing the Swedish firm ‘ along with its LTE wins at Verizon and LTE ‘ as a major force in the north American market, a weak spot prior to its acquisition of many Nortel assets. The deal involved about 6,000 Sprint employees in total, which puts the recent reassignments into some kind of perspective.
Under the agreement, Ericsson assumed responsibility for the day-to-day services, provisioning and maintenance of its customer’s CDMA, iDEN and wireline networks, as well as the planning and running of network expansions. It is this last, highly strategic element which is now being questioned as a result of the profile of the employees returning to Sprint. The deal has been seen as yet another example of Sprint’s maverick reputation, since the US carriers have generally been far more resistant to outsourcing networks than their peers elsewhere.