One of the landmark US telecoms deals of last year, between Verizon and three cable operators, is over. The telco has dissolved its joint venture with Comcast, Time Warner Cable and BrightHouse Networks, though the firms will continue to cross-sell one another’s services in areas where Verizon does not have landlines.
The original alliance, announced in late 2011 and finalized in mid-2012, was far-reaching in scope and had the potential to reshape the US competitive landscape. In return for Verizon acquiring AWS spectrum from the cablecos for its LTE expansion, the partners would build fully integrated services based on that 4G mobile network plus cable and fiber internet/TV. This would help Verizon Wireless expand its reach in valuable quad play markets, and give Verizon a quad play offering (cable + mobile) in the areas where it had no fixed line territory.
The close cooperation was a cause of concern to consumer groups, concentrating further power in the hands of the big two telcos. Indeed, the deal was, at the time, a masterstroke against AT&T, whose own big deal, to acquire T-Mobile USA, was blocked by regulators after distracting the larger operator’s attentions for a year. Verizon’s move did not involve outright acquisition, so faced a lower regulatory bar despite the threat that it would significantly reduce competition in triple and quad play services.
Now, what remains of the alliance is a far more limited cross-selling arrangement and some of the cable firms may still retain individual MVNO deals with Verizon Wireless in order to offer mobile services. Verizon said the JV was broken up in August because recent technology advances are enabling both sides to offer integrated wireless/wireline services without the need to cooperate so closely.
One aspect of that is certainly Wi-Fi. Since the original deal was conceived, the main focus of cablecos’ attempts to add wireless aspects to their portfolios has increasingly become Wi-Fi, perhaps so they can create a network they can control, after their difficult relationships with successive cellco partners, Sprint/Clearwire and then Verizon Wireless. These three operators, along with Cablevision and Cox, are investing heavily in networks of Wi-Fi hotspots, supporting seamless roaming across each others’ locations. This has resulted in a huge US-wide network of over 100,000 hotspots, under a single Cable Wi-Fi brand, and this could be significantly increased by the inclusion of ‘homespots’ (subscribers’ residential access points, with some of the capacity left open for passers-by to use).
However, the alliance was not just about integrating different access methods to give Verizon a national landline footprint and the cablecos a mobile offering. It was originally more ambitious than that, including a project called Nuon which included development of new online services and of dedicated hardware for content streaming. The R&D partnership dies along with the more prominently discussed marketing tie-up. Its centrepiece would have been a platform to compete with over-the-top content providers, using a streaming and media-shifting device similar to Roku’s. That was due to launch by the end of this year, and it remains to be seen whether either of the main protagonists, Verizon or Comcast, will still go ahead with the project.
This would be something worth saving, and unlike the sales and marketing pacts, could unleash new services and increased competition in the US content market. As GigaOM points out, a trademark filing, registered under a shell company name earlier this year, described Nuon as a platform for ‘delivery of content via wireless and wireline devices, providing access to content via wireless and wireline devices; wireless communications services; communications and information services, namely, transmission of voice, data, images, audio, video, information and other content via a wireless or wireline network.’
This would have been a vehicle to cross-promote content and sign exclusive deals with providers, tempting them with the combined base of Verizon and the three cablecos. The hardware itself was said to have been made by Huawei and would have focused heavily on content sharing between a user’s various devices, and with those of friends.
Such products are still likely to appear separately from Verizon and Comcast, and the latter may well contribute its platform to its Cable Wi-Fi partners, further developing the idea of a harmonized national quad play service delivered by these territorial players. That would significantly increase their ability to compete with the national telcos, Verizon and AT&T, and ‘ if the resulting box and content deals are strong enough ‘ with the OTT majors. It is better for US consumers that a national cable venture, even informal, competes with the big two, rather than working with either of them. As Verizon takes full control of its wireless arm and starts to build out the AWS spectrum it won from the initial pact, it is more than capable of standing on its own quad play feet now.
Its most immediate challenge is to maintain its headstart in LTE as AT&T accelerates its own build-out and Sprint and T-Mobile come up behind, the former with the benefit of new majority owner Softbank’s expertise and deep pockets.
On its results call, in which Verizon said it had added 1.1m net new wireless subscribers in the third quarter, CFO Fran Shammo focused heavily on LTE expansion and new services ‘ rather than engaging in a battle of 4G speeds, as its competitors have been trying to do. Shammo pointed out, rightly, that top speeds will change as networks become fully loaded and capacity is more important to overall experience. To this end, Verizon is already adding AWS spectrum to its initial 700MHz network in dense urban areas such as New York and Chicago, to upgrade to 2x20MHz of 4G capacity. “We’re building the network for a consistent, reliable experience,” Shammo said. “Our network engineers designed the network for when it’s fully loaded.”
Users of AWS test networks have reported speeds of 80Mbps on some of Verizon’s seed devices, but of course these will fall when it is loaded up, though they will be higher than the 5-12Mbps average which Verizon advertises for its current LTE services. Chief network officer Nicola Palmer has said that the cellco will deploy 5,000 AWS sites this year and far more next year. This will mainly be achieved by adding AWS antennas to existing sites. Later, Verizon will deploy LTE-Advanced features such as carrier aggregation where necessary to boost capacity further by tying together AWS and 700MHz.
The 700MHz network is loading up quickly, and now accounts for 64% of Verizon Wireless’s data traffic, even though it has only 38% of the customer base. That means the roll-out is shifting from coverage ‘ Verizon has matched 99% of its 3G footprint now, reaching 303m POPs or 97% of the population ‘ to capacity for increased usage and new services. Shammo believes the company has enough spectrum for 3-4 years, with the AWS reserves and the prospect of refarming 3G frequencies as subscribers move away from CDMA. The cellco is also starting work on improving cell site density and in-building penetration with technologies like small cells and DAS, mirroring AT&T’s more public roadmap in this regard. Both rivals are also hinting at their first VoLTE offerings and handsets in late 2013 or early 2014.
It is not just Verizon which is turning to fatter LTE pipes to boost capacity and speed. Latecomer T-Mobile is now live in 223 markets and 91% of major metro areas, and says it will cover at least 200m POPs by year end. It is now moving denser markets to fatter 2x10MHz channels, rather than 2x5MHz, as TMo refarms more of its AWS frequencies, which it initially, and idiosyncratically, used for 3G. CTO Neville Ray says the upgraded bandwidth will be available in 100 markets, including 90% of the top 25 cities, by the end of the year. Ray is also looking towards 2x15MHz and 2x20MHz channels in some areas from 2014 and has tests of the latter running in the labs.
This echoes the plans of all big four cellcos to boost their capacity to the limit before they are able or willing to buy new airwaves. Sprint CTO Stephen Bye told a recent conference that there was ‘no silver bullet” to handle the explosion of mobile data, but carriers would need to use a whole menu of techniques. “We’re going to have to push the envelope in every direction,” he told the PCIA wireless infrastructure conference. The pressure is particularly heavy on Sprint, which has staked its competitive edge, for now at least, on being the only major to retain unlimited data plans rather than tiered pricing. Among the tools mentioned by Bye were carrier aggregation (the firm has LTE in 800MHz, 1.9GHz and Clearwire’s 2.5GHz bands) as well as higher-order MIMO and CoMP (coordinated multipoint) to boost spectral efficiency at the cell edge.
Sprint is building out its 800MHz spectrum, freed by the shutdown of iDEN, and its 1.9GHz PCS band, while it will also tap into its Clearwire unit’s TD-LTE. By the end of the year, it aims to cover 200m POPs with the 1.9GHz network and expects to launch TD-LTE on 5,000 Clearwire sites in the same timeframe, expanding that to all of its 38,000 Network Vision cell sites starting next year. Having a combination of TDD and FDD spectrum helps support asymmetric data traffic patterns and, according to Bye, ‘all three bands are much greater than the sum of the parts’, despite the complexities of roaming, device procurement and aggregation with this unusual set of frequencies.
Among the advantages of the Softbank tie-up will be better access to the multimode TDD/FDD ecosystem ‘ Softbank has both forms of LTE in Japan too; greater weight in device negotiations; and access to its new parent’s cutting edge R&D in areas like small cells, Wi-Fi integration and Cloud-RAN. Bye said Softbank was helping his team explore the benefits of C-RAN architectures for reducing cost of data delivery and supporting dynamic resource allocation and interference management, plus better cell edge performance and spectral efficiency.
Despite all these advantages, Softbank is still keen to manage expectations and is clear that Sprint has a lot of catching-up to do with the big two telcos. Verizon CEO Lowell McAdam boasted recently that his LTE network was 3-4 years ahead of Sprint and T-Mobile and a year ahead of AT&T. CEO Masayoshi Son, predictably enough, does not go along with the 3-4 year figure, but does peg Sprint’s turnaround at two years.
He recently told Japanese reporters that Sprint would not deliver a major rebound in subscriber growth any time soon. He said: “It took around a year after SoftBank bought Vodafone [Japan] before we reached the number one position of net gains in subscribers. It takes time to get devices ready and prepare services and the network. At the very least you need half a year or a year. And for anything substantial you need one or two years.” This reinforced the gloom of investors who had hoped for a quick recovery. Before Son’s comments, analyst Jonathan Chaplin of New Street said he now expects a Sprint network revamp to take longer than previously expected and to come with “significant” additional expenses.
Softbank makes more acquisitions:
Softbank is still digesting its purchase of Sprint, but that will not be its only acquisition this year. The Japanese operator is also snapping up a tablet gaming firm and a device distributor as it looks to create a more global business with diverse mobile-related revenue streams.
The company has invested about $1.5bn for a 51% controlling stake in Finnish games developer Supercell, which will become part of Softbank’s mobile gaming unit GungHo.Although Supercell will become a subsidiary of the Japanese firm, it will continue to operate independently and maintain its headquarters in Helsinki, with co-founder Paananen remaining in place as CEO.
Paananen pointed to the advantages of ownership by a Japanese firm, benefits which should accrue to Sprint too. He said: ‘SoftBank is all about the long term. In fact, I have never met anyone who thinks as long term as its founder, Masayoshi Son, does. When we first met, he told me he has a 300-year vision, and I thought he was joking until the following day when he ran me through what it actually looks like and it is indeed very real and extremely inspirational. When you meet someone like Masa you realize what it takes to build a global business that will last forever’.
Softbank has also confirmed that it is in talks to take a stake in US wireless device distributor Brightstar. The Japanese Nikkei newspaper had reported that the operator could pay as much as $1bn for a majority share. A motivation might be to increase Softbank’s global handset buying power, something it said was a key attraction of the Sprint deal. “The volume effects and bargaining effects should begin to emerge in handsets in about six months to a year,” CEO Son said recently. Indeed, recent reports said Softbank planned to create a specialized joint venture, to incorporate Brighstar and also Sprint, called BIG (Buying & Innovation Group). This would be a “buying entity” for member companies, according to a leaked internal memo, and would be led by Fared Adib, until recently Sprint’s SVP for product development, but who was replaced in the cellco’s recent executive reshuffle.